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The Government has announced reforms to strengthen consumer protections and the resilience of the superannuation and financial system. These changes are being made in response to high profile investment failures but may lead to increased compliance costs for providers.
The reforms have been announced in a Treasury fact sheet, which will presumably be followed by consultation on the measures.
Protections for Members of APRA-Regulated Superannuation Funds
There will be an obligation on trustees to set and ensure compliance with caps on advice fees deducted from member accounts, and the civil penalty for breaches of core trustee obligations will increase to 50,000 penalty units (from 2,400). APRA will be granted power to set capital requirements for trustees offering “higher-risk investment options”. This could see superannuation platform trustees being subject to higher capital requirements. It is not yet clear if, and how, this would apply in the context of not-for-profit trustees.
Protections in the Self-Managed Superannuation Fund (SMSF) Sector
The ATO will have the power to prevent rollovers to new SMSFs where they are investigating fraud or financial abuse concerns and collect additional information on those involved in the SMSF establishment process including fee arrangements. The ATO will also be encouraged to provide reporting to SMSF trustees where their returns lag APRA regulated funds. SMSFs will be required to maintain uniquely identifiable bank accounts and written investment strategies from inception.
Addressing Harmful Lead Generation
Unlicensed real-time communications with consumers about superannuation will be banned, subject to advocacy, education and employment exemptions, and stricter consent requirements will apply. Anti-hawking provisions will be strengthened, with tighter limits and enhanced enforcement powers. Licensees will also need to take reasonable steps to ensure lead generation activities comply with regulatory requirements, including via ongoing oversight.
Enhanced Managed Investment Scheme (MIS) Governance
Responsible entities will be required to notify ASIC when freezing or limiting investor redemptions. This is not currently required.
The Auditing and Assurance Standards Board will be able to make mandatory standards for MIS compliance plan auditors.
Financial Advice
A new class of adviser regime will apply to superannuation and life insurance entities, with safeguards against vertical integration through prohibitions on commissions, bonuses and volume-based payments. The Best Interests duty will broadly remain as is, but the onerous aspects of the safe harbour step will be removed to facilitate scaled advice. Other changes will address intra-fund charging, targeted superannuation prompts and the adviser code of ethics.
Compensation Scheme of Last Resort (CSLR) Changes
From 30 June 2027, CSLR payments will be limited to compensating for actual losses.
To date, CSLR has been overwhelmed with claims. The reforms propose a more predictable framework for covering such exceptional losses, via a waterfall special levy mechanism, with ongoing Government consultation to determine the waterfall tier allocations. The changes would require SMSFs to contribute to the levy. Other reforms designed to improve the efficiency of the CSLR include expanding statutory recovery rights.
Next Steps
Further guidance is expected from Government as it seeks to implement these reforms.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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