Danielle Press

Insignia Financial has appointed Danielle Press as Chair and Non-Executive Director of the Insignia Financial Ltd (IFL) Trustees (Insignia Trustees)^[1]. Ms Press will join the Trustees as a Non-Executive Director from 19 September 2024 and will commence as Chair in November.

Ms Press joins the Insignia Trustees with more than 30 years’ experience across the financial services industry, most recently as a Commissioner at ASIC between 2018 and 2023. Prior to that she was CEO at The Myer Family Company, CEO at Equipsuper and Managing Director at UBS Global Asset Management.

Ms Press will replace Lindsay Smartt who, after five years with the organisation, has decided to step down.

Commenting on the appointment, Insignia Financial Chair Allan Griffiths said attracting a Chair of Ms Press’ calibre and experience would serve the organisation’s super fund members well.

“We’re excited to welcome Danielle,” said Mr Griffiths. “She brings a wealth of industry knowledge and an unwavering commitment to driving outcomes for members.

“Danielle’s appointment also highlights our ongoing focus on and commitment to uplifting our risk governance culture.

“I would also like to take this opportunity to thank Lindsay for his leadership and contribution during his time with us. Lindsay has played a significant role in how we, at Insignia Financial, look after our superannuation members and their best interests,” said Mr Griffiths.

Ms Press said: “I genuinely believe in the power of Australia’s superannuation system and what it can deliver for members in retirement.

“I’m honoured to be joining Insignia Financial at such a transformational time for the organisation, and committed to helping drive member outcomes.”

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[1] The Insignia Financial Ltd (IFL) Trustees (Insignia Trustees) comprise four entities, I.O.O.F. Investment Management Limited (IIML), NULIS Nominees (Australia) Limited (NULIS), OnePath Custodians Pty Ltd (OPC) and Oasis Fund Management Limited (OFM). Collectively, these entities are responsible for five Registrable Superannuation Entities (RSEs) including MLC Super, Retirement Portfolio Services, Oasis Superannuation Master Trust, AvWrap and IOOF Portfolio Service.

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The Treasurer has announced the appointment of Ms Katherine O’Rourke, currently a First Assistant Secretary at Treasury, as Commissioner from 11 September 2023. Mr Alan Kirkland, who is currently the CEO of leading consumer group CHOICE, and Ms Simone Constant, who is currently the Chief Risk Officer, Institutional Bank and Markets at the Commonwealth Bank of Australia, will commence their terms on 20 November 2023.

Mr Longo said the new Commissioners bring exceptional experience and skills to the Commission.

‘The new Commissioners strengthen and reinforce the expertise of the Commission at a time of significant and complex change in our regulatory environment.’

‘ASIC’s role is fundamental to protecting Australian consumers and investors while our economy navigates difficult challenges including climate change, an ageing population and the rapid evolution of data technology.’

‘Kate, Simone and Alan each have considerable experience in areas relevant to ASIC’s strategic priorities. They join the Commission as we embark on a program of work to become a leading data-informed regulator and strengthen our commitment to strong and decisive enforcement of the law.’

‘The new Commissioners will be powerful advocates for Australian consumers and investors, and for maintaining the integrity of Australia’s financial system. I look forward to working with them.’

Ms O’Rourke returns to ASIC where she worked from 2003 to 2017, leading work on fundraising, mergers and acquisitions, corporate governance and regulatory policy. At Treasury she has held leadership positions with responsibility for data and digital economic reforms, small business policy and regulatory frameworks governing market conduct.

Mr Kirkland is a leading consumer advocate with a long history in financial markets and influencing positive reforms for some of the most vulnerable members of the community. He is well known to ASIC through his membership of our ASIC Consultative Panel, and was a member of the panel for the Ramsay Review, which recommended the establishment of the Australian Financial Complaints Authority and Compensation Scheme of Last Resort.

Ms Constant has extensive experience in financial services and risk management, and has previously worked as a lawyer. She is a former Deputy Secretary of NSW Treasury and led the NSW Department of Education’s COVID Taskforce.

Mr Longo also acknowledged outgoing Commissioner Danielle Press, who will leave ASIC when her term expires on 16 September 2023.

“On behalf of everyone at ASIC I offer our deep gratitude to Danielle for her outstanding contribution to the Commission over the past five years, particularly her pivotal role in establishing ASIC as the conduct regulator for the superannuation sector. Danielle’s generous, warm and approachable leadership style has helped build open and effective relationships across ASIC, among our peers and across industry. I wish her well in her future endeavours.”

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The “Better Banking for Indigenous Consumers Project” reviewed target market determinations.

An ASIC review has found that some individuals in high-fee transaction accounts, including First Nations people, are paying up to $3000 in overdraw fees over a year. Banks need to do more to assist such customers to move into low-fee accounts.

The Better Banking for Indigenous Consumers Project reviewed target market determinations (TMDs) for both high-fee and low-fee ‘basic’ accounts offered by some of Australia’s major and regional banks. ASIC issued notices to those banks requiring data on fees charged to consumers in locations with higher-than-average proportions of Indigenous people and for customers in receipt of AbStudy payments.

The review found that many Indigenous consumers identified in the data were in high fee accounts paying high fees, despite being eligible for a low-fee ‘basic’ account.

ASIC Commissioner Danielle Press said, ‘It’s unacceptable that we have found many consumers continuing to experience harm through transaction account fees, when banks know these people could be in low-fee accounts.’

‘Current processes to transfer eligible customers to low-fee accounts are overwhelmingly ineffective. We have raised these issues with the banks included in the review. ASIC wants to see action taken swiftly to change these customers to a low-fee option.’

Concerningly, the review found that banks were aware of high numbers of customers eligible for low-fee accounts but, the majority of banks’ processes to transfer these eligible customers to low-fee accounts were ineffective. This figure differed between institutions, with the majority of banks having migration rates as low as between 0.5% to 3%. One of the more effective processes only saw a 47% migration rate.

Additionally, the review revealed that:

• over 110,000 consumers in identified locations with higher-than-average proportions of First Nations people and in receipt of AbStudy payments are in high-fee accounts, despite being eligible for a low-fee account,
• these consumers paid over $6 million in fees over a twelve-month period, which would have been avoided were they in a low-fee account, and
• the most prevalent fee was an ‘overdraw’ fee, which is not charged on a low-fee account.

Since ASIC’s review, one bank has taken positive steps to improve its TMDs including by removing overdraw, dishonour, account maintenance and withdrawal fees from its transaction accounts for all customers. However, there is further work to be done.

‘We are asking banks when they will migrate eligible customers to low-fee accounts, and whether they will remediate impacted customers. We are also asking what changes will be made to ensure tailored Indigenous services are effective. We will be monitoring these issues to ensure changes are made and will prepare a report on this project later in 2023,’ added Ms Press.

ASIC has written to the banks with our expectations and key findings. This includes outlining reasons for banks to:

• migrate all eligible transaction account customers in Indigenous Pilot locations and those on AbStudy to low-fee accounts on an ‘opt-out’ basis
• ensure that fees are removed for new and existing customers, when products are altered and fee structures changed to remove particular fees
• review and improve TMDs and account opening procedures in line with Design and Distribution Obligations to prevent future harm of this type to all prospective customers
• remediate impacted customers, and
• make procedural changes to tailored Indigenous services to better meet their commitments to their Indigenous customers.

ASIC is committed to supporting positive financial outcomes for Indigenous Consumers.

This project has been led by ASIC’s Indigenous Outreach Program and aligns with the outcomes in ASIC’s Indigenous Financial Services Framework, and the commitments set out in ASIC’s Stretch Reconciliation Action Plan.

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The call follows ASIC’s review of a sample of twelve superannuation trustees to understand how they met requirements for dealing with money received for a financial product set out in the Corporations Act 2001.

Following the review, all trustees with deficiencies took action of some kind. This included implementing process changes for dealing with application monies to become compliant, improving disclosures about application monies, and/or formally notifying ASIC of a reportable situation or paying remediation.

‘As financial product providers, trustees are required to safeguard incoming monies for products in prescribed ways,’ ASIC Commissioner Danielle Press said. ‘This is to protect a consumer’s money until the product is issued to them or they receive an increase in an existing product.’

‘Our review identified compliance gaps – all but one trustee failed to ensure their practices or disclosure aligned with their obligations.’

‘While no significant individual member impact was identified in our review, we were very concerned to find the trustees hadn’t given enough consideration to these important obligations, in some cases for decades, potentially putting members’ money at risk,’ Ms Press said.

‘We expect trustees and other product issuers to take these obligations seriously. Trustees should thoroughly review their arrangements for dealing with members’ money before a product is issued as well as those of their service providers.

‘Where we identify poor progress by trustees in changing their processes within a reasonable time, ASIC will consider appropriate regulatory action,’ Ms Press said.

ASIC found four main issues among the trustees reviewed:

• Using a non-compliant account to hold money: Some trustees used an account that did not meet the requirements for some or all of their superannuation products. For example, the account used was not a designated trust account.
• Not holding money for the required time: Several trustees did not retain a member’s money on trust in a compliant bank account until the time an interest in a product was issued or increased. For example, before a new or increased interest for a member was issued, incoming money was being moved or ‘swept out’ of the prescribed account daily and invested as part of a general fund strategy. Some trustees may need to revise their incoming cashflow management practices to ensure they comply.
• Failure to identify money subject to the requirement: Some trustees reported that they could not or did not identify money subject to the requirements of section 1017E. For example, some trustees had no daily monitoring arrangements in place while others did not check how their service providers handled money for a member when it was first received.
• Inadequate disclosures to consumers: In ASIC’s view, most of the disclosure material reviewed required improvement. For example, it often did not clearly explain who would receive the benefit of interest earned on incoming money before a product is issued (or increased), or explain when no interest would be payable.

ASIC raised these concerns with the trustees reviewed to ensure changes are implemented to achieve full compliance. Separately, ASIC has communicated with major auditing firms and industry bodies to reiterate the role auditors can play in assisting to identify and address compliance issues in a timely manner.

Background

The Corporations Act 2001 imposes particular consumer protection obligations on product providers who issue a product disclosure statement and receive money to acquire or increase an interest in a financial product.

Section 1017E outlines that this money must be held in trust in an account that meets certain requirements until the product is issued or increased for the consumer or the money is returned or failing that, paid to ASIC as lost application money. It also imposes a specific disclosure requirement related to interest earned on money while it is subject to s1017E.

A product issuer that fails to hold incoming money in trust for the sole benefit of the person entitled to it, until a product is issued or increased, could place unallocated money at risk if a product issuer or their service provider pause or cease operations for any reason. The obligations extend to dealing with money received for a super fund member (such as contributions and roll-overs into a fund) during the time it takes to issue an interest for a new member, or increase the interest of an existing member.

The superannuation trustees ASIC reviewed were selected to represent a mix of industry, retail, and corporate super funds, with both internal and outsourced administration arrangements.

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In 2022, ASIC undertook a review to examine actions taken by a sample of 15 superannuation trustees to enhance their life insurance arrangements. The review looked at whether trustees had made progress in addressing the issues raised by ASIC in various public communications since 2019 and were meeting new regulatory obligations. ASIC’s findings are outlined in Report 760 Insurance in superannuation: Industry progress on delivering better outcomes for members (REP 760).

‘Insurance in superannuation provides a built-in safety net for millions of Australians,’ ASIC Commissioner Danielle Press said. ‘Superannuation trustees play a central role in deciding what life insurance is made available to their members and how it is provided’.

‘Whether it is default or optional insurance, we want fund members to have confidence that they are receiving value for the insurance they hold through their super and that they will be able to claim on it when they need to.’

‘Trustees are well placed to identify and prevent harms such as members paying for insurance they cannot claim on when they need to. They decide how insurance in superannuation is designed and delivered to their members. However, while the trustees in our review have shown some progress with their insurance arrangements, progress is not necessarily consistent across the industry,’ Ms Press said.

ASIC’s review found:

• many trustees have made changes to the design of their insurance arrangements to better meet member needs and provide value for money, such as by changing restrictive ‘total and permanent disability’ definitions;
• many trustees have worked with their insurers to streamline their claims processes to make them easier for members to navigate, and taken steps to enhance their oversight of insurers’ claims handling practices; and
• some trustees have improved the way they explain their insurance offerings to make it easier for members to understand their insurance and make appropriate decisions for their circumstances.

However, the trustees have not made sufficient effort in all areas.

ASIC has written individually to the trustees involved in the review to provide detailed feedback, including specific areas where improvements are required. REP 760 also recommends key actions for all trustees when making improvements to their insurance arrangements.

Commissioner Press said, ‘I strongly encourage all trustees to commit to a thorough analysis of their insurance arrangements using the information and action points in ASIC’s report to identify where they fall short and address any gaps. Life insurers also need to play their part by working collaboratively with trustees to implement any improvements.’

‘Trustees, in particular, need to ensure they have robust systems, processes and controls to effectively administer their insurance arrangements. Trustees that fail to do this risk undermining any improvements they are trying to make for their members’ benefit.’

‘We expect all trustee boards to engage with the report, learn from it, and take action to make improvements to ensure strong member outcomes. Where appropriate, ASIC will use its regulatory powers where trustees are not complying with their obligations,’ Ms Press said.

Background

Since 2019, ASIC has undertaken a broad range of work to address consumer harm in life insurance (death cover, total and permanent disability (TPD) cover and income protection (IP) cover) in superannuation, focussing on: insurance that unnecessarily erodes a member’s retirement balance because they are paying for insurance that does not meet their needs, lack of cover in the event of a member becoming disabled due to restrictive definitions and exclusions, and onerous and lengthy claims handling processes.

For this review, ASIC selected 15 superannuation trustees and focussed on one fund from each trustee. They included large and small industry, retail and corporate funds to cover a cross section of the industry. The trustees are listed in the report. Together, the trustees and funds in ASIC’s review provided death cover and TPD cover to approximately three million members, and IP cover to approximately 800,000 members, as at June 2022.

Separately, ASIC also sought information about IP offsets from five trustees and three insurers that it had previously engaged with (refer 21-343MR).

The regulatory reforms requiring trustees to make additional changes to their insurance arrangements include: the design and distribution obligations and the extension of the financial services obligation to act efficiently, honestly and fairly to all trustee activities, including claims handling.

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ASX has released its second consultation paper (CP 2) in response to ASIC Report 708 ‘ASIC’s expectation for industry in responding to a market outage’ (REP 708). This covers potential future ASX capabilities to enhance market resilience, and submissions will close in early December 2022. The third and final consultation, on participant’s system testing requirements, is scheduled for early next year.

ASIC Commissioner Danielle Press said, ‘ASIC continues to engage with market operators and participants as they implement steps to meet our expectations to improve the resilience of the Australian equity market during trading outages. This includes facilitating trading on alternative markets in such situations.’

Market participants are making good progress. A survey of participants representing about 90% of equity market trading shows most now either meet all of ASIC’s expectations or are progressing the necessary changes. The balance are scoping the required work, some reliant on the capabilities provided by third-party vendors.

This work coincides with other important changes in the industry, including the replacement of the CHESS settlement system, Cboe’s technology upgrade and the implementation of new Market Integrity Rules which will come into effect on 10 March 2023 [MIRs]. While these are important priorities, they have become inter-related and market operators and participants should plan to implement these initiatives in a reasonable timeframe.

‘These are important steps to develop new, improved responses to any future market outages, and ASIC urges all market operators and stakeholders participate in this process. ASIC will continue to monitor progress by market operators and participants against its expectations,’ Commissioner Press said.

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Between July 2021 and June 2022 ASIC:

• received 1,469 Australian financial services (AFS) and Australian credit licence (licences) applications;
• finalised 1,859 licence applications (35% more than last year);
• approved 578 new licences (26% more than last year);
• approved 867 licence variation applications from existing licensees (61% more than last year); and
• approved the registration of 89 company auditors, 40 SMSF auditors and note that the liquidator registration committee approved the registration of 21 liquidators.

In the same period 416 licence applications were withdrawn or rejected for lodgement, 558 licences were cancelled and 12 licences were suspended. In addition, 21 professional registration applications were withdrawn and 11 were refused.

Regulatory reforms related to insurance claims handling and settling services, debt management and corporate collective investment vehicles (CCIVs) impacted ASIC’s licensing activities and regulatory guidance in the period covered by the report.

ASIC Commissioner Danielle Press said, ‘The report outlines our important licence assessment work and gatekeeping role to maintain high standards in the financial services and credit industries. Our gatekeeping role is highlighted by our assessment of debt management firm licence applications. Fourteen debt management firm applicants withdrew their applications following questions and concerns raised by ASIC during assessment. This was at a rate nearly three times higher than a typical credit licensing application.’

Since releasing our last licensing update, the Financial Regulator Assessment Authority (FRAA) has completed its first review of ASIC, which included an assessment of ASIC’s licensing function. FRAA’s overall assessment is that ASIC’s licensing function is broadly effective, and the licensing team is capable, although somewhat constrained by limited resourcing and technology.

In response to the recommendations, Commissioner Press added, ‘We are implementing changes to update our licensing portal to make it easier and more efficient for applicants to apply for a licence. We are also making changes to how we interact with licensees to enhance our engagement with and responsiveness to applicants.’

Licensing Liaison Events

Register for ASIC’s Licensing Liaison Events to be held in Melbourne and Sydney. These events will be held in person:

• Melbourne – 11 October
• Sydney – 13 October

Download

Report 738 Licensing and professional registration activities: 2022 update (REP 738)

Background

ASIC’s licensing report is released annually to increase transparency and provide guidance to licensees, professional auditor registrants and prospective applicants about ASIC’s licensing and professional registration decision making. The report outlines factors ASIC considers when reviewing an application, why certain information is required, and factors that may increase the time taken to assess an application.

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Since the onset of the COVID-19 pandemic, ASIC has seen an increase in the number of brokers offering securities trading. However, recent changes in market conditions have dampened retail investor activity. To broaden their revenue base, some brokers are seeking to offer retail investors high-risk products or services that may be unfair, inappropriate or result in poor outcomes.

Securities lending for retail investors

In Australia, securities lending has generally been limited to institutional investors who have the size, scale and sophistication to understand and manage the risks.

ASIC Commissioner Danielle Press said, ‘We will intervene or take action where we see unfair or inappropriate offers of securities lending arrangements to retail clients.’

‘Australian financial services (AFS) licensees may be liable for substantial civil penalties if they do not do all things necessary to ensure the financial services covered by their licence are provided efficiently, honestly and fairly’, she said.

Securities lending is complex and may be difficult for retail investors to understand. Design features that may not be fair or appropriate include:

• bundling of securities lending with other services or automatic opt-in of clients to securities lending (i.e. clients are required to take active steps to opt-out)
• no pre-qualification or vetting of investors (e.g. based on experience, assets or income)
• a fee split that is heavily skewed in favour of the provider.

Crypto-asset trading

With the growth in unregulated crypto-assets over recent years, some brokers have, or are seeking to, offer these products alongside shares and other regulated financial products through their trading apps. ASIC is concerned this may give investors a false sense of security, leading them to believe crypto-assets have the same protections as regulated financial products or they may underestimate the risks.

Commissioner Press said, ‘Crypto-assets are high-risk, volatile and complex. Brokers should think very carefully before offering crypto-assets through their share trading apps. The differences in risks and protections must be made clear to investors. We expect brokers to do the right thing by their clients.’

Misleading or deceptive statements about brokerage

ASIC has also seen instances of brokers marketing products and services to retail investors with headline rates of ‘zero’ or ‘low-cost’ brokerage using various digital marketing practices. Commissioner Press said, ‘We are concerned that ‘zero brokerage’ claims may not be true to label where the service is ‘bundled’ with other products or services that effectively subsidise brokerage and cause retail investors to take on additional risk.’

‘We strongly encourage retail investors to carefully consider what they are signing up for and make sure they understand the potential risks’, she said.

The law prohibits conduct that is misleading or deceptive, or likely to mislead or deceive, in relation to financial products or services. Brokers that claim to offer zero or low-cost brokerage should carefully consider whether they may be in breach of the law.

AFS licensee oversight of authorised representatives

Some online-only brokers operate as authorised representatives of an AFS licensee. We remind licensees of their obligation to have adequate resources to monitor and supervise their representatives. Licensees also need to carefully review and engage with the design of new products or services. ASIC will take action when licensees fail to meet these obligations: see 22-174MR.

Background

Securities lending involves one party (the lender) transferring title of their securities to another party (the borrower) who provides collateral in the form of shares, bonds or cash. The borrower pays the lender a fee and is required to return the securities, or equivalent securities, to the lender on demand or at the end of the loan term.

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TMDs are an important requirement for all financial products under the new design and distribution obligations (DDOs). A TMD is a mandatory public document that sets out the class of consumers a financial product is likely to be appropriate for (the target market), and settings relevant to the product’s distribution, monitoring and review.

ASIC reviewed a sample of 55 TMDs prepared by 27 superannuation trustees across the industry, retail, corporate and public sectors for both accumulation and retirement products.

‘The design and distribution obligations were introduced to improve consumer outcomes,’ ASIC Commissioner Danielle Press said. ‘As product issuers, it is the fundamental responsibility of trustees to know their product offering and who it is right for. Trustees should clearly define their target markets and review triggers in target market determinations using objective, specific and measurable parameters.

‘Clear target market determinations with appropriate underlying review triggers and controls, point to a trustee’s sound understanding of their product and the design and distribution obligations.

‘Some of the target market determinations that we looked at gave us comfort that they may be part of a well-designed and comprehensive governance program. However, others by their lack of specificity, raised questions about the underlying arrangements that trustees have in place to ensure their products reach the right consumers,’ Ms Press said.

Observations

• Defining target markets: All the TMDs reviewed by ASIC described target markets. Some trustees demonstrated better insight into their products by defining their intended market using specific parameters such as age, occupation or industry, minimum investment balance for retirement products and insurance needs. This approach would make it easier for distributors to confidently determine who the product is appropriate for. Some others used descriptions of consumer classes that were too broad to be meaningful, e.g. ‘those wishing to save for retirement’. We recommend that trustees:

• • clearly define the intended target market against the product and its key attributes.
  • when describing classes of consumers as being ‘potentially in the target market’, sufficiently cover the factors indicating product suitability for the relevant consumers; and
  • clearly articulate the target market for each product and the differences between the products in TMDs that cover multiple products.

• Describing investment sub-markets: Over 80% of the TMDs described elements of the submarkets for their investment options, including objectives, risk level and minimum timeframes. However, there were some broad objectives and non-numerical timeframes, e.g. ‘high-growth’ or ‘long-term’. To be effective, investment sub-markets should be specific and comparable, using quantifiable investment objectives or identifiable benchmarks and commonly adopted measures (e.g. the Standard Risk Measure), with the minimum timeframe for each investment option expressed in years. These elements should be consistent with other documents about the product, such as the product disclosure statement.
• Setting review triggers: Some trustees adopted consumer-centric review triggers that were specific and comparable over a set period of time, such as:

• • investment switching or insurance cancellations
  • member movement in or out of the product, and
  • investment performance, including APRA’s Choice Heatmap.

However, some review triggers were broad and not specific enough to determine when a review of the TMD would be triggered, e.g. ‘persistent’ level of complaints or ‘significant’ member movement. We recommend trustees consider how insights from complying with their Member Outcomes (MO) obligations (the annual Outcomes Assessment and Business Performance Reviews) are incorporated into their review triggers.

• Setting review periods: Most trustees nominated initial TMD review periods of up to one year. However, trustees need to give more attention to ongoing review periods – nearly half of them set two or three-year periods for ongoing reviews. Review periods are an additional prompt for trustees to check if their TMDs are still appropriate. We recommend trustees use annual review periods to utilise the insights obtained from their MO obligations.
• Distributor complaint reporting: Regular complaint reporting is designed to allow trustees to stay informed about their product and to assess whether the TMD remains appropriate. We found 82% of the TMDs required distributors to report complaints in periods of three months or less. The remainder had reporting periods of either six or 12 months.

Commissioner Press said, ‘We expect all trustees to consider these observations when reviewing their target market determinations. Trustees are strongly encouraged to focus on clarity and specificity to ensure these documents are fit-for-purpose.

‘Trustees must not adopt a ‘set and forget’ approach to their target market determinations. Failure to review them regularly and take corrective action can result in harm if the product is inconsistent with the objectives, financial situation and needs of consumers in the target market. ASIC is now focussing on compliance with the design and distribution obligations, and we will move to enforce the obligations where necessary,’ Ms Press said.

Background

DDOs require firms to design financial products to meet the needs of consumers and to distribute their products in a more targeted manner. The obligations apply to choice superannuation products, which can only be acquired by consumers actively choosing their product. They do not apply to MySuper products, defined benefit interests, or superannuation products that are no longer for issue or sale. Trustees are required to produce TMDs for choice superannuation products offered after DDOs commenced on 5 October 2021.

Regulatory Guide 274 Product design and distribution obligations (RG 274) outlines ASIC’s general approach to administering the obligations and expectations for compliance. On 15 December 2020, ASIC and APRA issued a joint letter to RSE licensees to explain the synergies between MO obligations and DDOs.

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ASIC found a lack of oversight and control measures in relation to investment switching. ASIC expected to find robust systems in place to prevent directors and senior executives from potentially misusing price sensitive information for personal gain. However, the surveillance revealed a lack of strong oversight in this space.

ASIC has written to the 23 trustees who were reviewed, outlining our concerns and requesting they take steps to improve existing policies and procedures.

In response to ASIC’s concerns, trustees have committed to implement a range of changes to improve arrangements for managing conflicts. These include:

• updating or establishing policies and practices to address the deficiencies ASIC highlighted by:
  • identifying switching as a potential conflict of interest
  • incorporating steps to prevent inappropriate trading (such introducing blackout periods or trading windows)
  • expanding conflicts arrangements to cover trading by related parties of directors and senior executives
• increasing board-level engagement so there is greater board oversight, input and direction. For instance, increased monitoring of staff transactions and reporting back to the board, including on switching activity
• increasing staff awareness of the policies and their obligations through greater internal communication and training, and
• undertaking an independent review of the trustee’s broader conflicts management frameworks.

Trustees are providing ASIC with details of the steps they are taking, including a copy of updated policies and procedures.

ASIC Commissioner Danielle Press said, ‘Appropriate governance is integral to maintaining consumer trust and confidence in the superannuation industry. This is not something you can set and forget. Trustees must have conflict management arrangements in place that are continually reviewed and tested to ensure they remain appropriate.’

ASIC has also completed our review of a range of transactions during the 2020 calendar year by directors, senior executives or their related parties. These transactions involved the switching of investment settings, changes to investment contribution allocations and superannuation contributions, and the withdrawal and roll in of superannuation monies.

Based on the evidence obtained during our surveillance, ASIC is satisfied no further action is warranted against any individuals in relation to the identified transactions.

ASIC will continue to work with APRA on ensuring trustees have appropriate policies and procedures in place to manage possible conflicts of interest. Trustees of superannuation funds are managing billions of dollars on behalf of their members and their conflicts management arrangements need to be commensurate with the level of responsibility they have.

Background

ASIC’s previous media release, 21-282MR Surveillance of investment switching by super fund executives, outlines concerns identified from the review of 23 trustees (including trustees of industry and retail funds).

As previously outlined, although this switching activity does not generally involve the acquisition or disposal of a new financial product to which the ‘insider trading’ prohibition attaches, investment switching with the benefit of price-sensitive information that is not available generally is similar to insider trading and may contravene other provisions of the law.

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