Key News Summary – APRA announced its 2019 regulatory focus on superannuation, in the wake ‘banking’ Royal Commission and other developments, which included 8 matters, one of which was a review of the ‘sole purpose’ test, with a view to updating it and making it more specific.
On 27 March 2019, APRA sent a letter to all RSE Licensees saying: the release in February 2019 of the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the Royal Commission) was a pivotal point for the financial services sector (including the superannuation industry) –reinforcing the need to rebuild trust, strengthen governance and address misconduct.
Also, the Productivity Commission’s Review of Efficiency and Competitiveness of the Australian Superannuation System pointed to deficiencies in the performance of the industry, identifying areas where sound outcomes were not being delivered for members.
Third, it noted that they will soon publish their report, detailing the outcomes of APRA’s post-implementation review, of the superannuation prudential framework, that was introduced in 2013.
The main thrust of the letter was to say that their main focus, over the coming year, will continue to be on ensuring that all trustees are putting their members first and meeting their responsibilities under the Superannuation Industry (Supervision) Act 1993.
The letter had an attachment, which contained the following announcement about a review of the ‘sole purpose test’.
7. Sole Purpose Test
The industry has previously noted that there is ambiguity around the intent of the sole purpose test, which has contributed to differing interpretations and practices within the industry. Some examples of questionable practices in this area were also highlighted by the Royal Commission.
APRA indicated in December 2018 that it would be updating its guidance on the sole purpose test during 2019.4 Given the questions that have arisen about the appropriate range of activities that fall within the sole purpose test, and its importance in determining the boundaries of practices that may be regarded as acting in the best interests of members, APRA intends to undertake a review, involving ASIC as appropriate, of particular cases or circumstances where compliance with the sole purpose test has been called into question. The aim of this review will be to develop clear principles to inform updated guidance and its implementation, as well as identifying potential breaches where appropriate action should be taken. The review may also lead to recommendations as to whether the law could be clarified to better meet the intent of the sole purpose test.
The remaining headings in this Attachment (together with lead in ‘snippets’ are as follows.
1. Assessing and improving member outcomes
APRA’s new prudential standard SPS 515 Strategic Planning and Member Outcomes becomes effective from January 2020. …
2. Trustee board capabilities and culture
Both the Royal Commission and APRA’s Prudential Inquiry into the Commonwealth Bank of Australia found instances where institutions’ culture was not aligned to producing good customer outcomes. …
3. Risk governance
Minimum standards for risk management by superannuation trustees are set out in Prudential Standard SPS 220 Risk Management, which became effective in 2013. …
4. Conflicts of interest
Trustees are directly accountable for meeting members’ best interests regardless of corporate structures. The Government has indicated that it will adopt the Royal Commission’s recommendation regarding inherently conflicted structures, such as dual regulated entities, and all trustees should now be planning for this change where relevant to them. …
5. Data and reporting
Accurate and timely data plays a vital role in enhancing the superannuation industry’stransparency, allowing trustees to be held accountable for the outcomes they deliver to members, helping consumers make informed decisions and ensuring all stakeholders can draw meaningful conclusions on industry performance. …
6. Accountability and remuneration
The Government has stated that it will legislate to extend the concepts of the Banking Executive Accountability Regime (BEAR) to superannuation, as recommended by the Royal Commission. Regardless of the timing and detail of that legislation, it would be prudent – and indeed a worthwhile exercise – for trustees to commence the process of developing accountability statements for themselves and their key executives. …
8. Insurance and inactive accounts
The trustee covenants set out in the Superannuation Industry (Supervision) Act 1993 require trustees to only offer insurance if the cost does not inappropriately erode the retirement income of beneficiaries. The Productivity Commission’s report highlighted the significant detriment that can occur when members hold unnecessary, duplicate or multiple sets of insurance cover.