AIST Policy News - 4 October 2018

AIST Policy News - 4 October 2018


Royal Commission raises substantive life insurance questions

The Royal Commission has raised key policy questions about life insurance following the conclusion of the Round Six hearings last month.

In a policy paper released last week, the Commission questions the adequacy of the current regulatory regime and the role of industry codes and it asks what can be done to overcome a lack of alignment between remuneration incentives and members’ interests; what is an appropriate way to sell insurance; and whether there is a need for standardised cover and/or definitions.

The Commission has called for submissions addressing these policy issues with a deadline of October 25.

Insurance submissions released

The Commission has also released 14 written submissions received in response to the Round 6 hearings, including responses from insurance companies, super fund, REST, and various consumer and legal groups.

Interim report

The release of the insurance policy paper and related submissions comes hot on the heels of the release last week of the Commission’s 1000 page interim report. The report covers the first four rounds of hearings which heard from the major banks, financial advisers, mortgage brokers, regulators and consumer advocacy groups.

The Report’s overarching theme – outlined in a one page executive summary - is that greed was the driver of the misconduct revealed within the banks and other financial service providers. It noted that when misconduct was revealed, it went unpunished or the consequences did not meet the seriousness of what had been done.

The Report stops short of recommending law reform – noting that the law already requires entities to be honest and fair in their dealings with consumers – and instead raises questions on key issues to emerge from the hearings. This includes asking what can be done about ineffective regulation, poor remuneration practices, inadequate penalties, grandfathered commissions and a greed-driven culture. The Commission is accepting submissions in response to the Interim Report with a deadline of October 26.

Round seven hearings

The last round of hearings –with the first week to be held in Sydney, followed by a week in Melbourne – will address policy questions raised from the previous six rounds of hearings A final report – which will include commentary on superannuation, insurance and the policy hearings – is due for release on February 1, next year.

Member feedback

AIST is making a submission on the insurance policy questions. As always, we welcome member feedback, which should be to directed to AIST’s senior policy manager, David Haynes, at dhaynes@aist.asn.au


APRA review of prudential standards

AIST has provided initial feedback to APRA about its planned review of the prudential standards for superannuation.

Our submission recommended to APRA that:

  • A further review take place following the final report of the Financial Services Royal Commission final report (expected February 2019).
  • APRA issue a paper outlining how the key findings from APRA’s own reviews (e.g. CBA governance report), the Royal Commission, the Productivity Commission, and AIST’s Governance Code might impact the prudential standards.

AIST’s submission points out that several key principles in the prudential standards and guides under review have been the subject of significant evidence tendered to the Royal Commission. These include conflicts from multiple directorships, conflicts associated with related party arrangements, and conflicts arising from trustees putting shareholder interests above those of members.

Please contact AIST Senior Policy Advisor Karen Volpato at kvolpato@aist.asn.au if you have feedback or any questions.


Companies too slow to report significant breaches: ASIC

Against the background of the Royal Commission, an Australian Securities and Investments Commission (ASIC) report released late last month has found unacceptable delays by financial institutions in reporting, addressing and remediating significant breaches.

TheReview of selected financial services groups’ compliance with the breach reporting obligation– which covered nine banks, one credit union and two mutual banks – found the financial institutions failed to have adequate systems, procedures and governance processes in place.

A lack of a consumer-orientated culture of escalation was also identified as playing a part in the alarming times to report breaches.

Key findings in the report include:

  • Financial institutions are taking too long to identify significant breaches, with the major banks taking an average time of 1,726 days (over 4.5 years).
  • There were delays in remediation for consumer loss. It took an average of 226 days from the end of a financial institution's investigation into the breach and first payment to impacted consumers. (This is on top of the average across all institutions of 1,517 days before the breach is discovered and the time taken to start and complete an investigation.)
  • The significant breaches (within the scope of the review) caused financial losses to consumers of approximately $500 million, with millions of dollars of remediation yet to be provided.
  • The process from starting an investigation to lodging a breach report with ASIC also takes too long, with major banks taking an average of 150 days.

AFCA on track for November start date

In a superannuation liaison meeting held in Sydney earlier this week, the Australian Financial Complaints Authority (AFCA) provided an update on its superannuation readiness, the new rules and other related matters.

AFCA will be operational from 1 November 2018, and to assist members with the transition and the new dispute resolution regime, it has developed a suite of resources available for download. These include examples of common complaint scenarios, transition guides, and other templates. To access the resources please log in to the AFCA secure services portal.

Late last month, AFCA’s interim funding model was finalised. It will operate for three years until the final funding model can be determined.

AIST has developed a Toolkit to assist members in transitioning to AFCA. You can download a copy here.


Work test for recent retirees

The Government has released draft legislation which would relax the current work test for recent retirees.

People aged 65-74 currently have to work a minimum of 40 hours in any 30-day period in the financial year to make a contribution to superannuation.   

The proposal – which AIST supports - is that Australians aged 65 to 74 with a total superannuation balance below $300,000 would be able to make voluntary (non-concessional) contributions for 12 months from the end of the financial year in which they last met the work test.

See https://treasury.gov.au/consultation/c2018-t331580/  

AIST will be making a submission, which is due 26 October 2018. 

Member feedback should be directed to Richard Webb, Policy & Regulatory Analyst at rwebb@aist.asn.au


Data and due diligence a hurdle for super investment in agriculture

The Government Inquiry into superannuation investment in Australian agriculture has heard that gaps in data on productivity are holding funds back from investing.

Appearing before the committee last month, Dr Jason West, senior lecturer, University of Queensland, said super funds were not able to gain the specific levels of data they required to begin their due diligence on agricultural investment.

Dr West suggested that funds needed to be able to determine the volatility of an asset over a long time period, and this was made hard by current data available.

Dr West also outlined the model for how a super fund might invest in a number of farms and aggregate them to benefit from scale economies.

However, he stated that “the effort involved in aggregation and income generation sometimes is insurmountable when you compare it to an infrastructure investment that might potentially return the same.”

The Standing Committee on Agriculture and Water Resources Inquiry into Superannuation investment in agriculture is still accepting submissions. Those wishing to make a submission can do so here.


ASIC finds most companies poor on disclosing climate change risks

ASIC has reviewed 60 listed ASX companies and examined 15,000 annual reports in their attempt to map the extent to which Australian companies are reporting climate change risks to their investors, which include super funds.

Climate risk disclosure by Australia’s listed companies - sets out ASIC’s high-level findings and recommendations for listed companies following an ASIC review of disclosure practices in the market.

Of the 60 listed companies reviewed, only 17% identified climate change as a material risk to their business.

The review found that in some cases, climate risk disclosures were far too general, and of limited use to investors.

It also noted that the information provided by companies on climate change risks was fragmented and inconsistent, being provided in different forms and means of communication.

ASIC has committed to monitoring the disclosure of climate change risks, with Commissioner John Price stating: “‘Climate risk disclosure practices are still evolving, not only in Australia but also globally. We intend to monitor market practice as it continues to evolve and develop in this area.”


Pay ratio between CEO and staff to be made transparent

Companies with more than 250 employees would be required to report the ratio between the CEOs pay and the median pay of the employees under a Labor initiative.

From 2021, companies would be required to report the ratio in a move similar to what is in place in the US and UK.

The policy was announced following the release of the Australian Council of Superannuation Investors (ACSI) annual report into ASX200 CEO remuneration. The report found that the average pay of ASX 100 CEOs rose by 9% last year, more than four times that of average wage growth.

ACSI CEO, Louise Davidson, highlighted that increases in CEO bonuses are occurring at a time when average wage growth is virtually “anaemic”.

“Decisions to significantly increase bonuses appear not only tone-deaf but also make me wonder whether boards have lost sight of the link between community and investor expectations, and a company’s social license to operate,” Ms Davidson said.


Labor dedicates $400 million to closing super gender gap

The Labor party has announced a double-headed policy approach to boosting women’s superannuation balances, pledging to pay super on maternity leave for Commonwealth government employees and to scrap the $450 monthly income threshold.

It is estimated that the $400 million package – which was welcomed by AIST - will provide over 160,000 women on paid parental leave with superannuation benefits.

Shadow Treasurer, Chris Bowen announced the package in Parliament, saying: “There is too much gender inequality in Australia, and we are making far too little progress in dealing with it. It needs to be said: our superannuation and retirement income system does not treat women equally or fairly.”

The $450 monthly income threshold for Super Guarantee payment will also be scrapped under Labor’s proposal.

It is estimated that this will bring 400,000 people, many of whom are lower-paid female employees, into the super system. The move has been described as ensuring the system is universal.

The policy announcement follows persistent advocacy from AIST, Women in Super, Industry Super Australia and the wider super sector about the need to improve retirement outcomes for women, who - on average - retire with 40 per cent less super.