As the superannuation industry contends with ongoing change driven by factors such as law reform and economic, technological and climate risks, ASIC reminds trustees to be responsible, accountable and transparent in implementing regulatory obligations. JANE ECCLESTON, Senior Executive Leader, Superannuation, identifies ASIC’s main priorities for FY 2022-23.
FY2021-22 saw the commencement of many reforms focusing on consumer protection across the financial services sector, including superannuation. In FY 2022-23, a number of these sector-wide reforms, including the design and distribution obligations, the new reportable situations regime and internal dispute resolution requirements will continue to significantly impact superannuation trustees. The operation of the Your Future, Your Super laws is under review by the Government, and may lead to more changes in the way trustees operate. While the superannuation industry continues to navigate these changes, as the conduct regulator for superannuation, ASIC will remain focused on the behaviour of trustees to improve outcomes for consumers.
ASIC recently released our 2022–26 Corporate Plan. This plan sets out our core external priorities, and the actions we plan to take to give effect to those priorities now and over the next four years. Our four organisation-wide strategic priorities are:
Against the backdrop of the changing economic environment and an ageing population, protecting Australians planning for retirement is a major priority for ASIC, as demonstrated by our strategic focus. Our work concerning superannuation trustees will centre on consumer protection and improving standards of conduct among trustees. Each of the other strategic priorities also link to superannuation and we are undertaking projects covering those priorities.
Supporting the delivery of ASIC’s external priorities is a set of core strategic projects, focused on breach reporting, crypto-assets, scams, cyber and operational resilience, design and distribution obligations, sustainable finance practices and, subject to the passage of legislation, the implementation of the Financial Accountability Regime. Of these, superannuation trustees may be particularly interested in design and distribution obligations and sustainable finance.
Design and distribution obligations: These obligations were introduced in October 2021 to ensure that financial products are designed to meet the needs of consumers and are being distributed to those consumers in a targeted and appropriate manner. This financial year sees a shift in ASIC’s approach from implementation to compliance with these obligations. Across ASIC, we have targeted surveillances underway to check whether product issuers and distributors are complying with their design and distribution obligations.
In superannuation, we will be conducting a surveillance of trustee distribution practices in relation to choice superannuation products, focusing on products with poorly performing investment options. We will consider trustee compliance with the design and distribution obligations. Our surveillance will also cover marketing, communications and financial advice as well as the role of financial advisers and their licensees in the distribution of choice products. This work aims to ensure that communications and advice given by trustees and advisers allow consumers to make informed decisions on taking up choice products that are suitable to their needs.
We are also continuing to monitor whether industry is appropriately implementing the reforms. An initial review of target market determinations (TMDs) across both accumulation and retirement products has been completed. Going forward, we will consider appropriateness of TMDs and trustee compliance with other parts of the DDO regime as part of our thematic reviews and reactive work.
Sustainable finance practices: Confidence in superannuation will be undermined by ‘greenwashing’, the practice of misrepresenting the extent to which a financial product’s investment strategy is environmentally friendly, sustainable, or ethical. This includes claims of ‘net zero’ emissions. Such practices could result in harm for consumers intending to invest their superannuation according to sustainable and ethical values.
Following our recent publication of Information Sheet 271: How to avoid greenwashing when offering or promoting sustainability-related products, we are monitoring greenwashing practices in the industry through:
If we identify potentially misleading or deceptive statements, or a failure to comply with the disclosure obligations in relation to superannuation products promoted as ‘sustainable’, we will actively engage with trustees to promote better practices. Serious misconduct may result in further regulatory action, including enforcement.
The new reportable situations regime –often referred to as breach reporting– also commenced in October 2021. The new regime helps ASIC with early detection of non-compliance and concerning trends from regulated entities, including superannuation trustees. The scope of the changes is significant, so in this financial year, ASIC is focusing on improving the operation of the new regime, engaging with stakeholders to address issues and deliver further guidance if needed. ASIC will undertake a range of activities to strengthen compliance with the regime.
ASIC’s cyber and operational resilience project aims to strengthen financial markets and service providers against various risks such as cyber-attacks and operational risk. For superannuation, APRA is the primary regulator in this space, and ASIC will collaborate with APRA as well as other agencies to deliver our work. We also have a particular interest in how trustees deal with consumers who may be impacted by these issues.
The growing size of the superannuation industry makes it a target for scams. This is compounded by heightened economic uncertainty and technological developments as well as social media. ASIC has been developing approaches to identify, quantify, and disrupt scams while also working with other regulators to protect consumers. ASIC will be improving communications and consumer education, including through social media, to reduce the harm presented by scams.
In FY2022-23, ASIC will continue to prioritise:
Internal dispute resolution: Trustees need to ensure they are complying with the new enforceable requirements and standards in RG 271 Internal Dispute Resolution. Earlier in 2022, we undertook a surveillance on the status and timeliness of complaints handling by a selection of trustees. This financial year, we are taking a closer look at how trustees are handling member complaints, including by analysing data and reviewing their responses to the complaints.
Insurance in superannuation: Over the past three years, ASIC has communicated findings and expectations for how trustees can improve insurance outcomes for members. This financial year, we are undertaking a surveillance of a selection of trustees’ insurance arrangements. We are looking at what progress has been made to improve insurance arrangements, member communications and claims handling processes, with a focus on areas of concern that we have raised previously.
Performance test failure communications: We continue to monitor the underperformance notifications and communications by trustees with superannuation products that failed the legislated annual performance test administered by APRA. We are specifically looking into the communications for products with consecutive failures because they will be banned from accepting new members.
Retirement income covenant: We are reviewing how trustees have approached implementation of the covenant. We are undertaking a joint surveillance, with APRA, of how selected trustees have formulated and implemented their retirement income strategies. We are also monitoring practices across the market in terms of products, advice and guidance offerings, and disclosure.
Choice products surveillance: As part of our ASIC-wide focus on compliance with the design and distribution obligations, we will conduct a surveillance of trustee distribution practices in relation to choice superannuation products (refer to the Design and distribution obligations section above).
Trustees are subject to various transparency obligations, but the disclosure is not always adequate or easily accessible. In a multi-year project, we will be reviewing industry practice, communicating our expectations regarding trustees’ transparency obligations, and acting to improve transparency practices.
We also plan to commence a surveillance of trustees’ oversight of advice fee deductions to identify poor practices and act to ensure improved conduct.
ASIC and APRA will also continue to work closely together on areas of common interest, such as the performance test, retirement income covenant, and the Financial Accountability Regime.
As highlighted by the range of our supervisory work, the regulatory expectations of superannuation trustees remain the same as last year. We expect trustees to be sophisticated and mature in how they develop, govern, monitor, and market super products, putting members at the heart of decision-making. This means taking a consumer-centric approach to product design and distribution, in-line with the new obligations. It means investing in the right systems, processes and technologies, and uplifting data analytics and governance arrangements. Trustees should continue to challenge themselves to move beyond a ‘compliance only’ mindset.
As the conduct regulator, we will continue to look at how trustees are dealing with consumers and consider regulatory action, to prevent or address consumer harm. Earlier this month, we announced our enforcement priorities at the ASIC Annual Forum. In the superannuation sector, ASIC will look to take action where we see instances of misleading conduct and poor governance. We are also looking at broader themes of misconduct across the financial services industry that will be relevant to superannuation, for example misleading conduct in relation to sustainable finance, including greenwashing.
When deciding what action to take, ASIC generally considers a range of factors, including the nature and circumstances of the suspected misconduct. We also consider how a trustee interacted with ASIC in relation to the suspected misconduct, and we encourage trustees to engage in open and transparent dialogue with us.
For more information, refer to ASIC Corporate Plan 2022–26: Focus 2022–26 and ASIC’s Enforcement priorities for 2023. Information on ASIC’s projects relating to superannuation can be found at Current projects and consultations | ASIC.