Regulatory highlights
Smarter Advice Fee Oversight Controls
There was some debate surrounding aspects of the Delivering Better Financial Outcomes legislation, and the extent to which amendments to section 99FA of the Superannuation Industry (Supervision) Act 1993 could be interpreted to require trustees of superannuation funds to check each Statement of Advice (SoA) before allowing associated advice fees to be deducted from member accounts.
One of the main risks for trustees is that the scope of the advice was broader than allowed, where some of the advice is not related to the member’s superannuation interests and therefore inconsistent with the sole purpose test. This is currently the case but has been reinforced with the amendments to the law.
While we don’t believe that the restatement of the existing obligations will heighten regulatory expectations, ASIC’s recent media release highlighted that the control environment for advice fee deductions is inadequate for some trustees.
Manually reviewing each SoA might be a sensible compliance assurance approach on low volumes, but there are smarter ways to use technology to provide robust and efficient oversight of advice fee deductions.
A combination of automated data validations and reasonableness triggers can be configured to compare scheduled advice fee deductions with the metadata that surrounds adviser registrations and fee consent documents.
Climate-Related Financial Disclosures
The Sustainable Finance Roadmap was recently issued by The Treasury, outlining an ambitious program of sustainable finance related policies.
The first initiative is the introduction of a Climate-related Financial Disclosure regime, currently contained in a Bill before Commonwealth Parliament.
Australian businesses will be required to include with their financial statements a sustainability report in accordance with sustainability standards. This will include reporting on scope 1, 2, and 3 emissions which will require the development and implementation of business processes to measure emissions in operations and in supply chains.
It will be important that robust data management and integrity controls are in place to ensure the reliability of emissions reporting.
The commencement dates for the climate-related financial disclosure regime will be staggered from 1 July 2025 depending on the size of the entity, but there will be significant planning required to ensure readiness to start collecting and reporting.
The Sustainable Finance Roadmap also contains other important policies, such as the development of a sustainable finance taxonomy, supporting businesses with net-zero target planning, and developing standardised sustainable financial product labels.
Operational Integrity & Resilience
The operational effectiveness of superannuation trustees remains a core focus, with the final piece of the CPS 230 Operational Risk Management regulatory landscape falling into place with APRA issuing its final guidance in CPG 230 Operational Risk Management.
The new standard will require robust operational risk management practices as part of an entity’s risk management framework, require continuity of critical operations and apply via contractual arrangements to service providers involved in providing critical operations.
In finalising its guidance, APRA provided some further detail about key aspects of the reform, including:
- Deferred commencement relief for trustees of superannuation funds with less than $30 billion in assets in relation to business continuity and scenario analysis
- Removing ‘better practice’ examples from regulatory guidance, which have been replaced with examples which focus on base requirements
- Addressing industry concerns about assessing the materiality of service providers which collectively provide a material business activity (typically, investment management), where individual service providers may not be material in the scale and scope of their services
APRA has also provided a handy “Day 1 Checklist” to assist trustees in preparing to comply from the commencement date.
There is a significant amount of work required for trustees to adapt existing practices and third-party arrangements to comply with the regime.
This is part of the regulatory update produced by Jonathan Steffanoni of Legal and Prudential Advisors as part of The Quarterly – Data and Technology in Superannuation, Q4 FY24. For the full PDF version of the report containing the entire regulatory update, contact us.
Key Contributor
Jonathan Steffanoni, Managing Partner, Legal and Prudential Advisors