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Superannuation: Licensed for safety

Every Issue

Cite as: (2004) 78(3) LIJ, p. 84

The requirement for superannuation funds to be licensed by two regulatory authorities should provide double the protection for funds members.

Superannuation funds operators will need two licences to ensure they have the skills to operate a fund and to guarantee its continued safe operation.

The first licence will be from the Australian Securities and Investments Commission (ASIC) and the second from the Australian Prudential Regulation Authority (APRA). A key reason for the two licences is the different focus of the regulators – ASIC is focused on customer rights and disclosure while APRA is focused on prudential management.

Both licences are intended to promote the safety of Australia’s 25 million-plus superannuation fund accounts containing Australia’s retirement savings.

Implementation of the two licences will impact on Australia’s superannuation funds and their participants – members and employers – in the following ways:

Superannuation funds

  • Most ASIC applications should now be lodged and work on the APRA applications should have begun.
  • Most superannuation funds should be close to compliance with the licensing requirements before they make application. In some cases the licensing requirements formalise what should be existing informal processes.
  • The application process will take time and effort and distract what are often scarce resources from other areas of fund strategy. In the spirit of achieving increased safety of super this is an investment worth making.
  • ASIC’s new member information booklet (product disclosure document (PDS)) will need to be kept up-t0-date.
  • There will be more rigorous and formal educational and ongoing training requirements for advisers and representatives.
  • Individuals acting as trustees or directors of trustees of superannuation funds may feel more of a focus on their competency and skills to undertake the role. While APRA has stated that it does not expect all trustees/trustee directors to be finance directors, it does expect a minimum level of training for trustees/trustee directors and that superannuation funds have a formal and structured training plan for trustees/trustee directors.
  • Both regulators have indicated they expect to implement comprehensive recurring surveillance campaigns to ensure compliance with licence requirements.

Members

  • Familiarity with the PDS will be needed.
  • Increased training competency requirements for advisers and representatives mean superannuation fund members should find greater comfort in the quality of advice they receive, particularly with regard to advice reflecting their individual circumstances where licences permit this form of advice.
  • Members receiving advice should notice some subtle changes in advice. Some funds may choose to provide advice only about their own superannuation product and not the personal circumstances of members.

Employers

  • If employers are operating a “stand-alone” superannuation fund, APRA licensing requirements may encourage a review of whether the “stand-alone” fund will apply for an APRA licence or contemplate closing and transferring to another superannuation fund with the requisite licensing.
  • Existing or new superannuation providers must comply with the requirements where they are applicable to a given provider. Employers should consider communicating this to their employees for clarity.

Conclusions

Whether the licence requirements increase the safety of super will be revealed with the passage of time. It is fair to say they should result in an increase or strengthening of controls over retirement savings. Regulatory surveillance and monitoring is likely to drive super funds to higher standards compared to an environment where surveillance and monitoring is less visible and active.

The other important implication is that super funds will need to continue to deliver investment performance and services meeting the expectations of members and employers while ensuring they comply with the new requirements.

After all, employers and members expect their super to be safe. Employers and members are most focused on maximising their retirement savings and other related benefits.


ASIC and APRA licensing at a glance


ASIC

APRA

Timing

Commenced 11 March 2002
Transition period of two years
In place 11 March 2004

Commencing 1 July 2004
Transition period of two years
In place 1 July 2006




Who needs a licence?

All providers of financial products

Regulated superannuation funds
Approved deposit funds
Pooled superannuation trusts
(Self-managed funds are excluded)




Key requirements of the licence

Minimum competency requirements for advisers r representatives
Adequate training for advisers or representatives
Product disclosure statement (PDS)

Fitness and proprietary test for body corporates
A risk management strategy


ANDREW PROEBSTL is the Law Institute’s superannuation general manager, Legal Industry Superannuation Scheme (LISS) fund secretary and a member of the Victorian Executive of the Association of Superannuation Funds of Australia. He can be contacted on tel 9607 9401, email aproebstl@liv.asn.au or visit http://www.liss.com.au.

super@liv.asn.au

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