Regulatory Update: June 2022 Edition
With the commencement of the new financial year, there has been a significant number of updates published by financial services regulators and standard setting boards.
In particular, ASIC and APRA have released updates that impact AFS licensees, financial advisers, superannuation funds and trustees, managed funds, platform operators, general insurance entities and authorised deposit-taking institutions (ADIs).
This blog provides a summary of each recent update.
ASIC announces financial reporting changes for AFS licensees:
ASIC has announced new financial reporting requirements for Australian financial services licensees, following changes to the accounting standards.
Under the new reporting requirements, AFS licensees’ financial reports must contain disclosures consistent with the financial reports of other for-profit entities, prepared under standards set by the Australian Accounting Standards Board (AASB).
For more information, read: Financial reporting changes for AFS licensees
ASIC releases Information Sheet on warnings and reprimands given to financial advisers:
Under the Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Act 2021 (“Better Advice Act”), which took effect from 1 January 2022, ASIC is required to give warnings or reprimands to financial advisers in specified circumstances. To accompany the Better Advice Act, ASIC has released Information Sheet 270 ‘Warnings and Reprimands’ which explains:
what warnings and reprimands are,
when ASIC will give a warning or reprimand,
how ASIC will communicate the giving of a warning or reprimand,
when and to whom ASIC will provide procedural fairness before giving a warning or reprimand, and
the adviser’s right of review of ASIC’s decision to give a warning or reprimand.
For more information, read: ASIC Information Sheet 270
ASIC: How to avoid ‘greenwashing’ for superannuation and managed funds
ASIC has released Information Sheet 271 to help issuers avoid ‘greenwashing[i]’ when offering or promoting sustainability-related products. The information sheet is also designed to assist issuers to provide investors with the information they should have to make informed decisions.
This information sheet is for responsible entities of managed funds, corporate directors of corporate collective investment vehicles (CCIVs), and trustees of registrable superannuation entities (issuers). It outlines:
what greenwashing is and why it's a concern,
the current regulatory setting for communications about sustainability-related products, and
questions to consider when offering or promoting sustainability-related products.
For more information, read: ASIC: How to avoid ‘greenwashing’ for superannuation and managed funds
ASIC remakes relief on PDSs, superannuation dashboards and FSGs
Following public consultation in February 2022 on Consultation Paper (CP) 358[ii], ASIC has now remade and combined seven legislative instruments relating to specific financial services disclosure requirements into 3 instruments. These instruments were generally due to automatically repeal or cease in the next two years if not remade and give effect to the following changes:
ASIC Corporations (In-use Notices for Employer-sponsored Superannuation and Superannuation Dashboards) Instrument 2022/496, which provides relief in relation to Product Disclosure Statement (PDS) in-use notices for employer-sponsored superannuation and choice product dashboard disclosure.
ASIC Corporations (Shorter PDS and Delivery of Accessible Financial Products Disclosure by Platform Operators and Superannuation Trustees) Instrument 2022/497, which provides relief in relation to shorter PDSs and PDS obligations for superannuation trustees, IDPS operators and responsible entities of IDPS-like schemes.
ASIC Corporations (Financial Services Guide Given in a Time Critical Situation) Instrument 2022/498, which provides relief in relation to the giving of Financial Services Guides in time critical situations.
For more information, read: ASIC relief on PDSs, superannuation dashboards and FSGs
ASIC reduces administrative burden for authorised representatives appointing claims handling staff
ASIC has made a legislative instrument to reduce the administrative burden on authorised general insurance industry representatives of notifying ASIC of large numbers of employees providing claims handling and settling services on their behalf.
This requirement was introduced as part of the Financial Sector Reform (Hayne Royal Commission Response) Act 2020, which established claims handling and settling as a financial service, and consequently, compliance with AFS licence obligations under the Corporations Act 2001.
ASIC has resolved to reduce the “administrative burden” facing the industry, following an application for relief from the Insurance Council of Australia, by exempting authorised representatives from the notification requirement under ASIC Corporations (Notification of Authorised Representatives) Instrument 2022/301.
For more information, read: ASIC administrative burden relief for authorised representatives appointing claims handling staff
ASIC releases new and updated guidance for corporate collective investment vehicles
ASIC has released a range of documents to support the licensing and other requirements for corporate collective investment vehicles (CCIVs), which have now come into effect:
Guidance setting out how ASIC will implement the “day one” licensing requirements for CCIVs.
Report 728: Response to submissions on CP 360 Corporate collective investment vehicles: Preparing for the commencement of the new regime (REP 728) – the report details changes made to several key areas of the CCIV regime following industry consultation, which are designed to increase take up.
Information Sheet 272 How to register a corporate collective investment vehicle and sub-fund (INFO 272). INFO 272 provides guidance on:
o CCIV and initial sub-fund registration requirements,
o the application process, including how ASIC will assess applications for CCIVs and initial sub-funds,
o CCIV Constitution and compliance plan requirements, and
o the application process for registering further sub-funds.
Materials providing guidance to entities about becoming a corporate director as well as registering and operating the CCIV and sub-funds.
Updates to several key regulatory guides – ASIC will release a new legislative instrument shortly that prescribes the applicable financial resources requirements for corporate directors of retail CCIVs.
ASIC will also continue to assess whether other regulatory guides and their associated legislative instruments need to be amended to reflect the CCIVs regime and update these accordingly.
For more information, read: ASIC New and Updated Guidance for CCIVs
ASIC calls for better disclosure of business risks and asset values following financial reports review
ASIC’s review of the financial reports of 70 listed entities for the year ended 31 December 2021 has resulted in inquiries of 18 entities on 31 matters, largely related to insufficient disclosure of business risks in the operating and financial review and impairment of assets.
ASIC Commissioner Sean Hughes said, ‘We acknowledge that many companies are facing changing market conditions. With this comes increasing demand for better information about uncertainties, key assumptions, business strategies and risks.
‘Financial reports are critical in providing useful and meaningful information for investors and other users. Our most recent review has identified that some entities still did not appear to give sufficient attention to the disclosure of business risks in the operating and financial review and the reporting of asset values.
‘ASIC continues to raise inquiries where the assumptions about future cash flows appear unsupportable, and where the impacts of changing market conditions on the business were not clearly disclosed’, Mr Hughes said.
In relation to the 30 June 2022 reporting period-end, ASIC has highlighted focus areas for directors, preparers and auditors of financial reports in 22-124MR ASIC highlights focus areas for 30 June 2022 reporting.
For more information, read our recent blog here and further reading: ASIC calls for better disclosure of business risks and asset values following financial reports review
APRA and ASIC release new FAQs on the implementation of the retirement income covenant
APRA and ASIC have issued a new set of frequently asked questions (FAQs) on the implementation of the retirement income covenant (“RIC” or “the covenant”) introduced by the Australian Government. The FAQs follow the Joint Letter released in March 2022 containing APRA’s and ASIC’s expectations of RSE licensees in response to the covenant. The FAQs aim at assisting RSE licensees with the development of their retirement income strategies. The FAQS are available on the APRA website at: Implementation of RIC - FAQs.
For more information, read: Implementation of the RIC
ASIC warns super trustees to be transparent in their underperformance communications to members
ASIC has released the findings from its review of superannuation trustees’ communications with their members following the first annual performance test[iii] for MySuper products.
ASIC’s review found that trustees whose products failed, generally complied with the legal obligations to notify their members of the failed test and to disclose the failed test on their website. However, the communication strategies of some trustees may have risked confusing or misleading members about their product’s performance. Details have been provided in Report 729 Review of trustee communications about the MySuper performance test (REP 729).
REP 729 identifies communication strategies of concern including, for example:
publishing the MySuper product’s failure of the test on a webpage less likely to be visited by persons interested in the product,
highlighting other performance measures that were more favourable, such as recent positive past performance figures, or
criticising aspects of the test to suggest it was not relevant to the particular product.
ASIC Commissioner Danielle Press said, ‘The performance test supports transparency of product performance for members so they can make more informed investment decisions. Trustees should act in their members’ best financial interests by being transparent about the performance of their product. They should communicate their performance test results to members in a balanced, clear and factual way.
‘Communication strategies that don’t prominently disclose the test result or obscure the importance of a failed result in some way are not acceptable,’ Ms Press said.
Commissioner Press further elaborated, ‘For the 2022 performance test, we expect trustee communications to reflect our expectations for prominence, balance and clarity set out in REP 729, including where products fail for a second time. Where we see a need to, ASIC will take appropriate action to protect consumers.’
For more information, read: ASIC warns super trustees to be transparent in their underperformance communications to members
APRA publishes new set of FAQs on the Your Future, Your Super package
APRA has issued a new set of FAQs to provide further guidance on the administration of the Government’s Your Future, Your Super performance test.
The new FAQs provide:
deadlines for the submission of data used in the performance test,
expectations of RSE licensees who may fail the test for a second consecutive year, and
APRA’s approach to combining performance history for MySuper products that have been authorised under a material goodwill authorisation.
The FAQs are available on the APRA website at: Your Future, Your Super FAQs.
APRA proposes changes to general insurance reporting standards on the treatment of reinsurance recoverables
APRA has released its proposed changes to 6 general insurance reporting standards that incorporate APRA’s clarification on the treatment of reinsurance recoverables from the Australian Reinsurance Pool Corporation (ARPC). The changes aim at aligning the general insurance reporting framework with APRA’s clarification on reinsurance recoverables issued in April 2022, and introduce the ARPC in the definition of an “APRA authorised reinsurer”. The letter to the industry and the updated reporting standards are available on the APRA website at: Cyclone and cyclone related flood damage reinsurance pool.
APRA publishes additional FAQs on Phase 1 of the Superannuation Data Transformation project
APRA has published 12 additional FAQs to provide further guidance to RSE licensees on the Superannuation Data Transformation (SDT) reporting for Phase 1 of the SDT project. APRA has also updated Historical Data FAQ 1.0 to reflect a 3-month extension to the due date for some types of investment options. The FAQs are available on the APRA website at: FAQ's - Superannuation Data Transformation.
APRA consults on its review of the amendments to the Superannuation Guarantee (Administration) Act 1992
APRA has released a letter to RSE licensees of Defined Benefit funds to seek their input on the amendments to the Superannuation Guarantee (Administration) Act 1992 (SGAA), commenced in September 2020.
The Treasury Laws Amendment (Your Superannuation, Your Choice) Act 2020, which amended the SGAA, requires APRA to conduct a review to identify any unintended consequences of these amendments on the operation of Defined Benefit schemes.
This consultation will be open for submissions until 8 September 2022.
The letter to industry is available on the APRA website at: Review of the amendments to the SGAA
APRA releases findings of post-implementation review of Basel III liquidity reforms
APRA has released an information paper to ADIs presenting the findings of its post-implementation review (PIR) of the Basel III liquidity reforms. The review found that the reforms have been effective in strengthening liquidity risk management and the financial resilience of the banking system, and the benefits of regulation have significantly outweighed the associated costs. However, there remain some potential opportunities to improve the efficiency of the prudential framework that will be further explored as part of a review of Prudential Standard APS 210 Liquidity, due to commence in 2023. The information paper is available on the APRA website at: PIR of Basel III liquidity reforms.
IFRIC Update – June 2022
The International Financial Reporting Interpretations Committee (IFRIC) has provided its update for the month of June 2022. The update summarises the decisions reached by the IFRS Interpretations Committee in its June meeting on key topics including:
Multi-currency Groups of Insurance Contracts (IFRS 17 Insurance Contracts and IAS 21 The Effects of Changes in Foreign Exchange Rates)
Cash Received via Electronic Transfer as Settlement for a Financial Asset (IFRS 9 Financial Instruments)
Negative Low Emission Vehicle Credits (IAS 37 Provisions, Contingent Liabilities and Contingent Assets)
Special Purpose Acquisition Companies (SPAC): Classification of Public Shares as Financial Liabilities or Equity (IAS 32 Financial Instruments: Presentation)
Transfer of Insurance Coverage under a Group of Annuity Contracts (IFRS 17 Insurance Contracts)
Consolidation of a Non-hyperinflationary Subsidiary by a Hyperinflationary Parent (IAS 21 The Effects of Changes in Foreign Exchange Rates and IAS 29 Financial Reporting in Hyperinflationary Economies)
For more information, read: IFRS - IFRIC Update June 2022
Past updates can also be found in the IFRIC Update archive.
Post-implementation Review of IFRS 10, IFRS 11 and IFRS 12—Conclusion
The International Accounting Standards Board (IASB) has completed its PIR of IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities. The IASB conducted this PIR from 2019 to 2022 seeking feedback and consulting with stakeholders including companies, investors, auditors, standard-setters, regulators and academics to determine whether these Standards are working as intended and do not give rise to unexpected costs:
The IASB concluded that the requirements of IFRS 10, IFRS 11 and IFRS 12 are working as intended and these Standards are meeting their objectives.
Based on the evidence gathered, the IASB assessed that none of the matters arising from the PIR were of high or medium priority. Five topics were identified as low priority:
subsidiaries that are investment entities,
transactions that change the relationship between an investor and an investee,
transactions that involve ‘corporate wrappers’,
collaborative arrangements outside the scope of IFRS 11, and
additional disclosures about interests in other entities.
Stakeholders requiring further guidance are encouraged to submit questions to the IFRS Interpretations Committee[iv].
The report can be downloaded at: Project Report and Feedback: PIR of IFRS 10, IFRS 11 and IFRS 12.
How we can help
Hall Advisory’s team of specialists can assist you to navigate through these regulatory updates and their impact on your business. We help you elevate your business frameworks and practices to comply with regulations and meet your business objectives.
For more information, please do not hesitate to contact us for a confidential, no-obligation consultation.
[i] ASIC considers ‘greenwashing’ as the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical. [ii] Consultation Paper 358: Remaking ASIC relief on PDSs, superannuation dashboards and FSGs
[iii] The test measures the performance of MySuper products against prescribed benchmarks according to a trustee’s own strategic asset allocation.
[iv] Subject to the submission criteria: IFRS Interpretations Committee https://www.ifrs.org/groups/ifrs-interpretations-committee/criteria-for-members/