This edition of our ‘FSR GPS’ (Guidelines, Principles and Strategies) series covers the proposed laws recently tabled before Parliament to introduce a new ‘financial service’ in the Corporations Act 2001 (Cth) (Corporations Act) and Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), namely, the financial service of ‘providing a superannuation trustee service’.
In short, this reform will extend the statutory obligations of AFS licensees to nearly all activities performed by RSE licensees. This includes the general conduct obligations in section 912A(1) of the Corporations Act and the breach reporting regime in section 912D of the Corporations Act, which is expected to be considerably expanded under separate proposed reforms. These reforms form part of the Government’s response to the recommendations made by the Financial Services Royal Commission.
We have set out some key questions and answers in relation to the new financial service of providing a superannuation trustee service below.
When do these new obligations commence?
If Parliament passes the Financial Sector Reform (Hayne Royal Commission Response) Bill 2020 (Bill), these obligations will apply from the later of 1 January 2021 or the day after Royal Assent.
What is a superannuation trustee service?
The Bill defines a superannuation trustee service as being provided whenever a person ‘operates a registrable superannuation entity as trustee of the entity’.
This concept is deliberately broad – it is intended to cover ‘all of the activities involved in operating a registrable superannuation entity, at all stages of the trustee’s interactions and transactions with members and others’ (EM, [9.104]), including, for example:
- product design and development;
- marketing to employers and consultants;
- investment selection;
- fee charging;
- death benefit nominations;
- oversight of service providers; and
- insurance claims handling (noting that there is also a separate new financial service being introduced for insurance claims handling, known as a ‘claims handling and setline service’).
The definition of a superannuation trustee service is subject to only limited exceptions. For example, there is an exception for exempt public sector superannuation schemes and an exception from the requirement to hold an AFS licence authorisation if the superannuation trustee services are provided only to wholesale clients.
What does this mean for me as a trustee?
As a result of these amendments, nearly all the activities you perform as an RSE licensee will be subject to the AFS licensing obligations in the Corporations Act. This includes fund administration and operational activities which were previously outside the purview of the AFS licensing regime.
In contrast, under the current law (i.e. without the proposed amendments), the AFS licensing obligations often apply only to the extent that the RSE licensee:
- provides financial product advice (e.g. in relation to investment options in the fund);
- deals in financial products as RSE trustee; or
- deals in superannuation products (e.g. by issuing interests in the fund).
While this is an extension of the obligations that apply to superannuation fund trustees, the operational and administration activities of a superannuation fund trustee are already largely regulated by APRA under its Prudential Standards, such as in respect of material outsourcing, information security and investment governance. Accordingly, most superannuation trustees will already have a stringent governance process in this regard, which can be updated to capture the new AFS licensing and breach reporting obligations.
Further, the introduction of the Design and Distribution Obligations (DDO) regime in October 2021 means that a number of superannuation fund trustees are already in the process of updating their product and distribution governance frameworks. In this process, it would be prudent to also ensure that the AFS licensee conduct obligations are also appropriately addressed.
What obligations will apply when I provide this service?
If you provide a superannuation trustee service, you will also need to comply with the conduct and other obligations that usually apply when an AFS licensee provides a financial service.
For example, this includes an obligation to:
- do all things necessary to ensure the superannuation trustee service is provided efficiently, honestly and fairly (s 912A(1)(a));
- report and investigate breaches of specified financial services laws (this includes the new expanded breach reporting laws proposed for ss 912D to 912EB);
- maintain financial records in accordance with Corporations Act Part 7.8 Division 6; and
- have adequate professional indemnity insurance in relation to financial services provided to retail clients (s 912B).
We frequently advise on the implications of these obligations for our clients, including the obligation to ensure financial services are provided ‘efficiently, honestly and fairly’. Some of our recent articles on that obligation are available here, here and here.
The interaction between the breadth of trustee actions covered by the new financial service and the extensive nature of the efficiently, honestly and fairly obligation is acutely significant. This is because the particular relevant activity will be subject to a new conduct obligation in addition to the trustee’s equitable and statutory duties.
Am I caught if I provide services to an RSE licensee?
No. Only a ‘person who operates a registrable superannuation entity as trustee’ can provide a superannuation trustee service.
This is reflected in [9.128] of the Explanatory Memorandum:
An RSE licensee is the only entity who requires an authorisation to provide a superannuation trustee service. Administrators, custodians and others who may undertake activities on behalf of a trustee who operates a registrable superannuation entity do not themselves operate the registrable superannuation entity.
What if I only provide this service to wholesale clients?
If the only superannuation trustee services you provide are services to wholesale clients, you will not be required to hold an AFS licence that authorises you to provide a superannuation trustee service.
Note that, generally speaking, superannuation trustee services will be taken to be provided to a person as a retail client (due to the deeming provision in section 761G(6) of the Corporations Act), unless it is provided to:
- the trustee of a superannuation fund, approved deposit fund, pooled superannuation trust, or public sector superannuation scheme with assets of at least $10 million;
- an RSA provider.
This means that an RSE licensee is, in most circumstances, likely to be providing a superannuation trustee service to retail clients, as the wholesale client exemption mentioned above is unlikely to apply.
Do I need to apply for an AFSL authorisation to provide this service?
Not if you:
- already hold an RSE licence and an AFS licence authorisation to deal in a superannuation product, as of just before the Commencement Date; or
- have already lodged or will have lodged, before the Commencement Date, an application for an AFS licence authorisation to deal in a superannuation product, on the condition that:
- ASIC ultimately grants the application for that authorisation on or after the Commencement Date; and
- you hold an RSE licence when the licence application or variation is granted.
In these instances, the Bill proposes to provide that a licence condition will automatically be applied to the AFS licence authorising the licensee to provide a superannuation trustee service.
What if I have any other questions?
Ask us! We’re assisting several of our clients implement proposed new laws that will apply to superannuation trustees, including the obligation on RSE licensees to ‘not wear two hats’ (we have published an article on this here).
 Corporations Act s 766A(1)(ec).
 Bill, inserting Corporations Act s 911A(2)(ga).
 Bill, amending Corporations Act s 761G(6).
 Part 10.49 of the Bill