Wednesday 10 November 2020
Working with industry to drive better performance and deliver for members
Two things are certain for the superannuation industry this year: that the uncertainty and challenges created by COVID-19 are continuing, and that in the face of this uncertainty, trustees’ obligations to their members remain important. Jane Eccleston, ASIC’s Superannuation Senior Executive Leader, discusses ASIC’s priorities for 2020-21.
The COVID-19 pandemic has affected all sectors of the economy and dominated conversations in boardrooms, on worksites and at dinner tables. From the outset, ASIC has said that how industry tackles the challenges presented by the pandemic would have significant repercussions for all Australians. The unusual and challenging circumstances associated with COVID-19 require trustees to make new business arrangements, amend priorities and adjust their short-term investment strategies while also planning for the long-term economic impacts. And as trustees continue to deal with the immediate issues, it must not be at the expense of long-term thinking.
Responding to the pandemic
At the start of the pandemic, ASIC identified a number of potential areas of consumer harm. These included inaccessibility of financial advice, financial stress, scams and some changes to insurance offerings.
To address these issues, ASIC provided consumers with information on the early release scheme via Moneysmart and provided trustees with temporary relief to help them provide more affordable and accessible advice to members about early release.
ASIC also worked with the ACCC and other regulators to monitor and address COVID-19-related superannuation scams.
In the insurance space, ASIC continues to monitor how COVID-19 impacts insurance offerings, which may be affected by members’ changing employment patterns, reduced balances and new cover exclusions or limitations.
In early April, ASIC and APRA published a joint letter to industry and ASIC, which provided new information in our COVID-19 FAQs. These set out ASIC’s expectations of trustees on the provision of clear and accurate information to their members during the pandemic.
While COVID-19 remains a challenge, ASIC is committed to progressing our core priorities to address longer-term consumer harms in our regulatory environment. To achieve our vision over the longer term, a wide range of regulatory work will progress in parallel to our pandemic responses, including our work to implement the recommendations of the Financial Services Royal Commission (FSRC).
A recent example of regulatory work is the update to Regulatory Guide 97 Disclosing Fees and Costs in PDSs and Periodic Statements (RG 97). This minor update adjusts the transitional timeframes in response to COVID-19 and provides greater clarity on the obligations of superannuation and managed investment scheme product issuers, following feedback from industry.
Delivering as a conduct regulator for superannuation
As the superannuation conduct regulator, ASIC is focusing on the behaviour of trustees to improve consumer outcomes in superannuation. Part of this work involves enhanced supervision and surveillance of trustees to ensure they act in the best interests of members and treat them fairly. ASIC will also continue to work with APRA as the prudential and member-outcomes regulator.
Insurance in superannuation
ASIC is continuing to review industry’s progress on improving insurance outcomes for members, particularly in default insurance. Our objective is to address inappropriate and poorly communicated insurance in superannuation that results in higher premiums and the improper erosion of members’ retirement benefits. We aim to encourage new behavioural norms among trustees in the communication, design and claims processes for insurance to improve the benefits of insurance in super for members.
Product design and distribution obligations
One area of our work that has strong synergies with APRA’s Member Outcomes regime is the new product design and distribution obligations (DDO) regime. DDO applies broadly across the financial services industry. It comes into force for financial product issuers (including superannuation trustees) on 5 October 2021 following, in recognition of the significance of these reforms, a two-and-a-half-year transition period. While MySuper products are not subject to DDO, there is still significant work to be undertaken by trustees.
Over-reliance on disclosure has inadvertently permitted and arguably enabled poor market conduct and business decisions that have led to poor consumer outcomes. The DDO regime acknowledges the limitations of disclosure-based regulation and rebalances the responsibility for consumer outcomes to the supply side. Disclosure alone is not sufficient for good consumer outcomes – consumers may choose or remain in a particular financial product but that does not necessarily mean that the product is meeting their needs or providing real benefits for them.
The requirements of the DDO regime and APRA’s Member Outcomes regime collectively form a cycle where products are designed, sold and reviewed to determine if they are still meeting their objectives and then amended or re-designed if required. We strongly encourage trustees to engage with DDO now and consider how they can implement both the DDO and Member Outcomes regimes simultaneously to make the most of the synergies between them. In order to comply with the DDOs, trustees need to have strong product governance processes that encompass planning around the needs of potential members, understanding about how products operate in practice for members, and review and action based on evidence.
Internal dispute resolution
Another priority area where ASIC is aiming to improve standards of trustee governance is internal dispute resolution (IDR). Better IDR improves both consumer outcomes and risk management, and ultimately, the performance of super funds. It can also reduce the risk of future remediation costs, which can balloon when trustees fail to identify or proactively respond to consumer losses.
In July, we released Regulatory Guide 271 Internal dispute resolution (RG 271). Entities subject to RG271 have until 5 October 2021 to understand the new requirements, and to operationally prepare and meet the requirements. Trustee boards will no doubt be receiving reports from their operational teams on how the organisation is proposing to meet the new IDR framework.
The IDR requirements are the first steps in consumer redress. In considering IDR, trustees should look at it as part of their broader consumer remedy framework, not in isolation. Effective IDR will support the member experience and potentially reduce external dispute resolution (EDR) complaints, as well as potentially preventing the need for remediation later.
Specifically, the new IDR framework emphasises having the right governance arrangements and systems throughout the organisation and at all stages of IDR. For example, staff are enabled to escalate possible systemic issues identified from complaints, complaint data sets are regularly analysed to detect issues, and potential issues are promptly escalated to appropriate areas for investigation. Boards must set clear accountabilities for IDR functions (including thresholds for and processes around identifying and reporting systemic issues), and senior management and board reports must include metrics and analysis of consumer complaints.
Retirement income calculators and projections
ASIC is also updating its instruments to allow trustees to provide retirement projections and calculations. ASIC is working to understand how consumers use and act on retirement projections and estimates, including by examining overseas models, and actuarial and other advice. We will consult publicly on proposed changes to legislative relief and guidance by issuing a consultation paper in 2021. Once we have completed this work, we will update our regulatory guidance to remove ambiguity for trustees, and update the tools to give members consistent, clear and reliable information.
While the changes announced in the Government Budget 2020-21 may mean significant changes for how the superannuation industry operates, it is important for trustees to continue to focus on existing and upcoming obligations designed to support good outcomes for consumers and members.