FSR GPS: Don’t wear ‘two hats’ in superannuation

This edition of our ‘FSR GPS’ (Guidelines, Principles and Strategies) series covers proposed laws recently tabled before Parliament to impose a statutory condition (Condition) on RSE licensees to have ‘no other duty to act in the interests of another person’ other than a duty that arises in the course of:

  • acting as an RSE licensee; or
  • providing personal advice.

As explained by Commissioner Hayne during the Financial Services Royal Commission, this is also known as the proposed prohibition against ‘wearing two hats’.

We have set out some key questions and answers in relation to the proposed Condition below.

When will the Condition apply?

If Parliament passes the Financial Sector Reform (Hayne Royal Commission Response) Bill 2020 (Bill), the Condition will apply from the later of 1 July 2021 or the day after the Bill receives Royal Assent.

In our view, many superannuation trustees are likely to face difficulties implementing these reforms by 1 July 2021, particularly where a new RSE licence may be required, and it is likely that the Government or APRA will need to consider a transition or ‘no action’ period for this regime on an industry-wide basis.

What does the Condition say?

The Condition provides that an RSE licensee that is a body corporate ‘must not have a duty to act in the interests of another person, other than a duty that arises in the course of:

  • performing the RSE licensee’s duties, or exercising the RSE licensee’s powers, as a trustee of a registrable superannuation entity; or
  • providing personal advice.’

How does this proposed law differ from the draft circulated by Treasury in January?

This proposed amendment is identical to the amendment proposed by Treasury in its initial exposure draft legislation on 31 January 2020, other than in respect of the effective date.

However, there are some changes to the Explanatory Memorandum to the Bill (EM) (see further discussion below).

What can’t I do as an RSE licensee?

The Condition will preclude RSE licensees from holding any duty to act in the interests of another person. This will cover any statutory, fiduciary, or court-imposed duty to act in the interests of another person. The EM provides a few examples, including:

  • being a responsible entity of a managed investment scheme;
  • acting as an agent of another person; and
  • acting as a trustee of a traditional trust.

What can I do as an RSE licensee?

Provide services that do not give rise to a duty to act in the interests of another person

The Condition does not preclude RSE licensees from entering into contractual arrangements to provide services where no such duty arises. For example, the EM points out that an RSE licensee will still be able to:

‘provide trustee administration services to other entities, because that would not give rise to a duty to act in the other interest of/give priority to, another person’.

Have superannuation duties exclusively to members of RSEs

The Condition also does not preclude duties that arise in the course of acting as superannuation trustee.

For example, the EM points out that ‘duties arising from the superannuation trustee operating investment vehicles, such as managed investment schemes … that are only open to members of the registrable superannuation entity’ would be permitted on the basis that they would fall within this exception.

This is actually a rather confusing comment because the reference to “operating investment vehicles” suggests that what is contemplated is a sub-trust of the superannuation fund, which would involve the RSE trustee investing in managed schemes in that capacity. On the other hand, the reference to the scheme being “only open to members of the registrable superannuation entity” implies that rather than the RSE licensee investing in the schemes, the members would be investing directly in the schemes. In our view, this is not what was intended.

The bottom line is that where an RSE Licensee operates wholly-owned sub-trusts within the fund, this should not offend the condition because it is being done in the course of acting as a superannuation trustee.

Act as RSE licensee of multiple funds, including pooled superannuation trusts

The Condition enables an RSE licensee to act as the trustee of multiple registrable superannuation entities, which includes pooled superannuation trusts.

How does this impact subsidiary responsible entities?

In our view, one of the most interesting new developments in the current EM tabled before Parliament, compared against the draft proposed by Treasury in January, is that the EM specifically calls out the parent model, stating at [8.17] that:

‘[the condition] does not prohibit another entity in the same corporate group, including a subsidiary of the trustee, from having a duty to act in the interests of another person’:

While we think this view is fairly obvious from the perspective of understanding a subsidiary as a separate legal entity, we note that complying with the Condition will not necessarily, by itself, address any conflicts management issues that can arise when an RSE licensee and a responsible entity enter into arrangements with each other as related parties.

From our experience, APRA is continuing to focus particular attention on ensuring that RSE licensees have adequate conflicts management arrangements with respect to their related parties, and we generally recommend paying attention close attention to this in the course of preparing for any restructure.

What issues should I consider when restructuring my RSE licensee?

Every RSE licensee will have unique issues to consider. By way of example, the following issues might need to be considered in the context of separating the RSE and responsible entity functions of a dual-regulated entity:

  • based on the membership makeup of any managed investment schemes, would it be simpler to retire the responsible entity functions of the entity (noting the member approval requirements in Chapter 5C of the Corporations Act), or retire the RSE functions?
  • what AFS and RSE licence authorisations will need to be obtained to facilitate the separation? To what extent might individual relief from APRA or ASIC be available in my circumstances?
  • where a related entity provides outsourced services to support both the RSE and responsible entity functions of the RSE licensee, how should those service agreements be amended, and how can conflicts issues be addressed?
  • after separation, how will fee revenue and expenses be shared across the corporate group to finance the operations of the RSE and responsible entity?
  • to what extent can employees be shared between the RSE and responsible entity?
  • what management structure is necessary, post-separation, to ensure potential conflicts are adequately managed? How can this be aligned to work with incoming requirements such as CPS 511 and the Financial Accountability Regime?

Was there anything interesting and new in the EM?

The EM tabled before Parliament, compared against the draft released by Treasury on 31 January 2020, contained a few additional positional statements (from the perspective of Treasury) around relief. In particular, the tabled EM:

  • provides greater detail on APRA exercising its modification powers under SIS to postpone operation of the statutory licence condition, on a case by case basis. Most critically, the EM states that: ‘This relief may be appropriate where an entity is required to undergo a complex restructuring process to comply with the licence condition:’ [8.47]; and
  • refers in passing to ASIC’s general policy on exercising relief from the requirement on a responsible entity to allow the scheme’s members to vote on a new responsible entity (Corporations Act s 601FL): [8.45]–[8.46].

Despite this, we consider that these statements do not go far enough in recognising the significant work that will be necessary for dual-regulated entities to complete a transition to their new structures by the stated commencement date of 1 July 2021.

What if I have any other questions?

Ask us! We’re assisting several clients with a restructure of their dual-regulated entities to address these and other proposed laws, including the introduction of ‘superannuation trustee services’ as a type of financial service (see our article on this here).


Michael Vrisakis
Michael Vrisakis
+61 2 9322 4411
Ruth Stringer
Ruth Stringer
+61 2 9225 5099
Steven Rice
Steven Rice
Special Counsel
+61 2 9225 5584
Tamanna Islam
Tamanna Islam
Senior Associate
+61 2 9225 5160
Shan-Verne Liew
Shan-Verne Liew
+61 2 9225 5210

FSR GPS: ‘Superannuation trustee service’ as a financial service

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’.[1]

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.[2]

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:[3]

  • 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:[4]

  • 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).


[1] Corporations Act s 766A(1)(ec).

[2] Bill, inserting Corporations Act s 911A(2)(ga).

[3] Bill, amending Corporations Act s 761G(6).

[4] Part 10.49 of the Bill


Michael Vrisakis
Michael Vrisakis
+61 2 9322 4411
Ruth Stringer
Ruth Stringer
+61 2 9225 5099
Steven Rice
Steven Rice
Special Counsel
+61 2 9225 5584
Tamanna Islam
Tamanna Islam
Senior Associate
+61 2 9225 5160
Shan-Verne Liew
Shan-Verne Liew
+61 2 9225 5210


Special disadvantage and unconscionability: What financial service providers need to know

At the end of our previous article on unconscionability, we noted that ACCC had filed an appeal to the Full Federal Court in relation to its proceedings against Quantum Housing Group which concerns allegations of statutory unconscionable conduct.[1] The case will provide an opportunity for the Full Federal Court to consider the issues and variations of approach raised by the High Court in Kobelt[2].

The case will concern whether statutory unconscionable conduct under the Australian Consumer Law requires the targets of the conduct to be under a special disadvantage.  Unconscionable conduct under the Australian Consumer Law is couched in essentially the same terms as under the ASIC Act.

The outcome of the appeal will be of great importance to financial service providers, by providing guidance as to the precise scope of their statutory obligations.

In this article, we look at the relationship between unconscionable conduct and bargaining power, specifically:

  • at what point conduct can be considered unconscionable, and when is a “disadvantage” a “special disadvantage”, having regard to the recent Quantum Housing decision; and
  • how the concept of special disadvantage may be understood from the point of view of superannuation funds, managed investment schemes, insurers and other financial service providers.


Unconscionable conduct and bargaining power

As the outcomes of both Kobelt and the first instance decision in Quantum Housing show, not every instance where a person leverages their stronger commercial position to gain an advantage over a person in a weaker bargaining position is going to have constitute unconscionable conduct.

Commercial behaviour falls on a spectrum. On one end, we find healthy marketplace competition, on the other end, we find behaviour that is downright predatory. The critical question for financial services providers is: at what point does capitalising on a commercial advantage actually become unconscionable?

At first instance in Quantum Housing, Colvin J had held that on the facts “[t]here is no description of the financial or other circumstances of the investors that would enable them to be characterised as being vulnerable or in a position of disadvantage of a kind that might expose them to being exploited or victimised”.[4]

The ACCC is appealing the decision on the basis that unconscionable conduct under statute does not require the existence and exploitation of a special disadvantage.[3] (We discuss the High Court’s consideration of the differences between equitable and statutory unconscionable conduct in Kobelt here).


What makes a “disadvantage” a “special disadvantage”?

Assuming that statutory unconscionable conduct does require the exploitation of a special disadvantage, at what point does taking advantage of a situation become unconscionable?

In Quantum Housing, Colvin J held:

Therefore, the majority view [of Kobelt] supports the adoption of a standard that requires exploitation of disadvantage by a party in a stronger position by conduct that is well outside the bounds of what is generally seen to be moral, right or acceptable commercial behaviour. It is not every instance where a person in a stronger commercial position gains an advantage by reason of that position over a person in a weaker or disadvantaged position that is unconscionable. It is not enough that the dealing might be described as unfair or unreasonable. Rather, unconscionable conduct involves dealing with those who are vulnerable in a manner that exploits that vulnerability by engaging in conduct that may be plainly or obviously criticised when viewed through the lens of an understanding of proper commercial behaviour according to prevailing norms and standards.[5]

It is worth unpacking this final sentence.

First, Colvin J speaks of “a vulnerability that is exploited”. This is a necessary but insufficient condition of unconscionability. As we have discussed, a healthy marketplace requires commercial actors to seek to gain advantages to some extent.  Clearly something more is required.

Second, Colvin J states that the conduct is of a kind that “may be plainly or obviously criticised”. The idea that criticism of the conduct must be plain or obvious is a troubling one, because cases concerning unconscionability are so often borderline. The fact that the High Court split 4:3 in Kobelt (and that five separate and difficult to reconcile judgments were delivered) demonstrates that what may be ‘obviously’ criticisable to some, may not be to others.  Criticism as a standard for unacceptable conduct is a fluid yardstick.  Nevertheless, what is clear is that the threshold is a high one.

Third, in order to ground this concept of criticism in some sort of objective standard, Colvin J adds that the criticism must be plain or obvious “when viewed through the lens of an understanding of proper commercial behaviour according to prevailing norms and standards”. While Colvin J chooses to avoid the language of “moral obloquy” (a wise decision, in our view), it is clear that unconscionable conduct requires the action to be in breach of some sort of societal norm or community standard. This generally accords with the position in Kobelt.


Proper commercial behaviour

Crucially, Colvin J did not write “proper behaviour”, but rather “proper commercial behaviour”. This recognises that there is no expectation that actors in a marketplace need necessarily forgo their own commercial interest. But it also shows how the propriety of any behaviour must be understood against the backdrop of the commercial relationship between the parties. The ability of a party to pursue their own interests but not to the degree of unduly harming the counterparty is an element also evident in the contractual duty of good faith.

This is intuitive. Notwithstanding the final result of Kobelt, it is clear that the norms and standards underpinning the commercial behaviour expected from a credit provider lending to members of two remote Aboriginal communities will be different to a situation in which the borrower is a sophisticated multinational corporation. It is critical to assess the entirety of the relationship of the parties.

However, when considering the entirety of a commercial relationship, it is not enough to simply look at circumstantial factors such as sophistication.  It is equally as important to consider the nature of the relationship as a matter of law.

Superfunds, managed investment schemes, and other trustees/fiduciaries

For superannuation funds and managed investment schemes, the existence of a trust relationship between the fund and its members will influence what is proper commercial behaviour in those circumstances.

While being a beneficiary may not necessarily put a person at a special disadvantage in relation to the trustee, trust relationships exist precisely because one party is entrusting another to hold property on his or her behalf. Beneficiaries are therefore more vulnerable to exploitation by a trustee than, say, one contractual counterparty is to another. (As an analogy, consider that in equity a beneficiary cannot be considered to be contributorily liable for the wrongdoing of a trustee, precisely because trust/fiduciary relationships are inherently asymmetric, unlike the duty of care.)

Because a trust relationship is not, at least as a legal precept, a relationship between two equals (much less a relationship between two competitors), the existence of a trust will impact the norms and standards that determine what commercial behaviour is proper in those circumstances. Exploitation of a member’s vulnerability that is plainly criticisable when viewed through the lens of proper commercial behaviour in these circumstances will be unconscionable.

Insurers and other financial service providers

For financial service providers that are not trustees or other fiduciaries of a person, but simply maintain a contractual relationship, the expected standards of proper commercial behaviour may be lower. Unlike fiduciary duties, the duty of good faith does not prevent a party from seeking its own commercial advantage in the relationship, as we observed early.

However, it will still be necessary to determine the precise nature of the legal relationship between the parties. For instance, the existence of a duty of utmost good faith between an insurer and insured reflects the informational asymmetries and other vulnerabilities that can arise in insurance relationships. A breach of the duty of utmost good faith by an insurer is potentially more likely to be unconscionable than a typical breach of good faith outside of the context of insurance.


We will keep our readers apprised of the outcome of the ACCC appeal in Quantum Housing. In the meantime, please reach out to the HSF FSR Team if you have any questions relating to unconscionable conduct or the regulators’ approaches to it.


[1] ACCC v Quantum Housing Group Pty Ltd (No 2) [2020] FCA 802 (‘Quantum Housing‘).

[2] ASIC v Kobelt [2019] HCA 18 (‘Kobelt‘).

[3] https://www.accc.gov.au/media-release/quantum-housing-decision-appealed-over-unconscionable-conduct.

[4] Quantum Housing, [32] (Colvin J).

[5] Quantum Housing, [29] (Colvin J).



Michael Vrisakis
Michael Vrisakis
+61 2 9322 4411
Steven Rice
Steven Rice
Special Counsel
+61 2 9225 5584
Philip Hopley
Philip Hopley
Special Counsel
+61 2 9225 5988
Tamanna Islam
Tamanna Islam
Senior Associate
+61 2 9225 5160
Nathan Hauser
Nathan Hauser
+61 2 9225 5335

Where are we up to again? Insurance regulation over the horizon

By Philip Hopley

The Australian regulatory financial services sector has certainly been giving props to Greek philosophy of late with its channelling of Heraclitus’ statement that “there is nothing permanent except change.”

Now that the dedicated insurance hearings at the Royal Commission have finished, here is a snapshot of the current legislative and regulatory plans for the insurance industry that are in train and coming over the horizon.

  1. Product design and distribution obligations & intervention powers – following the recent consultation by Treasury, draft legislation has now been introduced into parliament (link here).
  2. Unfair contract terms legislation to apply to insurance – Treasury consultation on a proposed model law ended in August (link here).
  3. Life insurance claims reporting – ASIC and APRA are in the process of creating a formal reporting regime for life insurance claims to drive accountability in the sector (link here).
  4. Disclosure regime for general insurance – Treasury is currently reviewing and considering reform of the product disclosure regime for general insurance products (link here).
  5. ASIC oversight of insurance claims handling – work to implement this recommendation from ASIC Report 498 in 2016 was placed on hold by the Royal Commission.  The impetus for change in the law has only increased in the meantime and reform must now be very likely.
  6. Civil penalties for breach of the duty of utmost good faith – the government has agreed to give ASIC the power to impose civil penalties on insurers that breach their duty of utmost good faith, as recommended in ASIC’s Enforcement Review Taskforce Report in December 2017 (link here).
  7. ASIC approval of industry codes – another Taskforce Report recommendation by ASIC that the government has agreed to, pending the Royal Commission’s final report, is to move the general and life insurance codes of conduct to a co-regulatory model where ASIC approves these codes and enforces breaches.

No doubt the above proposals will receive a tailwind from the publication of the interim Royal Commission report at the end of September and the final report at the beginning of February 2019, that will consider insurance and superannuation.

The obvious questions at this stage are whether the planned reforms that pre-date the Royal Commission will be seen to go far enough, whether additional reforms are likely to feature to add to the list, whether the government can legislate in time before next year’s federal election and what difference a change in government may bring.

It seems likely it will take at least the next six to 12 months for a more complete picture of the legislative and regulatory reform programme to emerge.


Philip Hopley
Philip Hopley
Special Counsel
+61 2 9225 5988

Current APRA Superannuation Initiatives

This page is an extract from the presentation addressing current APRA superannuation initiatives, and in particular:

  • APRA Related Party Arrangements Thematic Review
  • APRA Discussion Paper – Post-implementation review of APRA’s superannuation prudential framework

We hope that this summary and overview of key points is helpful.  Please let get in touch with Michael Vrisakis if you would like to discuss any aspect of these initiatives, or the presentation extract.

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New legislation encourages employers to address historic SG shortfalls

Legal Briefings – By Sarah Yu and Amber Kennedy

The Minister for Revenue and Financial Services has announced a proposed 12 month Superannuation Guarantee (SG) amnesty to incentivise employers to voluntarily address past SG non-compliance

Employers should be proactive in disclosing and rectifying historic SG non-compliance during the proposed 12 month SG amnesty period under the Treasury Laws Amendment (2018 Superannuation Measures No 1) Bill 2018, which was introduced into Parliament on 24 May 2018. The proposed SG amnesty is part of a range of broader superannuation integrity measures announced in the Federal Budget 2018-19. Subject to the legislation passing, the amnesty will retrospectively operate from 24 May 2018 to 23 May 2019 and applies to undeclared SG shortfalls between SG commencement on 1 July 1992 and 31 March 2018.

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