AIST Policy News - 20 April 2018

AIST Policy News - 20 April 2018


Member outcomes test must prioritize net returns

AIST has broadly supported APRA’s focus on improving outcomes for super members.

Our submission to APRA, argues that that any member outcomes assessment must give primacy of focus to long-term net returns, backed with the provision of quality outcomes by RSE licensees. The assessment must also accommodate tactical investment options such as cash.

AIST also notes that without uniform disclosure, the proposed member outcome reforms will not meet their stated objectives. We also call for clarity regarding the interaction between these regulations and pending legislative reform.


Govt strengthens penalties for corporate misconduct

The Government today announced it is strengthening criminal and civil penalties for corporate misconduct and boosting the powers of the Australian Securities and Investments Commission (ASIC).

These stronger new penalties – which were in the pipeline before the Royal Commission was launched and relate to recommendations made by the ASIC Enforcement Review Taskforce -  bring Australia’s penalties into closer alignment with leading international jurisdictions.

AIST – which has made several submissions relating to the taskforce recommendations – welcomes the new penalties whilst recognising more needs to be done to protect consumers from misconduct.

The new penalties include:

  • For individuals: 10 years’ imprisonment; and/or the larger of $945,000 or three times the benefits;
  • For corporations: the larger of $9.45 million or three times benefits or 10% of annual turnover.

The Government has agreed, or agreed in principle, to all 50 of the Taskforce recommendations and will prioritise the implementation of 30 of the recommendations.

The remaining 20 recommendations relate to self-reporting of breaches, industry codes and ASIC’s directions powers, which will be considered alongside the final report of the Royal Commission.


Call for ASIC to clarify AFCA disclosure requirements

Ahead of the proposed November start date of the Australian Financial Complaints Authority (AFCA), AIST has called for ASIC to clarify disclosure requirements for funds.

AIST’s submission notes there is very tight timeline for funds to update their communications materials.

AIST roadshow to help funds prepare

To help funds prepare for the AFCA transition, AIST is conducting a roadshow with the Chair of the Superannuation Complaints Tribunal, in Melbourne on 9 May and in Sydney on 21 May. The roadshow will include a briefing by Ms Davis and Q and A session on what you need to consider. Click here to learn more.


APRA flags tighter standard on executive remuneration

The Australian Prudential Regulation Authority (APRA) has released the results of a review of remuneration practices at large financial institutions which found considerable room for improvement in the design and implementation of executive pay.

APRA's review comprised detailed analysis of executive remuneration practices and outcomes from a sample of 12 regulated institutions across the authorised deposit-taking institutions (ADIs), insurance and superannuation sectors. The sample of institutions reviewed collectively accounts for a material proportion of the total assets of the Australian financial system.

The review found that remuneration frameworks and practices did not consistently and effectively promote sound risk management and long-term financial soundness, and fell short of the better practices set out in APRA’s existing guidance.

The report identified the need for improvement in:

  • ensuring practices were adopted that were appropriate to the institution’s size, complexity and risk profile;
  • the extent to which risk outcomes were assessed, and weighted, within performance scorecards;
  • enforcement of accountability mechanisms in response to poor risk outcomes; and
  • evidence of the rationale for remuneration decisions.

In the light of its review, APRA is considering ways to strengthen its prudential framework on REM. Copies of the publication are available on APRA’s website.


Consultation on ASIC fees-for-service draft legislation

The Government has released draft legislation on the second phase of the ASIC industry funding model – the introduction of ASIC fees-for-service.

Under the new fees-for-service regime, fees for activities such as processing a licence application will be revised to reflect ASIC’s actual costs. This is the final aspect of the ASIC Industry Funding Model and will commence from 1 July 2018.

Comments on the draft legislation close 24 April 2018 for the Bills related documents and close 1 May 2018 for the regulations related documents. AIST will be submitting a submission to Treasury. Further information is available through the Treasury website.


Monitoring panel to help implementation of AIST governance code

AIST’s newly appointed Governance Code Monitoring Panel has held its first meeting in Melbourne.

The Panel, chaired by former APRA and World Bank executive Greg Brunner, will monitor and oversee compliance with AIST’s new Governance Code which comes into effect from 1 July, this year.

The three-member Panel is working on an engagement strategy with AIST members to assist funds in their understanding of the Code requirements, as well as how these requirements relate to the wider regulatory framework.

The AIST Governance Code contains 21 requirements that member funds must report against annually on an ‘if not, why not’ basis.

The Code was developed in 2017 by AIST to:

  • Promote continuous improvement of governance in the profit-to-member super sector
  • Ensure that the profit-to-member ethos is fully supported by fund governance structures
  • Improve accountability and transparency

The two other Code panel members are Maree O’Halloran - a past employer-representative director of several profit-to-member funds and Michelle Wright - who has experience as a non-executive director across a range of financial services organisations, including serving on ethical standards boards in the healthcare sector.


HESTA provides template to help funds meet Insurance Code requirements

Following its adoption of the Insurance in Super Code of Practice, HESTA has prepared a template to support the implementation of the Code’s requirements.

HESTA has provided this very detailed template to AIST to share with our member funds.

To access the template, click here.

Guidance for adopting the Code has also been developed by the transition committee of super funds, insurers, administrators and code owners (including AIST). This Committee is facilitating implementation, assisting trustees in interpreting and meeting their commitments under the Code, and addressing practical matters of Code compliance and interpretation.

For further information about the Code, please contact AIST Senior Policy Manager David Haynes at dhaynes@aist.asn.au


ASIC fines Spaceship for misleading investment claims    

New super fund entrant, Spaceship Financial Services, and its trustee, Tidswell Financial Services, have been fined by ASIC for misleading claims about the fund’s investment approach.

Spaceship and Tindell were each fined $12,600 for claims on the Spaceship website during 2017.

In media statement released earlier this month, ASIC said it was concerned that Spaceship’s promotional statements prioritised marketing over accurate disclosure.

Prospective members of the fund were told that:

'We will fight to get you the very best assets in your portfolio…. We will measure companies in our portfolio based on their ability to provide defensibility of profits and high levels of product differentiation.'

ASIC said these statements mislead prospective members of the fund because at the time 79 per cent of the fund was invested in index-tracking funds, which involved no qualitative analysis of the underlying companies.

ASIC said it expects trustees of superannuation funds to supervise the promotion of the fund.

“ASIC considers the promotion of a fund to be unlawful if investors are required to find their way through misleading representations to the disclosures in a PDS. The accurate promotion of superannuation products is critical to enable Australian consumers to make well-informed,” the media statement said.

In June 2017, the Spaceship Fund had more than 6,000 members and over $100 million in funds under management.