House of Representatives

Financial Sector Reform (Hayne Royal Commission Response) Bill 2020

Corporations (Fees) Amendment (Hayne Royal Commission Response) Bill 2020

Corporations (Fees) Amendment (Hayne Royal Commission Response) Act 2020

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Josh Frydenberg MP)

Chapter 9 - Adjustment of APRA and ASIC's roles in superannuation (recommendations 3.8, 6.3, 6.4 and 6.5)

Outline of chapter

9.1 Schedule 9 to the Bill implements recommendations 3.8, 6.3, 6.4 and 6.5 of the Financial Services Royal Commission.

Context of amendments

Recommendations 3.8, 6.3, 6.4 and 6.5 of the Financial Services Royal Commission

9.2 Schedule 9 implements the following recommendations of the Financial Services Royal Commission:

Recommendation 3.8: The roles of APRA and ASIC with respect to superannuation should be adjusted, as referred to in recommendation 6.3.
Recommendation 6.3: The roles of APRA and ASIC in relation to superannuation should be adjusted to accord with the general principles that:

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APRA, as the prudential regulator for superannuation, is responsible for establishing and enforcing Prudential Standards and practices designed to ensure that, under all reasonable circumstances, financial promises made by superannuation entities APRA supervises are met within a stable, efficient and competitive financial system; and
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as the conduct and disclosure regulator, ASIC's role in superannuation primarily concerns the relationship between RSE licensees [5] and individual consumers.

Recommendation 6.4: Without limiting any powers APRA currently has under the SIS Act, ASIC should be given the power to enforce all provisions in the SIS Act that are, or will become, civil penalty provisions or otherwise give rise to a cause of action against an RSE licensee or director for conduct that may harm a consumer. There should be co-regulation by APRA and ASIC of these provisions.
Recommendation 6.5: APRA should retain its current functions, including responsibility for the licensing and supervision of RSE licensees and the powers and functions that come with it, including any power to issue directions that APRA presently has or is to be given.

ASIC's expanded role in superannuation regulation

9.3 The Financial Services Royal Commission recommended ASIC's regulatory role in superannuation be expanded to better promote consumer protection and market integrity in the superannuation industry.

9.4 To achieve this, recommendation 6.4 stated that ASIC be given the power to enforce the provisions in the SIS Act that concern consumer protection.

9.5 The SIS Act and the RSE licensing regime are primarily designed with prudential supervision in mind. That means the focus of obligations is on governance and other prudential requirements that ensure trustees operate in a manner consistent with their best interest obligations and deliver quality outcomes for members.

9.6 Given the prudential focus of the SIS Act, the amendments expand the Australian financial services licensing regime to cover the provision of superannuation trustee services. This is a simple and effective way of ensuring that ASIC has access to appropriate powers and enforcement tools, and can successfully perform its expanded role as the superannuation regulator responsible for consumer protection and market integrity regulation.

9.7 The Australian financial services licensing regime promotes confident and informed decision making by consumers of financial products and services, as well as fairness, honesty and professionalism by those who provide financial services. The regime imposes specific duties on licensees, including to provide financial services efficiently, honestly and fairly, and comply with Australian financial services laws. Currently, most superannuation trustees are required to hold an Australian financial services licence authorising them to deal in a superannuation interest. If a trustee provides other services, for example, financial product advice, its Australian financial services licence must also cover those services.

9.8 Expanding the coverage of the Australian financial services licence regime enables ASIC to enforce conduct and consumer protection obligations across a broader range of superannuation trustee activities. It also provides ASIC with access to its full suite of enforcement tools, which strengthens its ability to deter trustee misconduct through court-based enforcement activities, and to ensure fair remediation of consumers.

Summary of new law

9.9 Part 1 of Schedule 9 makes adjustments to the SIS Act relating to the roles and responsibilities of superannuation industry regulators. In line with Financial Services Royal Commission recommendations 3.8, 6.3, 6.4 and 6.5, Part 1 expands ASIC's role in the SIS Act to include promoting consumer protection and market integrity.

9.10 An outcome of this change is that APRA and ASIC now share general administration of, or co-regulate, the SIS Act provisions that have consumer protection and member outcomes as their touchstone. These co-regulated provisions are either civil penalty provisions or provisions that are otherwise enforceable.

9.11 Consistent with Financial Services Royal Commission recommendation 6.4, provisions with a consumer protection focus that become enforceable provisions in the future are expected to also be co-regulated by APRA and ASIC.

9.12 The role of the Commissioner of Taxation has not changed.

9.13 Part 1 of Schedule 9 introduces general improvements to section 6 of the SIS Act and related provisions to modernise and simplify the allocation of the general administration of provisions. The general administration of a provision of the SIS Act is now determined under the general administration table. Including a table of the general administration provisions in section 6(1) improves the readability and accessibility of the provision.

9.14 Part 2 of Schedule 9 extends the Australian financial services licensing regime to cover a broader range of activities undertaken by APRA-regulated superannuation trustees. It does this by creating a new financial service of providing a superannuation trustee service. A person provides a superannuation trustee service if they operate a registrable superannuation entity.

9.15 In general terms, this means that each RSE licensee must hold an Australian financial services licence authorising it to provide a superannuation trustee service, which captures all activities involved in operating a superannuation fund. Examples of the activities intended to be covered include fee charging practices, investment selection, product changes, oversight of service providers, insurance claims handling, and transfer, payment and rollover practices.

9.16 In turn, the Australian financial services licence obligations apply in full to these activities from the Schedule's commencement. A superannuation trustee service will generally be provided to the beneficiaries of a superannuation fund, which constitutes the provision of a financial service to a retail client. This engages certain additional protections and obligations under Chapter 7 of the Corporations Act.

9.17 Part 2 of Schedule 9 also introduces the requirement for ASIC to obtain APRA's agreement before taking certain actions affecting RSE licensees, reflecting the changes made to the framework for superannuation regulation. These requirements apply to the cancellation of an Australian financial services licence, the imposition of certain licence conditions and the making of certain banning orders.

9.18 In the context of the extension of the Australian financial services licensing regime's coverage over superannuation, Part 2 amends the SIS Act's existing indemnification rules to prevent superannuation trustees and their directors from using trust assets to pay criminal, civil or administrative penalties incurred in relation to a contravention of any Commonwealth law.

9.19 Part 2 also applies the consumer protections for financial services under the ASIC Act to the expanded range of trustee activities (other than for self-managed superannuation fund trustees) captured by the extension of the Australian financial services licensing regime.

9.20 Transitional provisions are included concerning the extension of the Australian financial services licensing regime's coverage of superannuation trustee services. Existing RSE licensees who already hold an Australian financial services licence authorising them to deal in a superannuation interest do not need to apply for the new authorisation.

Comparison of key features of new law and current law

New law Current law
General administration of the SIS Act
ASIC's role in superannuation is expanded to include protecting consumers from harm and market misconduct. ASIC is now generally responsible for consumer protection, market integrity, disclosure and the keeping of reports. ASIC's role is generally limited to matters of disclosure and the keeping of reports.

APRA and ASIC share general administration of SIS Act provisions which have consumer protection and member outcomes as their touchstone. These co-regulated provisions are either civil penalty provisions or provisions that are otherwise enforceable. ASIC has general administration of provisions concerning disclosure and the keeping of reports.
Section 6 of the SIS Act and related provisions are modernised and simplified. The general administration of a provision of the SIS Act is now determined under the general administration table. Section 6 of the SIS Act is confusing and opaque; its structure makes it difficult to identify which regulator is responsible for a particular provision.
Extended Australian financial services licence coverage
An RSE licensee must also hold an Australian financial services licence to provide a superannuation trustee service, which covers the operation of a registrable superannuation entity as trustee. An RSE licensee must hold an Australian financial services licence to deal in a superannuation interest or provide financial product advice.
The ASIC Act consumer protections also apply to the provision of a superannuation trustee service (other than for self-managed superannuation fund trustees). The ASIC Act consumer protections apply to dealing in a superannuation interest and the provision of financial product advice.
ASIC must also obtain APRA's agreement before cancelling an RSE licensee's Australian financial services licence, imposing certain conditions on an RSE licensee's Australian financial services licence, or making certain banning orders against an RSE licensee. APRA and ASIC must consult or inform each other about certain actions affecting entities they both regulate.
Superannuation trustees and trustee directors cannot use trust assets to pay a criminal, civil or administrative penalty incurred in relation to a breach of Commonwealth law in circumstances where the breach did not previously warrant disentitlement based on the principles in section 56. Superannuation trustees and trustee directors cannot use trust assets to pay a liability for breach of trust if the trustee fails to act honestly in a matter concerning the entity, or intentionally or recklessly fails to exercise, in relation to a matter affecting the entity, the required degree of care and diligence.

Detailed explanation of new law

Adjustment of APRA and ASIC's role in the SIS Act

Adjustments relating to the roles and responsibilities of superannuation industry regulators

9.21 Schedule 9 repeals section 4 of the SIS Act and replaces it with a simplified outline. The simplified outline sets out high-level statements of the supervision responsibilities of APRA, ASIC and the Commissioner of Taxation in superannuation. [Schedule 9, item 1, section 4 of the SIS Act]

9.22 Rather than demarcating the three regulators' roles, the statements of their supervision responsibilities are intended to provide guidance to SIS Act users about the focus of their regulatory activities. Particularly for APRA and ASIC, the role statements highlight that their regulatory activities are complementary and overlapping, rather than mutually exclusive. The Commissioner of Taxation's role is unchanged.

9.23 Other Financial Services Royal Commission recommendations support coordinated interactions between APRA and ASIC. For example, recommendation 6.9 provides that APRA and ASIC must work in cooperation and share information (see Chapter 13).

APRA's role and responsibilities

9.24 APRA is generally responsible for prudential regulation and member outcomes (other than for self-managed superannuation funds which are regulated by the Commissioner of Taxation). It is also generally responsible for licensing and supervision of RSE licensees. [Schedule 9, item 1, section 4 of the SIS Act]

9.25 Consistent with Financial Services Royal Commission recommendations 6.4 and 6.5, APRA's responsibilities in the SIS Act are largely unchanged. APRA, as the prudential regulator for RSE licensees, remains responsible for establishing and enforcing Prudential Standards and practices designed to ensure that, under all reasonable circumstances, financial promises made by superannuation entities are met within a stable, efficient and competitive financial system.

9.26 The only substantive change to APRA's general administration is reflected in item 26 of the general administration table, which reallocates APRA's responsibility for section 68B of the SIS Act to ASIC. [Schedule 9, item 1, section 6(1) of the SIS Act]

9.27 Section 68B concerns the promotion of illegal early release schemes. Such schemes may involve promoters encouraging individuals to fraudulently access their superannuation on compassionate or hardship grounds, or transfer or rollover their superannuation from their existing superannuation fund to a self-managed superannuation fund so the individual can withdraw their superannuation before they are legally entitled to it. The general administration of section 68B is reallocated to ASIC because its focus on preventing harm to individual consumers of superannuation products is consistent with ASIC's regulatory focus under the SIS Act, as set out in new section 4.

9.28 The Commissioner of Taxation's role in administering section 68B in relation to self-managed superannuation funds is unchanged.

ASIC's role and responsibilities

9.29 Currently in the SIS Act, ASIC's role is generally limited to matters of disclosure and record keeping. For example, ASIC has general administration of the covenants imposed on RSE licensees under section 52 of the SIS Act, but only to the extent that they relate to record keeping and disclosure obligations of RSE licensees.

9.30 Consistent with Financial Service Royal Commission recommendations 6.3 and 6.4, Schedule 9 expands ASIC's role in superannuation to include promoting consumer protection and market integrity. As a result of these amendments, ASIC is now generally responsible for consumer protection, market integrity, disclosure and record keeping. [Schedule 9, item 1, section 4 of the SIS Act]

9.31 'Consumer protection' regulation provides consumers and regulators with legal recourse concerning circumstances or actions that unreasonably disadvantage consumers. 'Market integrity' regulation promotes confidence in the efficiency and fairness of markets by ensuring that markets are fair, orderly and transparent. Market integrity and consumer protection regulation are inherently linked; both rely on disclosure and conduct rules to achieve regulatory outcomes.

9.32 ASIC's existing role in regulating certain disclosures and record keeping by RSE licensees is unchanged by Schedule 9. [Schedule 9, item 1, sections 6(1) and (2) of the SIS Act]

9.33 ASIC's expanded role in superannuation regulation is consistent with ASIC's broader role in the Australian financial system, which is articulated in the ASIC Act. Indeed, section 12A(2) of the ASIC Act provides that ASIC has the function of monitoring and promoting market integrity and consumer protection in relation to the Australian financial system.

The Commissioner of Taxation's role and responsibilities

9.34 Finally, the simplified outline provides that the Commissioner of Taxation is generally responsible for self-managed superannuation funds, data and payment standards, tax file numbers and the compassionate release of superannuation amounts. [Schedule 9, item 1, section 4 of the SIS Act]

General administration table

9.35 Currently, section 6 of the SIS Act divides responsibility for the general administration of SIS Act provisions among APRA, ASIC and the Commissioner of Taxation. The existing section 6 is confusing and opaque insofar as the provision's structure makes it difficult to identify which regulator is responsible for a particular provision.

9.36 Schedule 9 repeals the existing section 6 of the SIS Act and inserts a new section 6. [Schedule 9, item 1, section 6 of the SIS Act]

9.37 To modernise and simplify section 6, the general administration of a provision of the SIS Act is now determined under the general administration table in section 6(1). [Schedule 9, item 1, section 5(1) of the SIS Act]

9.38 The new tabular structure of section 6(1) improves the readability and accessibility of the information in the provision. Under that section, the general administration of a provision referred to in column one of the table is conferred on the regulator listed in column three. [Schedule 9, item 1, sections 5(1) and 6(1) of the SIS Act]

9.39 Additionally, general administration table is now defined in section 10(1) to mean the table in section 6 of the SIS Act. [Schedule 9, item 2, section 10(1) of the SIS Act]

Substantive changes to the general administration of provisions

9.40 The main changes to the general administration of provisions in the SIS Act relate to the co-regulation of provisions by APRA and ASIC. Other changes to section 6, including the general administration of provisions, improve the operation of the section and efficiency of general administration.

9.41 The following items in the general administration table reflect no substantive change from the allocation of general administration in the existing SIS Act: items 1, 3-14, 17, 21-22, 24-25, 27-31, 33-35, 37-38, 40-49, 51-53, and 55-61. [Schedule 9, item 1, section 6(1) of the SIS Act]

Co-regulation of provisions by APRA and ASIC

9.42 Recommendations 3.8, 6.3, 6.4 and 6.5 of the Financial Services Royal Commission underpin a number of changes to the allocation of general administration, which enable co-regulation of enforceable consumer/member focused SIS Act provisions by APRA and ASIC. Co-regulated provisions are civil penalty provisions or provisions that are otherwise enforceable, and which have consumer protection and member outcomes as their touchstone.

9.43 The introduction of the co-regulation by APRA and ASIC of enforceable consumer/member focused provisions is a shift from the existing division of responsibilities under the SIS Act where regulators have discrete responsibilities and roles.

9.44 Consistent with Financial Services Royal Commission recommendation 6.4, provisions with a consumer protection focus that become civil penalty provisions in the future will also be co-regulated by APRA and ASIC.

9.45 The amendments ensure that the following SIS Act provisions, to the extent they concern consumer protection and member outcomes, are now co-regulated by APRA and ASIC:

section 29JCA, which concerns false representation about status as an RSE licensee (item 2 in the general administration table);
sections 52, 52A and 54B, which concern the governing rules covenants for registrable superannuation entities and the consequences for breaching these covenants (item 18 in the general administration table);
section 54A, which provides a power to prescribe other governing rules covenants in regulations (item 20 in the general administration table);
sections 62 and 68, which establish the sole purpose test and the prohibition against victimisation, including of trustees, respectively (item 23 in the general administration table);
section 108A, which concerns the duty on trustees to identify multiple superannuation accounts of members (item 36 in the general administration table);
section 126K, which provides that it is an offence for disqualified persons to be trustees, investment managers or custodians of superannuation entities (item 39 in the general administration table);
Part 21 - Civil and criminal consequences of contravening civil penalty provisions - to the extent it relates to, or is being applied for the purposes of, a provision administered by both APRA and ASIC (item 50 in the general administration table); and
sections 242K, 242L and 242M, which concern trustee obligations relating to eligible rollover funds and the consequences for breaching those obligations (item 54 in the general administration table).

[Schedule 9, item 1, section 6(1) of the SIS Act]

9.46 While co-regulation introduces overlap between APRA's member outcomes role and ASIC's consumer protection and market integrity role, in practice, APRA and ASIC have a natural focus on different aspects of conduct. ASIC's focus is generally on the relationship between superannuation trustees and individual consumers whereas APRA's focus is generally on the outcomes that trustees deliver for their membership as a whole, or for cohorts of members.

9.47 APRA and ASIC are working together to improve outcomes for superannuation members and beneficiaries, and to enhance their regulatory cooperation.

9.48 Co-regulation does not change any of the obligations on RSE licensees or how they are to comply with these obligations. For example, breaches of RSE licence conditions must still be reported to APRA in accordance with existing section 29JA of the SIS Act.

9.49 However, APRA and ASIC will now have a role in administering the obligations contained in the above listed enforceable consumer/member focused provisions. This could involve, for example, determining and enforcing compliance in relation to these provisions.

9.50 Co-regulation of enforceable consumer/member focused provisions is only between APRA and ASIC. The Commissioner of Taxation's role is unchanged, including in relation to self-managed superannuation funds.

9.51 These outcomes are consistent with Financial Services Royal Commission recommendations 3.8, 6.3, 6.4 and 6.5.

General improvements to section 6 and related provisions

Trustee elections and complying fund status

9.52 Schedule 9 updates the SIS Act to clarify the existing position that the Commissioner of Taxation, rather than APRA, is responsible for receiving written notices from trustees of their election to have the Act apply to them as a regulated superannuation fund. [Schedule 9, item 6, section 19(4) of the SIS Act]

9.53 Currently, section 19(4) of the SIS Act refers specifically to APRA receiving written notices from trustees. Despite this reference, section 19(4A) authorises regulations to prescribe that notices are to be given to different bodies or persons. Since 1999, regulation 1.04A of the Superannuation Industry (Supervision) Regulations 1994 has prescribed that the Commissioner of Taxation is to receive all such notices in all circumstances. The amendments update the SIS Act to reflect this long-standing position, rather than relying on regulation 1.04A (which will be separately repealed through amendments to the Superannuation Industry (Supervision) Regulations 1994).

9.54 As a result of this change, the regulation making power in section 19(4A) is no longer required and is therefore repealed. [Schedule 9, item 7, section 19(4A) of the SIS Act]

9.55 The amendments also make a number of changes to provisions affected by the existing re-allocation of responsibility from APRA to the Commissioner of Taxation.

9.56 In particular, there are a number of references to 'APRA' in sections 42 and 42A (about complying fund status) that are currently deemed to refer to 'the Commissioner of Taxation' instead. These provisions generally relate to decisions that are made by the entity that receives trustee elections under section 19(4) (for example, extension of time for providing written notices).

9.57 Under the current law, the Commissioner of Taxation is given general administration of these provisions instead of APRA through section 6(4)(c) of the SIS Act, and the various references to APRA in the provisions are deemed to instead be to the Commissioner through sections 42(3) and 42A(7).

9.58 Instead of relying on additional rules, the amendments update the various references to APRA in sections 42 and 42A so that they refer directly to the Commissioner of Taxation. [Schedule 9, items 9 to 11, 13 and 14, sections 42(1AA)(b)(ii) and (c)(ii), 42(1AC)(b) and (c), 42(1AC)(d)(ii), 42A(3)(c)(ii) and (d)(ii) and 42A(4) of the SIS Act]

9.59 These changes improve the readability of the provisions, but do not change their operation.

9.60 As a result of these amendments, the deeming rules to replace the references to APRA are no longer required and are therefore repealed. [Schedule 9, items 12 and 15, sections 42(3) and 42A(7) of the SIS Act]

General administration of Part 5

9.61 General administration of the provisions in sections 42 and 42A of the SIS Act that now refer to the Commissioner of Taxation is given directly to the Commissioner of Taxation through item 15 in the general administration table. Some administration responsibility remains with APRA. [Schedule 9, item 1, section 6(1) of the SIS Act (table item 15)]

9.62 This is achieved by assigning general administration to the Commissioner of Taxation of provisions in Part 5 of the SIS Act that require or permit the Commissioner of Taxation to do something. The provisions are assigned in addition to other provisions that the Commissioner of Taxation also has general administration of because they relate to self-managed superannuation funds.

9.63 This replicates the outcome currently provided by section 6(4)(c) of the SIS Act and means that this provision does not need to be separately re-enacted.

9.64 Item 16 of the general administration table maintains the existing responsibilities between APRA and the Commissioner of Taxation over sections 40 and 41 of the SIS Act (which relate to notices given by the Regulator about complying fund status). [Schedule 9, item 1, section 6(1) of the SIS Act (table item 16)]

9.65 Item 16 in the general administration table also maintains the outcome currently provided by sections 6(4)(a) and (b) of the SIS Act, which allocate general administration of sections 40 and 41 on the basis of an entity's status on the final day of year of income.

9.66 The amendments also modify the note to section 40 to more accurately reflect who "the Regulator" is and how past notices may be dealt with as a result of a superannuation fund changing its status (for example, by ceasing to be a self-managed superannuation fund). [Schedule 9, item 8, section 40(4) of the SIS Act]

Redundant Parts repealed

9.67 Schedule 9 repeals Parts 33 and 34, which relate to the MySuper transition and the Eligible Rollover Fund transitions respectively. [Schedule 9, item 26, Parts 33 and 34 of the SIS Act]

9.68 The MySuper start date was the later of 1 July 2017 and the end of the period set out in section 387(2)(b) (essentially 90 days after an authority or refusal to offer a MySuper product was given). The Eligible Rollover Fund transition was to occur 90 days after 1 January 2014. Given the transfer of all relevant amounts has occurred, and Parts 33 and 34 impose no current requirements on trustees, the Parts are redundant.

9.69 Schedule 9 also repeals sections 388 and 394, which are civil penalty provisions. [Schedule 9, item 16, sections 193(l)-(n) of the SIS Act]

9.70 In line with section 7 of the Acts Interpretation Act 1901, the repeal of these civil penalty provisions does not affect a penalty or punishment incurred in respect of an offence committed in breach of them.

Clarifying general administration of certain covenants

9.71 As discussed above, both APRA and ASIC now have general administration of the provisions concerning covenants and the consequences of breaching covenants. [Schedule 9, item 1, section 6(1) of the SIS Act (table item 18)]

9.72 Schedule 9 also gives the Commissioner of Taxation sole administration of the covenants concerning self-managed superannuation funds under sections 52B and 52C of the SIS Act. [Schedule 9, item 1, section 6(1) of the SIS Act (table item 19)]

9.73 An additional change has been made to the general administration of section 54A, which enables regulations to prescribe other covenants. Currently, APRA has general administration of section 54A. Schedule 9 allocates general administration of section 54A to the Commissioner of Taxation, to the extent it relates to self-managed superannuation funds, and APRA and ASIC to the remaining extent. [Schedule 9, item 1, section 6(1) of the SIS Act (table item 20)]

9.74 This change ensures that each regulator has general administration of regulations made under section 54A, to the extent those regulations concern the provisions they have general administration of.

Use of the term 'Regulator'

9.75 Schedule 9 amends the definition of Regulator in section 10(1) of the SIS Act so that it operates when it is being applied for the purposes of a provision that is administered by both APRA and ASIC. [Schedule 9, item 3, section 10(1) of the SIS Act]

9.76 For co-regulated provisions, the context may require 'Regulator' to mean the same body as referred to elsewhere. For example, in section 344(1), the Regulator who may be requested to reconsider a decision is required by the context to be a reference to the body who made the reviewable decision.

9.77 Existing section 298A(1) provides that the Regulator may authorise a member of staff of 'the other Regulator' for a specified purpose. Schedule 9 removes the reference to 'the other Regulator' and replaces it with a cross-reference to the definition of 'Regulator' in section 10(1). [Schedule 9, item 22, section 298(1) of the SIS Act]

9.78 A similar change has been made to section 265(1). [Schedule 9, item 21, section 265(1) of the SIS Act]

9.79 The intent and substance of sections 265(1) and 298A(1) have not changed. Any of APRA, ASIC or the Commissioner of Taxation could appoint or authorise an APRA, ASIC or taxation officer, as appropriate, to conduct investigations or commence relevant proceedings, as required.

9.80 A saving rule ensures that any existing appointments or authorisations under sections 265(1) and 298A(1) of the SIS Act continue to apply despite the fact that the rules under which existing appointments and authorisations were made have been amended. [Schedule 9, item 27]

9.81 Schedule 9 also amends the following provisions to ensure the definitions of Regulator and a member of staff (of the Regulator) work as intended:

section 265(1); [Schedule 9, item 20, section 265(1) of the SIS Act]
sections 315(1)(a)-(f); and [Schedule 9, item 23, sections 315(1)(a)-(f) of the SIS Act]
section 315(3). [Schedule 9, item 24, section 315(3) of the SIS Act]

Powers and duties of the regulators

9.82 Schedule 9 moves existing provisions related to the powers and duties conferred on the regulators into new section 5. It also restructures the provisions to improve their flow and readability. [Schedule 9, item 1, sections 5(2) to (6) and (9) of the SIS Act]

9.83 Schedule 9 adds that the provisions listed in new section 5(3) also confer powers and duties on APRA and ASIC for the purpose of administering the provisions that they co-regulate. [Schedule 9, item 1, sections 5(2)(a) and (b) of the SIS Act]

9.84 There are two changes to the provisions that confer powers and duties on the regulators. First, Schedule 9 adds Part 29A (protections for individuals against self-incrimination) to the list of provisions that confer powers and duties on the three regulators. [Schedule 9, item 1, section 5(3) of the SIS Act]

9.85 Relatedly, Schedule 9 amends section 336F in Part 29A of the SIS Act so that it now refers to 'the Regulator' rather than just 'APRA', as that section should also apply in cases where ASIC and the Commissioner of Taxation are the Regulator. [Schedule 9, item 25, section 336F(1) of the SIS Act]

9.86 Second, Schedule 9 amends the existing conferral of exemptions and modifications powers and duties by sections 328 and 332. These provisions now confer exemptions and modifications powers and duties on ASIC in relation to all of the modifiable provisions that it solely administers. [Schedule 9, item 1, section 5(8)(b) of the SIS Act]

9.87 ASIC solely administers the following modifiable SIS Act provisions:

sections 29P to 29QC (item 4 in the general administration table); and
Part 19 (item 48 in the general administration table).

[Schedule 9, item 1, section 6(1) of the SIS Act]

9.88 The conferral of powers and duties on ASIC by sections 328 and 332 means that ASIC can now exempt RSE licensees from obligations under the abovementioned provisions, or modify the obligations imposed on RSE licensees under those provisions.

9.89 Additionally, sections 328 and 332 now also confer powers and duties on APRA for the purpose of administering the provisions it co-regulates with ASIC. [Schedule 9, item 1, section 5(8)(a)) of the SIS Act]

9.90 This means that only APRA may exercise the exemption and modification powers conferred on APRA by sections 328 and 332 for co-regulated provisions.

9.91 Finally, a new provision makes clear that, for the purposes of the definition of taxation law in section 995-1(1) of the Income Tax Assessment Act 1997, the Commissioner of Taxation is taken to have the general administration of a provision of the SIS Act or regulations that confers power and duties on the Commissioner of Taxation. [Schedule 9, item 1, section 5(7) of the SIS Act]

9.92 An effect of a provision being administered by the Commissioner of Taxation is that people who acquire information under the provision (such as a taxation officer) are subject to the confidentiality obligations and exceptions in Division 355 in Schedule 1 to the Taxation Administration Act 1953.

Other minor changes

9.93 Schedule 9 also makes a number of consequential amendments to the following provisions of the SIS Act:

section 10(1) - note to the definition of self-managed superannuation fund; [Schedule 9, item 4, section 10(1) of the SIS Act]
section 10(4); [Schedule 9, item 5, section 10(4) of the SIS Act]
section 253 - note 2; and [Schedule 9, item 17, section 253 of the SIS Act]
section 253 - note 3. [Schedule 9, items 18 and 19, section 253 of the SIS Act]

9.94 Currently, in section 6(3) of the SIS Act, the Minister may give APRA or ASIC directions about the performance or exercise of its functions or powers under the SIS Act. Schedule 9 amends this direction rule so that the Minister must use a legislative instrument to direct APRA or ASIC. [Schedule 9, item 1, section 5(9) of the SIS Act]

9.95 This change updates the existing requirement that the Minister publish such directions in the Gazette, and is consistent with other amendments in respect of directions to APRA under the APRA Act introduced through miscellaneous amendments in items 155 and 156 of Schedule 3 to the Treasury Laws Amendment (2019 Measures No. 3) Act 2020. Legislative instruments that are directions to agencies (as well as instruments relating to superannuation) are exempt from disallowance and do not sunset under the Legislation (Exemption and Other Matters) Regulation 2015.

Extending the coverage of the Australian financial services licensing regime for superannuation trustee services

New financial service - providing a superannuation trustee service

9.96 Schedule 9 creates a new type of financial service: providing a superannuation trustee service. The purpose of creating the new financial service is to ensure that the conduct of RSE licensees in operating a registrable superannuation entity is subject to the Australian financial services licensing regime's obligations and protections.

9.97 The amendments require each RSE licensee to hold an Australian financial services licence with an authorisation to provide a superannuation trustee service. This encompasses all trustees of a registrable superannuation entity, with the exception of trustees of pooled superannuation trusts in certain circumstances.

9.98 The amendments introduce this requirement by specifying that a person provides a financial service within the meaning of section 766A of the Corporations Act, if they provide a superannuation trustee service. A person provides a superannuation trustee service if they operate a registrable superannuation entity as trustee of the entity. [Schedule 9, items 41 and 43, sections 766A(1)(ec) and 766H(1) of the Corporations Act]

9.99 A notional person who is a group of individual trustees holding an RSE licence must also obtain an Australian financial services licence authorising them to provide a superannuation trustee service. The notional person would hold one Australian financial services licence as if they constituted a single legal entity. [Schedule 9, item 43, note 1 to section 766H(1) of the Corporations Act]

9.100 In turn, section 911A of the Corporations Act requires a person who carries on a financial services business to hold an Australian financial services licence covering the provision of the financial services they provide.

9.101 Each RSE licensee must also continue to hold an Australian financial services licence authorisation to deal in a financial product if they are to issue, vary or dispose of an interest in a superannuation fund. Schedule 9 does not alter that requirement. In practice, this is expected to result in every RSE licensee holding an Australian financial services licence authorising them both to deal in a superannuation interest and to provide a superannuation trustee service (again with the exception of trustees of pooled superannuation trusts in certain circumstances).

9.102 Similarly, the introduction of the new financial service does not displace the existing requirement that RSE licensees be separately authorised to provide financial product advice if they are to provide that service.

9.103 Financial services can overlap. Schedule 9 clarifies that conduct is capable of constituting the provision of more than one financial service. For example, conduct may constitute providing a superannuation trustee service and dealing in a superannuation interest at the same time, as indicated below in the explanation of activities covered by the new service. [Schedule 9, item 42, section 766A(5) of the Corporations Act]

Which activities constitute the provision of a superannuation trustee service?

9.104 The new financial service is intended to cover all of the activities involved in operating a registrable superannuation entity, at all stages of the trustee's interactions and transactions with members and others.

9.105 Broadly, this is intended to ensure the Australian financial services licensing and SIS Act regulatory regimes have comparable coverage of RSE licensee activities, and that all relevant activities of licensees need to be conducted in accordance with the conduct obligations in the Australian financial services licensing regime.

9.106 For example, licensees must do all things necessary to ensure they provide a superannuation trustee service efficiently, honestly and fairly.

9.107 Table 9.1 sets out examples of those activities. Neither the activities nor the descriptions in Table 9.1 are intended to be exhaustive.

Table 9.1 examples of operating a registrable superannuation entity

Activity Description
Product design and development Decisions about the design and distribution of trustees' superannuation products.

Decisions when creating a new product.

Decisions made by trustees when making changes to an existing superannuation product.

Marketing to employers / consultants Marketing activities used to encourage employers (or consultants hired by employers) to recommend the employer select a particular fund as its default fund.
Investment selection Disclosure and provision of marketing materials to members when an investment decision is made.

Implementation of investment directions from members.

Death benefit nominations Disclosure and information provided to members relating to nominations.
Fee charging Fee charging practices including:

fee disclosure;
record keeping relating to member authorisation of fees deducted; and
oversight of services provided in exchange for fees charged.

Compliance systems Design and review of compliance systems and monitoring of compliance with regulatory and other obligations.
Oversight of service providers Trustee oversight of activities delegated to third party service providers.
Dispute resolution Design, review and monitoring of internal dispute resolution processes and procedures in relation to member complaints about all trustee activities.

Communications and interactions with members and other beneficiaries who make complaints about trustee activities.

Employer de-linking Communications with members who are affected by changes to their superannuation as a result of no longer being eligible to participate in an employer subplan.
Insurance claims handling Pursuing insurance claims on behalf of members.

Handling and settling of insurance claims as explained below.

Transfer, payment and rollover Trustee practices relating to transfer, payment and rollover of superannuation monies.

9.108 Some of these activities are likely to already fall, at least in part, into the category of 'dealing' in a superannuation interest.

9.109 As noted above, a trustee deals in a superannuation interest when it issues, varies or disposes of an interest in a superannuation fund. This means a trustee is dealing whenever it accepts a new member into the fund and issues that member an interest in the fund, changes a member's interest in a fund, or disposes of a member's interest in the fund.

9.110 The extension to the Australian financial services licensing regime made by Schedule 9 is intended to ensure that the regime's conduct obligations clearly apply to those superannuation trustee activities that may fall outside the parameters of dealing in a superannuation interest. In turn, this is intended to ensure ASIC is an effective conduct regulator in superannuation and can take action against misconduct by superannuation trustees, whatever the type of activity in question.

9.111 Note that the Corporations Act generally uses the terminology of 'superannuation product', which is defined as a superannuation interest within the meaning of the SIS Act - see sections 761A and 764A(1)(g) of the Corporations Act. This means a dealing in a superannuation interest is a dealing in a superannuation product, for the purposes of the Corporations Act.

Insurance claims handling

9.112 Other amendments introduce insurance claims handling as a new financial service. Those amendments implement recommendation 4.8 of the Financial Services Royal Commission.

9.113 As a result, insurers, parties acting on behalf of insurers, and 'claimant intermediaries' may be required to hold an Australian financial services licence authorising them to provide claims handling services.

9.114 As mentioned above, handling insurance claims on behalf of beneficiaries is a function of a superannuation trustee and is part of providing the financial service of providing a superannuation trustee service. In recognition of this fact, RSE licensees will not require an Australian financial services licence authorisation for claims handling.

9.115 However, while RSE licensees do not need to obtain a specific Australian financial services licence authorisation to handle insurance claims on behalf of their beneficiaries, all of the Australian financial services licence obligations will apply to their claims handling and settling conduct as part of their provision of a superannuation trustee service. This could include, for example:

an RSE licensee's activities in pursuing an insurance claim for the benefit of a beneficiary; and
making a recommendation or stating an opinion that could influence a decision whether to make an insurance claim.

9.116 Claimant intermediaries are required to obtain an Australian financial services licence authorisation to provide claims handling services if they provide those services to people insured under general insurance products. This means that RSE licensees and their representatives, in handling life insurance claims, are excluded from that requirement.

9.117 The amendments implementing recommendation 4.8 also exclude a recommendation or statement of opinion, or a report of either of those things, from constituting financial product advice if it is a necessary part of claims handling.

9.118 As a result, where RSE licensees make that type of recommendation or statement, it will be regulated as part of their provision of a superannuation trustee service and they will not need a separate Australian financial services licence authorisation to provide financial product advice.

9.119 Conversely, if the recommendation or statement is not a necessary part of claims handling, the RSE licensee will need a separate authorisation to provide financial product advice from 1 January 2022.

What obligations are triggered by the superannuation trustee service?

9.120 Licensees must comply with the general Australian financial services licence obligations in relation to the provision of a superannuation trustee service. This means that licensees must, for example:

do all things necessary to ensure that they provide the superannuation trustee service efficiently, honestly and fairly;
have in place adequate arrangements for the management of conflicts of interest arising in relation to their provision of the superannuation trustee service; and
comply with the financial services laws and take reasonable steps to ensure their representatives comply with the financial services laws.

9.121 The requirement to comply with the financial services laws centres on the definition of that term in section 761A of the Corporations Act. A number of provisions in the SIS Act can be expected to fall within the meaning of 'financial services laws' because they cover conduct relating to, in this case, the provision of a superannuation trustee service. For example, a contravention of the general fee rules in Part 11A of the SIS Act may constitute a failure to comply with financial services laws, in turn allowing ASIC to treat it as a failure to comply with an Australian financial services licence obligation.

9.122 The scope of 'financial services laws' is affected by exemptions or modifications made by a regulator or through regulations. For example, if a licensee is exempt from complying with a particular legal obligation because of an instrument made by ASIC, the general Australian financial services licence obligation to comply with the financial services laws is not intended to override that exemption.

9.123 Apart from the general Australian financial services licence obligations in section 912A of the Corporations Act, Chapter 7 of that Act imposes other obligations on licensees. The following are examples of where the Australian financial services licensing regime extension made by Schedule 9 affects RSE licensees' obligations:

The obligation in section 912D to report breaches of Australian financial services licence obligations and other financial services laws to ASIC applies directly to a broader range of trustee activities.
Division 6 of Part 7.8, relating to financial records, statements and audit - the scope of what constitutes a licensee's financial services business for the purposes of these reporting requirements is expanded by the new superannuation trustee service.
The prohibition on unconscionable conduct in relation to the provision of a financial service under section 991A extends to the new superannuation trustee service.
Part 7.10, relating to further conduct prohibitions - the prohibitions on dishonest conduct (which attracts a criminal sanction) and misleading or deceptive conduct now extend to the new superannuation trustee service.

To whom is a superannuation trustee service provided?

Retail clients

9.124 A superannuation trustee service will generally be provided to the beneficiaries of a superannuation fund, which in turn constitutes the provision of a financial service to a retail client. [Schedule 9, items 38 and 43, section 761G(6)(b) and note 2 to section 766H(1) of the Corporations Act]

9.125 This engages certain additional protections and obligations under Chapter 7 of the Corporations Act that attach specifically to circumstances where services are provided to a retail client. For example, licensees must have arrangements for compensating retail clients for loss or damage suffered because the licensee breached its licensing obligations.

9.126 However, the obligation to provide a Financial Services Guide to a retail client will not be engaged merely because a licensee provides a superannuation trustee service (see paragraphs 9.189 to 9.191 below).

Wholesale clients

9.127 The only instances where a superannuation trustee service is provided to a wholesale client are when it is provided to:

a trustee of a superannuation fund, an approved deposit fund, a pooled superannuation trust or a public sector superannuation scheme that has net assets of at least $10 million; or
a retirement savings account provider.

[Schedule 9, item 38, section 761G(6)(c) of the Corporations Act]

Who must obtain an authorisation to provide a superannuation trustee service?

RSE licensees and third party service providers

9.128 An RSE licensee is the only entity who requires an authorisation to provide a superannuation trustee service. Administrators, custodians and others who may undertake activities on behalf of a trustee who operates a registrable superannuation entity do not themselves operate the registrable superannuation entity.

9.129 However, these entities may be regulated as authorised representatives of another Australian financial services licensee or as holders of their own Australian financial services licence for financial services they provide - for example, providing a custodial or depository service.

9.130 An RSE licensee cannot appoint an authorised representative to provide a superannuation trustee service. The service can only be provided by the licensee.

9.131 Where an RSE licensee outsources activities to third party service providers, the licensee remains responsible for the provision of the superannuation trustee service and complying with its Australian financial service licence obligations in relation to those outsourced activities. For example, misconduct by the service provider may result in the licensee failing to do all things necessary to ensure the superannuation trustee service is provided efficiently, honestly and fairly, or failing to take reasonable steps to ensure that its representatives comply with the financial services law.

9.132 The RSE licensee remains responsible for the provision of the superannuation trustee service whether or not the third party service provider holds its own Australian financial services licence or is the authorised representative of another licensee.

9.133 Beyond the Australian financial services licensing regime, misconduct by a third party service provider may result, for example, in the trustee failing to meet its obligation to exercise the same degree of care, skill and diligence as a prudent superannuation trustee would exercise. The decision itself to outsource, and to whom to outsource, must be in the best interests of the members. APRA's Superannuation Prudential Standard 231: Outsourcing also applies to trustees' outsourcing arrangements.

Professional trustees

9.134 A professional trustee may be engaged by another entity to operate a superannuation fund as trustee. The other entity may be an entity who has designed a new superannuation product (and may be appointed to promote the product) or another trustee who is no longer willing or able to continue to act as trustee of the superannuation fund and wishes to transfer the trusteeship to a professional trustee.

9.135 In these circumstances, the professional trustee is the entity who is operating the fund - it must hold an Australian financial services licence authorising it to provide a superannuation trustee service. The professional trustee will be the only entity requiring this authorisation and remains responsible for the provision of the superannuation trustee service, even if the promoter or outgoing trustee continues to perform some functions or activities that comprise operating the fund.

Example 9.1 NovelSuper develops a new superannuation product and wants to bring it to market without the ongoing responsibilities of being the trustee of the fund. NovelSuper engages TrusteePro to take on the trustee role in full. TrusteePro then outsources various functions to an administrator, a custodian and others.Due to NovelSuper's experience in marketing and promoting of superannuation products, TrusteePro contracts the promotion function to NovelSuper.TrusteePro must hold an Australian financial services licence authorising it to provide a superannuation trustee service, regardless of how many functions it outsources. TrusteePro remains accountable for complying with its licence obligations in connection with NovelSuper's ongoing promotion activities and the other functions it has outsourced.

Trustees of non-public offer funds

9.136 One category of RSE licensees - non-public offer funds (that is, trustees of superannuation funds not open to the general public) - have been exempt from the requirement to hold an Australian financial services licence to deal in a superannuation interest. This exemption is removed through related amendments to be introduced through regulations.

9.137 As a result, every trustee of a non-public offer fund will be required to hold an Australian financial services licence with authorisations to deal in superannuation interests and to provide a superannuation trustee service.

Existing exemptions - pooled superannuation trusts

9.138 The Corporations Act sets out a number of exemptions from the requirement to hold an Australian financial services licence to provide particular financial services. None of these exemptions applies to an RSE licensee in respect of a superannuation trustee service, unless the exemption expressly covers that service. [Schedule 9, item 45, section 911A(4A) of the Corporations Act]

9.139 This makes it clear that an exemption that applies to a particular financial service does not also apply to the new superannuation trustee service, even if both services share the same underlying conduct.

9.140 However, Schedule 9 preserves a set of exemptions relating to pooled superannuation trusts by amending those exemptions to expressly cover a superannuation trustee service. As a result of these amendments, an Australian financial services licence is not required for a superannuation trustee service provided only to wholesale clients - namely, to:

a trustee of a superannuation fund, an approved deposit fund, a pooled superannuation trust or a public sector superannuation scheme that has net assets of at least $10 million; or
a retirement savings account provider.

[Schedule 9, items 38 and 44, sections 761G(6)(c) and 911A(2)(ga) of the Corporations Act]

9.141 Amendments to be introduced separately through regulations will also extend existing exemptions for pooled superannuation trusts in the Corporations Regulations 2001 that currently apply in relation to dealing in a superannuation interest.

9.142 The combined effect of these expanded exemptions is that, in certain circumstances, a trustee of a pooled superannuation trust is exempt from the requirement to hold an Australian financial services licence to provide a superannuation trustee service. This is the only instance where an RSE licensee could continue to operate a registrable superannuation entity beyond 1 July 2021 without holding an Australian financial services licence.

Exempt public sector superannuation schemes

9.143 The fact that operating an exempt public sector superannuation scheme does not constitute the provision of a superannuation trustee service is clarified. This is consistent with the fact that such schemes are outside the scope of the RSE licensing regime. [Schedule 9, item 43, section 766H(2)(a) of the Corporations Act]

Regulation making power for exemptions

9.144 A regulation making power allows the Government to prescribe certain conduct so that it is exempt from constituting the provision of a superannuation trustee service. Regulations made under this power would be subject to disallowance. [Schedule 9, item 43, section 766H(2)(b) of the Corporations Act]

Licence cancellation, variation of licence conditions and banning orders

9.145 The Corporations Act and SIS Act contain requirements for APRA and ASIC to consult or inform each other about certain actions affecting entities they both regulate.

9.146 For example:

For entities regulated by APRA, other than authorised deposit-taking institutions, ASIC must consult APRA before imposing a condition on the entity's Australian financial services licence that would prevent it carrying on its usual activities (being activities in relation to which APRA has regulatory or supervisory responsibilities). This includes RSE licensees who are Australian financial services licensees.
For an RSE licensee who is an Australian financial services licensee, APRA must consult ASIC before varying a condition where that action might reasonably be expected to affect the licensee's ability to provide one or more of the financial services that it provides.

9.147 Additional statutory requirements are introduced to reflect the changes Schedule 9 makes to the framework for superannuation regulation.

9.148 RSE licensees are prudentially regulated entities that provide a compulsory product to members. These additional requirements recognise the importance of ASIC's coordination with APRA when taking regulatory actions that would prevent the trustee from operating a superannuation fund.

Licence suspension or cancellation

9.149 ASIC must obtain APRA's written agreement before suspending or cancelling an Australian financial services licence that authorises a licensee to provide a superannuation trustee service. [Schedule 9, item 50, section 915I(1)(aa)(i) of the Corporations Act]

Variation etc. of licence conditions

9.150 ASIC must also obtain APRA's written agreement before imposing, varying or revoking a condition on an RSE licensee's Australian financial services licence if that action would, in ASIC's opinion, prevent the licensee from providing a superannuation trustee service. [Schedule 9, item 46, section 914A(4)(aa)(i) of the Corporations Act]

9.151 For example, this means ASIC must obtain APRA's agreement before varying a condition on an RSE licensee's Australian financial services licence to remove its authorisation to provide a superannuation trustee service.

9.152 In any other case where ASIC imposes, varies or revokes a condition on an RSE licensee's Australian financial services licence, it must comply with the existing requirements to:

consult APRA if the condition would prevent the licensee carrying on its usual activities (being activities in relation to which APRA has regulatory or supervisory responsibilities); or
otherwise, within one week, inform APRA of the action that has been taken.

[Schedule 9, items 47 and 48, sections 914A(4)(a) and (b) of the Corporations Act]

Banning orders

9.153 ASIC must obtain APRA's written agreement before making a banning order against an RSE licensee if that action would, in ASIC's opinion, prevent the licensee from providing a superannuation trustee service. [Schedule 9, item 54, section 920A(3A)(a)(i) of the Corporations Act]

9.154 In any other case where ASIC makes a banning order against an RSE licensee authorised to provide a superannuation trustee service, ASIC must, within one week, inform APRA of the action that has been taken. This could be the case where, for example, the order would ban the licensee from providing financial product advice, but would not otherwise affect its operation of the registrable superannuation entity. [Schedule 9, item 54, section 920A(3A)(b) of the Corporations Act]

9.155 These requirements do not apply where the banning order is against a director or other officer of an RSE licensee, rather than the licensee itself. Where a banning order is made against a director or officer of an RSE licensee, the RSE licensee is still able to provide the superannuation trustee service.

Compliance with the requirements to obtain APRA's agreement

9.156 A failure to comply with any of these requirements does not invalidate the action taken by ASIC. [Schedule 9, items 49, 53 and 54, sections 914A(5A), 915I(3) and 920A(3B) of the Corporations Act]

9.157 This is consistent with the existing approach for the requirement for ASIC to consult with APRA on licensing actions that affect the ability of an APRA-regulated entity to carry on its usual activities.

9.158 This approach reflects that the benefits of avoiding any potential cost or uncertainty if the affairs of third parties were subsequently affected by any non-compliance with these administrative requirements outweigh the potential benefits of assuring compliance through the prospect of invalidity.

Exceptions to the requirements to obtain APRA's agreement

9.159 None of the requirements to obtain APRA's agreement apply where the RSE licence that is the subject of ASIC's proposed regulatory action is not in effect. [Schedule 9, items 46, 50 and 54, sections 914A(4)(aa)(iii), 915I(1)(aa)(iii) and 920A(3A)(a)(ii) of the Corporations Act]

9.160 This may occur where APRA has already removed the entity from acting as the trustee of a superannuation fund and cancelled its RSE licence. In those circumstances, APRA would not have any reason to object to ASIC's proposed action.

9.161 However, the requirements do still apply where APRA has cancelled the RSE licence but allowed it to be treated as if it were in effect, under APRA's power in section 29GB of the SIS Act. [Schedule 9, items 46, 50 and 54, sections 914A(4)(aa)(iii), 915I(1)(aa)(iii) and 920A(3A)(a)(ii) of the Corporations Act]

9.162 Similarly, ASIC does not need to obtain APRA's agreement before suspending or cancelling an RSE licensee's Australian financial services licence, or imposing, varying or revoking a condition, if the licensee itself applied for ASIC to take the proposed action. [Schedule 9, items 46 and 50, sections 914A(4)(aa)(ii) and 915I(1)(aa)(ii) of the Corporations Act]

9.163 Existing requirements to consult or inform APRA may still apply in the above circumstances. [Schedule 9, items 47, 48, 51 and 52, sections 914A(4)(a) and (b) and 915I(1)(a) and (b) of the Corporations Act]

Extending the SIS Act indemnification prohibitions

9.164 Sections 56 and 57 of the SIS Act currently operate to prevent a superannuation trustee or a director of a superannuation trustee from using trust assets to pay a penalty that they incurred for liabilities arising from breach of trust in certain circumstances or the contravention of certain provisions and types of provisions under the SIS Act.

9.165 In view of the extension of the Australian financial services licensing regime to cover the provision of a superannuation trustee service, Schedule 9 also extends the existing indemnification prohibitions. Specifically, sections 56 and 57 of the SIS Act now prevent trustees and directors from using trust assets to pay a criminal, civil or administrative penalty incurred in relation to a contravention of a Commonwealth law. [Schedule 9, items 63 and 64, sections 56(2) and 57(2) of the SIS Act]

9.166 This means that a superannuation trustee or a director of a superannuation trustee cannot use trust assets to pay a penalty that they incurred for the contravention of a provision of the Corporations Act or ASIC Act.

9.167 An application provision clarifies that these amendments apply in relation to liabilities imposed on or after this Schedule's commencement day. [Schedule 9, item 66, sections 56 and 57 of the SIS Act]

9.168 Note that a contravention of a state or territory law, depending on the circumstances, may amount to a breach of trust within the meaning of sections 56 and 57 of the SIS Act. Such a law would prevent a trustee or director using trust assets to pay a penalty for such a contravention if they failed to act honestly, or intentionally or recklessly failed to exercise the requisite care and diligence, as set out in those sections.

Court to consider impact of penalties on beneficiaries

9.169 When considering the imposition of a fine for a Corporations Act offence committed by a trustee of a registrable superannuation entity, or a pecuniary penalty for a contravention of a civil penalty provision of that Act, the court must take into account the impact the fine or penalty would have on the beneficiaries of the registrable superannuation entity. [Schedule 9, items 57 to 59, sections 1311A and 1317G(6)(e) of the Corporations Act]

9.170 This is in addition to the existing factors identified in section 1317G(6) of the Corporations Act that the court must consider in determining a pecuniary penalty, including the nature and extent of the contravention and the nature and extent of any loss or damage suffered.

9.171 The nature and structure of superannuation funds means that there is a risk that penalties incurred by a superannuation trustee could impact beneficiaries. The requirement to consider the impact on beneficiaries mitigates this risk.

9.172 While this consideration would already be taken into account by the courts in determining the appropriateness of a particular penalty, the specific inclusion of this factor ensures that the courts explicitly turn their minds to it.

9.173 The impact of a fine or penalty on the directors of a trustee is not required to be taken into account.

Alignment of breach reporting timeframes

9.174 Schedule 9 extends the timeframe within which an RSE licensee must report breaches of its RSE licence conditions from 10 business days to 30 calendar days. [Schedule 9, item 62, section 29JA(1) of the SIS Act]

9.175 This change aligns the breach reporting timeframe with the new 30 day breach reporting deadline for Australian financial services licensees, introduced by amendments that implement recommendation 7.2 of the Financial Services Royal Commission. This alignment helps to reduce the reporting burden on dual regulated superannuation trustees.

9.176 An application provision clarifies that this change applies in relation to breaches of which the RSE licensee becomes aware on or after 1 October 2021. [Schedule 9, item 65, section 29JA of the SIS Act]

9.177 This application date aligns with the application date of the changes to the Corporations Act breach reporting timeframes made through Financial Services Royal Commission recommendation 2.8.

ASIC Act consumer protections

9.178 The amendments require every RSE licensee to hold an Australian financial services licence with an authorisation to provide a superannuation trustee service, by listing that service at section 766A of the Corporations Act (which defines when a person provides a financial service).

9.179 Schedule 9 also specifies that a person provides a financial service for the purpose of the ASIC Act consumer protection provisions if they provide a superannuation trustee service. [Schedule 9, item 29, section 12BAB(1)(ea) of the ASIC Act]

9.180 Superannuation trustee service has the same meaning in the ASIC Act as in Chapter 7 of the Corporations Act. That is, a person provides a superannuation trustee service if they operate a registrable superannuation entity as trustee of the entity. [Schedule 9, item 28, the definition of 'superannuation trustee service' in section 12BA(1) of the ASIC Act]

9.181 This ensures the ASIC Act consumer protection provisions in Division 2 of Part 2 of that Act apply to RSE licensees' conduct in operating a superannuation fund. These protections include:

the prohibition on conduct in relation to financial services that is or is likely to be misleading or deceptive;
the prohibition on false or misleading representations in connection with the supply or possible supply of financial services;
rules about offering rebates, gifts, prizes or other free items in trade or commerce, in the supply or possible supply or promotion of financial services;
the prohibition on conduct that is liable to mislead the public as to the nature, the characteristics, the suitability for their purpose or the quantity of any financial services; and
the prohibition on accepting payment without intending or being able to supply the financial services paid for.

9.182 ASIC has clear powers to take action to protect consumers from these practices, whatever the type of activity in question.

9.183 In a superannuation context, these provisions are intended to apply to protect past and present members and consumers who may become new members. For example, the accuracy of representations made in advertisements is relevant to the interests of consumers who may become members.

9.184 Certain provisions in the ASIC Act apply in respect of the 'supply' of a financial service to a person, rather than to the provision of that service. These provisions apply in respect of the new superannuation trustee financial service to the extent that the service is supplied to a person (which will in turn depend on conduct that constitutes the provision of the service in a particular case and the context in which it is provided).

Court to consider impact of penalties on beneficiaries

9.185 Schedule 9 also introduces requirements equivalent to those explained above for contraventions of the ASIC Act consumer protections. When considering the imposition of a fine for an offence committed by a trustee of a registrable superannuation entity, or a pecuniary penalty for a contravention of a civil penalty provision, the court must take into account the impact the fine or penalty would have on the beneficiaries of the registrable superannuation entity. [Schedule 9, items 30 to 32, sections 93C and 12GBB(5)(e) of the ASIC Act]

Consequential amendments

Retail and wholesale clients

9.186 A consequential amendment is made to the rules governing who is a retail client in relation to financial products and services that do not relate to superannuation, general insurance or traditional trustee company services. This amendment excludes the new superannuation trustee service from these rules to maintain consistent treatment with superannuation products. [Schedule 9, item 39, section 761G(7) of the Corporations Act]

9.187 Similarly, a consequential amendment is made to exclude the provision of a superannuation trustee service from the mechanism permitting sophisticated investors to be treated as wholesale clients if they satisfy a licensee of certain matters. This is consistent with the existing exclusion of superannuation products from that mechanism. [Schedule 9, item 40, section 761GA of the Corporations Act]

9.188 Schedule 9 amends the heading for section 761G(6) of the Corporations Act to better reflect its coverage of financial services as well as financial products. [Schedule 9, item 37, section 761G(6) of the Corporations Act]

Financial Services Guides

9.189 RSE licensees are not required to provide a Financial Services Guide merely because the RSE provides a superannuation trustee service. This effectively preserves the current requirements about Financial Services Guides as they apply to superannuation trustees. [Schedule 9, item 55, section 941C(3B) of the Corporations Act]

9.190 However, an obligation to give a Financial Services Guide may arise because of another financial service provided by the trustee as part of the operation of the entity, such as the provision of financial product advice. The superannuation trustee service would then form part of the authorised services referred to in section 942B(2)(c) of the Corporations Act.

9.191 That is, the relief provided by this consequential amendment does not extend to other financial services that may require a trustee to provide a Financial Services Guide. Trustees may separately be relieved of the requirement to provide a Financial Services Guide in relation to such other services by existing exemptions (for example, if they provide the relevant information through a Product Disclosure Statement).

RSE licence conditions and APRA prudential standards

9.192 APRA has an existing power to impose additional conditions on individual RSE licences, and such conditions may have effect despite anything in APRA's prudential standards.

9.193 Amendments to the SIS Act clarify that in the event of inconsistency between an RSE licence condition imposed by APRA and a provision of the prudential standards, the licence condition prevails in determining for the purposes of any law of the Commonwealth whether the RSE licensee has complied with its obligations under the prudential standards. [Schedule 9, item 61, section 29EA(2B) of the SIS Act]

9.194 This is intended to resolve any uncertainty that may arise in the context of RSE licensees' obligations to comply with the RSE licensee law, within the meaning of the SIS Act, and with the financial services law, within the meaning of the Corporations Act.

Definitions

9.195 The term superannuation trustee service is inserted into the definitions section of Chapter 7 of the Corporations Act and the definitions section of Division 2 of Part 2 of the ASIC Act. The term registrable superannuation entity is also inserted into the definitions section of Division 2 of Part 2 of the ASIC Act. [Schedule 9, items 28 and 35, section 12BA(1) of the ASIC Act and section 761A of the Corporations Act]

9.196 The definition of registrable superannuation entity in section 761A of the Corporations Act is relocated to section 9 so that it applies across that Act. An identical definition in section 960 is repealed. [Schedule 9, items 33, 34 and 56, sections 9, 761A and 960 of the Corporations Act]

9.197 The definition of RSE licensee in section 960 of the Corporations Act is relocated to section 9 so that it applies across that Act. The term RSE licence is inserted into the definitions section of Chapter 7 and its definition of trustee is amended. [Schedule 9, items 33, 35, 36 and 56, sections 9, 761A and 960 of the Corporations Act]

Application and transitional provisions

SIS Act application and transitional provisions

Breach reporting timeframes

9.198 The amendments to align the SIS Act timeframe for breach reporting with the Corporations Act timeframe for breach reporting apply in relation to breaches of which an RSE licensee becomes aware on or after 1 October 2021. [Schedule 9, item 65, section 29JA of the SIS Act]

9.199 This application date aligns with the application date of the changes to the Corporations Act breach reporting timeframes made through recommendation 7.2 of the Financial Services Royal Commission (see Chapter 11).

Indemnification prohibitions

9.200 The amendments of the SIS Act indemnification prohibition provisions apply in relation to liabilities imposed on or after this Schedule's commencement day. [Schedule 9, item 66, sections 56 and 57 of the SIS Act]

9.201 This application provision clarifies the extent to which a provision in the governing rules of a superannuation entity becomes void when Schedule 9 commences. A provision will become void to the extent that it purports to provide indemnification for liabilities imposed on or after the commencement of the amendments - that is, where the court imposes the penalty (or the regulator issues the infringement notice, imposes the administrative penalty or makes the education direction) on or after the commencement day.

Australian financial services licensing regime extension - application and transitional provisions

9.202 The amendments commence on the later of 1 January 2021 and the day after Royal Assent. Application and transitional provisions concerning the extension of the Australian financial services licensing regime's coverage for superannuation trustee services have also been included. [Clause 2]

Relief from ordinary Australian financial services licence application requirements

9.203 An important objective of these legislative amendments is to ensure that ASIC has full regulatory coverage over the activities of RSE licensees and can take action against misconduct. The findings of the Financial Services Royal Commission show the importance of achieving this outcome expeditiously.

9.204 Consistent with this objective, each existing RSE licensee who already holds an Australian financial services licence authorising it to deal in a superannuation interest does not need to apply for the new authorisation.

9.205 However, from the commencement of Schedule 9, those licensees must comply in full with all Australian financial services licence obligations in respect of all of their activities in providing a superannuation trustee service.

9.206 After the Schedule's commencement, new applicants for Australian financial services licences authorising them to provide a superannuation trustee service must comply with all of the ordinary Australian financial services licence application requirements in respect of each financial service they propose to provide.

Grant of authorisation to provide a superannuation trustee service

9.207 The ordinary mechanism to grant an Australian financial services licence authorisation is for ASIC to make the person's licence subject to a condition authorising the person to provide the particular financial service or services. In the event of an existing Australian financial services licensee successfully applying for an additional authorisation, ASIC varies that condition on the licence and inserts a reference to the additional authorisation.

9.208 An RSE licensee who is covered by the transitional provisions is taken from the relevant date to be subject to a condition authorising the holder to provide a superannuation trustee service. This will occur automatically because they are deemed by the transitional provisions in Schedule 9 to be authorised.

9.209 However, ASIC retains the powers it would ordinarily have to vary or revoke the authorisation condition, or vary, suspend or cancel the licence, as though ASIC had granted the authorisation in the first instance. [Schedule 9, item 60, sections 1675 and 1675D of the Corporations Act]

Transitional provisions for existing Australian financial services licensees authorised to deal in superannuation interests

9.210 Each RSE licensee who holds an Australian financial services licence authorising it to deal in a superannuation interest just before the Schedule's commencement day are deemed from that date to be authorised to provide a superannuation trustee service. [Schedule 9, item 60, sections 1675 and 1675A of the Corporations Act]

9.211 RSE licensees in this category do not need to apply for the new authorisation or take any specific action to obtain it. However, licensees must comply with all Australian financial services licence obligations from the Schedule's commencement day in respect of all activities involved in operating a registrable superannuation entity.

Transitional provisions for applicants for an Australian financial services licence before the Schedule commences

9.212 In certain circumstances, if an RSE licensee is granted an Australian financial services licence to deal in a superannuation interest, it will also be deemed to be authorised to provide a superannuation trustee service from the time the licence is issued. This will occur if all of the following requirements are met:

the applicant lodges an application for an Australian financial services licence authorising it to deal in a superannuation interest on or before the Schedule's commencement day;
ASIC approves that application on or after the commencement day; and
the applicant is an RSE licensee at the time ASIC approves that application.

[Schedule 9, item 60, sections 1675 and 1675B of the Corporations Act]

Transitional provisions for existing Australian financial services licensees without an authorisation to deal in superannuation interests

9.213 Similarly, in certain circumstances, existing Australian financial services licensees who are granted an additional authorisation to deal in a superannuation interest will also be deemed to be authorised to provide a superannuation trustee service from the time that application is approved. This occurs if all of the following requirements are met:

the applicant lodges an application, on or before the Schedule's commencement day, to vary its Australian financial services licence to authorise it to deal in a superannuation interest;
ASIC approves that application on or after the commencement day; and
the applicant is an RSE licensee at the time ASIC approves that application.

[Schedule 9, item 60, sections 1675 and 1675C of the Corporations Act]

Application provisions for non-public offer funds

9.214 For trustees of non-public offer superannuation funds, the obligation to hold an Australian financial services licence authorising the licensee to provide a superannuation trustee service applies from the commencement day of the related regulations.

9.215 Those regulations will also remove the exemption for this group of trustees from the requirement to hold an Australian financial services licence authorising them to deal in a superannuation interest.

9.216 As with other applicants after the commencement of Schedule 9, trustees of non-public offer funds lodging an application after Schedule 9's commencement must comply with the ordinary Australian financial services licence application requirements in respect of each financial service they propose to provide.


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