RSE Licensees – Changes in Financial Services Obligations for Superannuation Funds

 

A number of changes to the financial services laws have taken effect in 2021 which are of particular application to trustees of superannuation funds which are not self-managed superannuation funds (SMSFs).

For some trustees, this will mean coming under the financial services licensing laws for the first time.

This article looks at the various changes and considers their impact for trustees and their responsible managers.

First, what is a superannuation trustee service?

A “superannuation trustee service” has now been added to the list of financial services under Chapter 7 of the Corporations Act.  A person provides a superannuation trustee service if the person “operates a registrable superannuation entity as trustee of the entity”.

While most other financial services are defined in terms of the attributes of the service that is being provided, a superannuation trustee service is defined purely in terms of the role of the provider.

Under the Superannuation Industry (Supervision) Act (SIS Act), a person that operates a registrable superannuation entity as trustee of the entity is required to hold a Registrable Superannuation Entity (RSE) licence from the Australian Prudential Regulation Authority (APRA).  In effect, if you hold an RSE licence then you are providing a superannuation trustee service and also require an Australian Financial Services (AFS) licence from ASIC.

What about SMSF trustees?

Trustees of SMSFs are not regulated by APRA and they have always been exempted from holding an AFS licence for any financial service provided in their capacity as trustee of an SMSF.

These exemptions are not changing and what follows in this article does not apply to trustees of SMSFs.

What is an RSE licence?  Do I need to be licensed to provide a superannuation trustee service?

An RSE licence is not the same as an AFS licence.  An RSE licence allows an APRA-regulated trustee to operate a superannuation fund and is focused on prudential regulation.  An AFS licence allows a person to carry on the business of providing financial services by, for example, issuing interests in superannuation funds and is focussed on consumer protection.

Trustees of superannuation funds that are not SMSFs are regulated by both APRA and ASIC.  Prior to 2021, such trustees were required to hold an RSE licence from APRA and, in some cases, an AFS licence from ASIC.

Since 1 January 2021, all superannuation fund trustees that are RSE licensees have been required to hold an AFS licence with an authorisation to provide a superannuation trustee service.  An AFS licence could also include other authorisations, such as providing financial product advice or dealing in relation to other financial products.

Why the change?

By creating this new category of financial service, the Government has broadened the scope of conduct covered by ASIC’s existing consumer protection powers.

This new type of financial service will capture all the activities in operating an RSE and ensure that conduct obligations in the Corporations Act – including the need to act efficiently, honestly and fairly – apply to the activities of RSE licensees.  This means that ASIC will have a greater ability to regulate the conduct of superannuation fund trustees.

ASIC will also be given greater powers to take enforcement action under the SIS Act against unlawful and harmful conduct by superannuation trustees.  This includes greater scope for taking action against trustees who may be in breach of the covenants in section 52 of the SIS Act.

Licensing of claims handling and settling

Another new financial service of providing a “claims handling and settling service” has also been introduced and will be of direct relevance to superannuation fund trustees.

A core aspect of providing a superannuation trustee service is assisting members (and their beneficiaries) with death and disability insurance claims.  This assistance to members and their beneficiaries may include the following types of claims handling and settling services:

• advising on how to make a claim, and the prospects of a potential claim
• reviewing a member’s details to establish their eligibility to make a claim
• lodging the claim with the insurer
• communicating information from the member or beneficiary to the insurer, and vice versa throughout the claims process
• reviewing the insurer’s decision and pursuing claims which have a reasonable prospect of success, and
• paying the benefits of successful claims in line with the fund’s rules.

Despite this being a new and distinct financial service, RSE licensees do not need to have an authorisation to provide claims handling and settling services on their AFS licence.  This is because the authorisation to provide a ‘superannuation trustee service’ covers all conduct associated with operating a superannuation fund and, therefore, includes handling of death and disability claims.

That said, the obligations of other AFS licensees with a separate claims handling and settling services authorisation will be relevant to understanding an RSE licensee’s obligations when assisting members and other beneficiaries with insurance claims and the type of experience that the responsible managers of the RSE licensee will need to show.

The transition to AFS licensing

From 1 July 2021, all RSE licensees will be required to also hold an AFS licence with authorisations to deal in superannuation and to provide a superannuation trustee service.

Public offer superannuation trustees that are existing AFS licence holders with an authorisation to deal in superannuation are deemed to be authorised to provide a superannuation trustee service from 1 January 2021 and do not need to make an application to ASIC for a licence variation.

However, non-public offer fund trustees are no longer exempt from holding an AFS licence and will need to apply to ASIC for an AFS licence to deal in superannuation and provide a superannuation trustee service.

What does this mean for Responsible Managers?

An AFS licensee must maintain the competence to provide the financial services covered by the AFS licence.  ASIC assesses compliance with this obligation by looking at the knowledge and skills of the people who manage the financial services business – the “responsible managers”.

When applying for an AFS licence a person must nominate responsible managers who:

• are directly responsible for significant day-to-day decisions about the ongoing provision of financial services; and
• together, have appropriate knowledge and skills for all of the financial services and products provided.

For public offer trustees this initial requirement is not an issue as they will automatically receive their superannuation trustee service authorisation without having to apply.

However other trustees they will need to show ASIC that they have managers with the appropriate knowledge and skills to provide superannuation trustee services.  In assessing applications for AFS licences for non-public offer trustees, ASIC has stated that they will take into account experience gained under the trustee’s existing RSE licence.

The initial appointment of responsible managers for RSE licensees is, therefore, unlikely to be a problem.

However, there is also an ongoing obligation for AFS licensees to:

• maintain adequate numbers of responsible managers; and
• maintain the competency of those responsible managers.

In this regard, ASIC expects AFS licensees to have measures in place to ensure that:

• organisational competence is reviewed on a regular basis and whenever responsible managers or business activities change;
• the knowledge and skills of the responsible managers are maintained and updated; and
• records are kept showing compliance with those measures.

These ongoing requirements will apply to all RSE licensees and compliance systems will need to be updated to ensure that they cover them.  They will need to include a training program to ensure that responsible managers maintain their knowledge and skills in relation to the provision of all aspects of a superannuation trustee service – including claims handling and settling services.

Breach reporting changes

Under the SIS Act, trustees must report significant breaches of their RSE licence conditions to APRA, no later than 10 business days after becoming aware of a significant breach.

From 1 October 2021, this timeframe will increase to 30 calendar days, in order to be consistent with the amended breach reporting timeframes in the Corporations Act that will come into effect from the same date.

The APRA Dual Reporting Framework will continue to apply, so trustees will be able to continue to report breaches to both regulators by submitting one report to APRA.

Next steps

If you hold an RSE licence but do not yet hold an AFS licence, then you will need to apply to ASIC for one.

All RSE licensees will also need to make sure that they have (and continue to have) sufficient responsible managers in place to maintain their competency to provide the authorised financial services under their AFS licence.  It will also be necessary to ensure that those responsible managers maintain their competency to manage the provision of those financial services.

RSE licensees should also update their breach reporting compliance procedures before 1 October 2021 to reflect the changed reporting timeframe.

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Author: David Court (Partner)

This article was first published in Money Management: Changes to RSE Licensees