19 July 2021
With the commencement of the Financial Sector Reform (Hayne Royal Commission Response No. 2) Act 2021 (Reform), registrable superannuation entity (RSE) licensees are likely to face heightened scrutiny and should ensure they have robust governance and assurance arrangements in place.
To help superannuation trustees comply with their new obligations under the Reform, ASIC and APRA have released a follow-up to their joint April 2019 letter, providing guidance on the oversight of advice fees charged to members’ superannuation accounts. Many will recall that the 2019 letter preceded a wave of regulatory investigations and litigation by both regulators.
As a result of these amendments, and APRA and ASIC’s updated guidance, RSE licensees should be prepared to answer questions from APRA and ASIC, and be ready for possible enforcement action in the event of actual or perceived noncompliance.
In the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Commissioner Hayne expressed concern about the lack of visibility members have over ongoing advice fees charged to superannuation products and instances where fees were charged without the provision of a service.
Schedule 3 of the Reform implements recommendation 3.2 and 3.3 of the Final Report by amending Part 2C of the Superannuation Industry (Supervision) Act 1993 (SIS Act), to prohibit the deduction of ongoing advice fees from MySuper accounts.
The Reform also amends the general fee rules under Part 11A of the SIS Act to ensure that a superannuation trustee can only charge advice fees (other than fees for intra-fund advice) to a member where the fee is in accordance with an arrangement that the member has entered into, the member has consented in writing to being charged the fee and the trustee has the written consent or a copy of it.
These amendments:
Schedule 3 of the Reform applies from 1 July 2021, with a 12-month transitional period commencing 1 July 2021 for arrangements entered into before 1 July 2021.
ASIC has also introduced the ASIC Corporations (Consent to Deductions—Ongoing Fee Arrangements) Instrument 2021/124 (Ongoing Fees Instrument) and ASIC Superannuation (Consent to Pass on Costs of Providing Advice) Instrument 2021/126 (Non-Ongoing Fees Instrument) which specify the requirements for advice fee consents as contemplated by the Reform.
In particular, in relation to non-ongoing fees, written consent must include information about the services the member will be entitled to receive for the fee.
RSE licensees should expect continual engagement from APRA and ASIC about the robustness of their policies and practices for the management and oversight of all fees charged to the superannuation account of members.
We set out below some guidelines to help RSE licensees satisfy their regulatory obligations:
By the joint letter ASIC and APRA have demonstrated an intention to investigate any actions they believe fall below community expectations.
ASIC and APRA are refocusing their attention on RSE licensees to ensure adequate systems, controls, resources and accountability are in place so that the services for which members are charged are both monitored and adequate.
With the introduction of the Reform and the Ongoing Fees and Non-Ongoing Fees Instruments, over the coming months licensees should be ready to demonstrate that they have developed policies and made the appropriate process changes necessary to comply with these new requirements.
To ensure that financial services are provided efficiently, honestly and fairly, trustees should always consider the basis on which a particular fee for financial product advice is charged and be satisfied that the fee relates to a cost that is to be paid in accordance with an arrangement that the member has agreed to.
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