New data and reporting obligations for superannuation trustees

With the end of the 2021 calendar year approaching, it has been anything but a slowdown period for superannuation trustees.

In addition to the compliance burden of the recent ASIC regulatory changes, superannuation trustees must prepare for the range of data and reporting requirements in the process of taking effect. These changes include:

APRA’s Superannuation Data Transformation enhanced reporting
Financial reporting and auditing requirements
Portfolio holdings disclosure obligations

This blog provides a summary of these additional reporting obligations and the practical impacts superannuation trustees will need to consider as they work towards compliance.

APRA’s Superannuation Data Transformation

With the objective of driving better industry practices and improving member outcomes, APRA is undertaking a multi-year Superannuation Data Transformation (SDT) project to upgrade the breadth, depth and quality of its superannuation data collection. The enhanced reporting requirements should make it easier to compare super fund performance based on consistently reported data.

The consultation for this multi-year project will occur over three phases:

Phase 1: Breadth – to address the most urgent and critical gaps in collected data.
Phase 2: Depth – to increase the level of detail in reported data, leveraging APRA’s new Data Collection Solution and enhanced data analytics capabilities.
Phase 3: Quality – to assess the quality and consistency of the additional data reported during phases 1 and 2, and review and address any implementation issues.

Phase 1 of the SDT

Back in November 2019, APRA released a discussion paper and the first consultation package on reporting requirements for the first phase of the Superannuation Data Transformation. Since then, APRA has released three consultation packages seeking feedback from the industry. APRA responded to feedback in March 2021, releasing 10 final reporting standards:

Reporting Standard SRS 101.0 Definitions for Superannuation Data Collections
Reporting Standard SRS 251.0 Insurance
Reporting Standard SRS 332.0 Expenses
Reporting Standard SRS 550.0 Asset Allocation
Reporting Standard SRS 605.0 RSE Structure
Reporting Standard SRS 606.0 RSE Profile
Reporting Standard SRS 611.0 Member Accounts
Reporting Standard SRS 705.0 Components of Net Return
Reporting Standard SRS 705.1 Investment Performance and Objectives
Reporting Standard SRS 706.0 Fees and Costs

These 10 reporting standards were again revised (through minor amendments) in September 2021. The new data reporting requirements address critical data gaps in APRA’s current reporting framework and focus on high priority areas impacting member outcomes. These areas include expanding the scope of data collection to cover all products and investment options and improved data in relation to performance, fees and costs, insurance arrangements, expenses, member demographics and asset allocation classifications.

The first reporting date for highest priority data was recently extended by APRA from 30 September 2021 to 28 October 2021, with the submission of the remaining data commencing over 2022-23. We expect that as superannuation trustees focus on submitting the first set of APRA returns, many are running behind schedule on implementing the required documentation. However, SDT forms lodged with APRA for periods ending 30 June 2021 to 31 March 2022 will not be subject to any external audit processes, with consultation pending on the audit requirements applicable to SDT forms for periods ending 30 June 2021 onwards. Further, parallel data runs between the SDT forms and old APRA forms will continue for an unspecified period, after which APRA will notify superannuation trustees of the old forms that will be retired.

Practical impacts of the proposed changes

Phase 1 of APRA’s SDT already appears to increase the administrative burden on superannuation trustees, on top of the existing onerous reporting requirements. This impacts all key business functions, including finance, compliance, investments and product. Funds require new or enhanced regulatory data collection and collation systems to reduce the level of manual inputs to APRA reporting forms and improve reporting consistency and administrative efficiencies. Other potential challenges include:

Increased regulatory expectations in terms of timeliness, accuracy and reduced frequency of resubmissions.
Increased scrutiny for external auditors on old APRA reporting forms, given APRA’s increasing expectations for data quality.
Breach reporting required for all material reporting errors and breaches, including any series of minor reporting errors reflecting systematic weaknesses in APRA data reporting procedures.

It's been a big push for a lot of funds to get the required data in shape for the 28 October 2021 lodgement date, requiring the collation of data from multiple sources across internal teams and a number of service providers, and a new data reporting tool in APRA Connect to navigate. APRA is expecting a lot more from super funds in terms of data quality going forward, with enhanced and documented processes for ensuring accurate data is submitted and reduced re-submissions (which have become commonplace over the years). APRA may also consider applying penalties for late and/or inaccurate reports for super funds in the future, as seen in the banking sector in recent years. For example, in August 2019 APRA issued fines to Westpac and two of its subsidiaries for failing to meet their legal obligations to report data to APRA by the required deadlines.

This sends a strong message to the industry that APRA takes compliance with the reporting standards seriously, especially given the SDT project. Even so, APRA will take a staged implementation approach and permit superannuation trustees to report certain information on a best endeavours basis for a limited period.

Financial and auditing requirements

To add to the reporting obligations of registrable superannuation entities (RSEs), the Government recently conducted a consultation process for the introduction of the draft Treasury Laws Amendment (Financial Reporting and Auditing Requirements for Registrable Superannuation Entities) Bill 2021. The draft Bill intends to create consistency between the financial reporting obligations imposed on RSEs and the existing obligations for public companies and registered schemes.

The draft Bill requires RSE licensees to:

Prepare and lodge financial reports for each financial year and half-year with ASIC.
Publish the financial report, directors’ report and auditor’s report for a financial year on the RSE’s website.
Provide details of how to access these reports with the notice of the annual members meeting.
Provide a copy of the financial reports for a financial year and half-year to members and beneficiaries on request.

The draft Bill also revises the obligations for RSE auditors, who will be subject to strict eligibility, reporting and independence requirements under both the Corporations Act 2001 and the Superannuation Industry (Supervision) Act 1993. These obligations require the auditor to:

Meet the eligibility requirements as an appointed auditor of an RSE, including being a fit and proper person.
Prepare an auditor’s report for an audit or review of the RSE’s financial report for each financial year and half-year.
Report suspected breaches to the relevant regulator.
Meet auditor independence, conflict of interest and rotation requirements.
Prepare, lodge and publish auditor transparency reports, if required.

Practical impacts of the proposed changes

Under the proposed law, from the income year beginning on or after 1 July 2022, RSEs will be required to keep financial and accounting records for seven years rather than the current record keeping requirement of five years. A failure to comply is considered an offence with a penalty of two years’ imprisonment for a fault-based offence, or 60 penalty units for an offence of strict liability.

In addition to the existing requirement to provide APRA with reporting on business operations for each income year and quarter, RSE licensees must prepare and lodge financial reports for each financial year and half-year with ASIC. This includes statements and notes for each entity and sub-fund, a directors’ declaration and a directors’ report. These additional reporting obligations will likely increase resourcing requirements for super fund finance functions, as they strive to also comply with other regulatory changes and increasing regulator expectations.

Further, to manage the increased external auditor independence requirements, superannuation trustees will also need to consider separating audit work from triennial regulatory review requirements and other add-on consulting engagements.

Portfolio holdings disclosure

For enhanced transparency across the superannuation industry, in April 2019, the Government revised obligations that require superannuation trustees to disclose portfolio holdings and make this information publicly available. This was not the first time these obligations were proposed – that occurred in 2012 – and since its initial introduction, the portfolio holdings disclosure provisions have been deferred multiple times in response to industry feedback.

The deferral period is now over, with the portfolio holdings disclosure laws to take effect from 1 January 2022 (in relation to reporting days that occur on or after 31 December 2021). There is a lot for superannuation trustees to do between now and then to comply with the provisions and manage related risks.

Who needs to report?

As part of the portfolio holdings disclosure regime, superannuation entities will need to disclose itemised investment holdings publicly on their websites. This includes disclosure of directly held investments as well as assets held by third-party investment vehicles, for third parties considered as associated entities of the super fund. For non-associated entities (i.e. indirectly held investments through third parties), only the investment in the first non-associated entity of the super fund must be disclosed.

Approach to disclosure of information

The regime requires superannuation entities to publicly disclose on their website the following information for each investment option:

Information that identifies each investment item allocated to the investment option that is held by the superannuation entity, an associated entity or a pooled superannuation trust. The investment item cannot be an investment in an associated entity or a pooled superannuation trust.
Information to identify the value and the weighting/exposure of each disclosable investment item.
The total value and the weighting/exposure of all disclosable investment items.

The Corporations Amendment (Portfolio Holdings Disclosure) Regulations 2021 prescribes how the information must be organised – in a specified table format. This information must be published twice each year by superannuation entities, disclosing holdings as at 30 June and 31 December.

Practical considerations

We expect superannuation trustees have used the deferral period (particularly since April 2019) to review their investment portfolios and consider how and the extent to which they will disclose holdings to comply with the regime. A key consideration for superannuation trustees is whether certain investment items are held by associated or non-associated entities and if disclosure is required. For investments requiring disclosure, trustees also need to ensure the information received from third-party investment managers is sufficient to meet their disclosure obligations.

How we can help

The new data and reporting obligations require several practical changes across numerous business functions of superannuation entities. At Hall Advisory, we offer a range of services to help you implement these regulatory requirements. Our services include:

Advisory support on the development and implementation of regulatory change programs.
Compliance advice and interpretation of regulatory requirements and reporting standards.
Independent review, uplift and documentation of APRA reporting procedures.
Specialist fulfilment of triennial reviews and governance, risk, consulting and strategic (GRCS) consulting services, with no inherent connection to any external audit function.