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3.4 Investment management, superannuation and related services

The investment management, superannuation and related services sector includes superannuation trustees, responsible entities (REs), wholesale trustees, operators of notified foreign passport funds, custodians, investor-directed portfolio service operators, managed discretionary account providers, traditional trustee company service providers, and crowd-sourced funding intermediaries.

In 2019–20, our work in this sector focused on implementing Royal Commission and Productivity Commission recommendations, strengthening ASIC’s role as a conduct regulator, trustee misconduct, insurance in superannuation, enhancing our communication to trustees and their advisers, and responding to the impact on businesses and consumers of the COVID-19 pandemic.

Investment management

Responsible entities’ obligations in the COVID-19 pandemic environment

In March 2020, ASIC wrote to several REs of managed investment schemes to remind them of their fundamental duties and legal obligations to members in light of the market volatility, disruption and other challenges associated with the COVID-19 pandemic. The letter was published on ASIC’s website and reminded REs to:

  • actively assess their scheme’s liquidity status
  • actively review the terms on which redemptions are made available and whether this remained consistent with the liquidity of the underlying scheme assets
  • monitor the valuation of scheme property and its flow through to unit prices on which members transact
  • meet disclosure obligations and communicate with scheme members in a timely manner.

We also noted the potential for REs to apply to ASIC for hardship relief, and our ability to provide REs with rolling withdrawal relief in appropriate cases.

We asked REs to help us monitor the situation by notifying us immediately if any registered scheme became non-liquid. We also met regularly with industry associations and members to discuss their management of scheme liquidity and compliance with their duties during the COVID-19 pandemic.

True-to-label managed funds

The appropriate labelling of managed funds is important to ensure a fair market and help consumers understand the products being offered. ASIC regularly conducts thematic campaigns and surveillances in the funds management sector.

This year, we conducted a risk-based targeted surveillance of current labelling practices within managed funds predominantly in the property, fixed-income, mortgages and cash sectors.

We found that, generally, product labelling and the characteristics of the underlying assets of the managed funds were consistent. However, issues were observed in funds that used the label ‘cash’ (and related terms, such as ‘cash enhanced’ or ‘cash plus’) in their fund name and in promotional materials.

Our concerns included:

  • for a number of these ‘cash’ funds, most assets were things other than cash or cash-equivalent assets
  • inappropriate comparisons were being drawn between some managed funds and bank term deposits
  • issues with the withdrawal terms that some funds offered and their underlying assets – for example, some funds offering daily or similar withdrawal terms where the underlying assets were largely illiquid.

We dealt directly with about 20 REs in relation to labelling, inappropriate comparisons and withdrawal terms. Many have amended their product disclosures as a result of ASIC’s inquiries. We are considering regulatory action in relation to a small number of REs.

Litigation funding reforms

On 22 May 2020, the Government announced that litigation funders would be regulated under the Corporations Act. From 22 August 2020, operators of litigation funding schemes will generally be required to hold an AFS licence and comply with the managed investments scheme regime. ASIC worked with Treasury and engaged with industry on various implementation and transitional issues relating to the application of the new requirements to litigation funders.

On 12 June 2020, ASIC made a public submission to the Parliamentary Joint Committee on Corporations and Financial Services inquiry into litigation funding and the regulation of the class action industry, which is due to report by 7 December 2020. We also appeared at a hearing on 29 July 2020.


Superannuation trustees

ASIC is primarily responsible for ensuring that superannuation trustees meet their obligations in their dealings with consumers, including disclosure and advice to members and ensuring that members have access to complaints processes.

The Royal Commission recommended that ASIC become the primary conduct regulator for superannuation. In early 2020, the Government released for consultation proposed legislation about ASIC’s role as conduct regulator in superannuation, addressing several Royal Commission recommendations. The proposed legislation also responded to the Productivity Commission’s report Superannuation: Assessing Efficiency and Competitiveness, which recommended clarifying the regulators’ roles, powers and areas of focus.

ASIC has focused on conduct that contributes to potential member harm, as well as on promoting better member outcomes in the implementation of reforms such as ‘Protecting Your Superannuation Package’. We seek to drive better behaviour by trustees to ensure better outcomes for consumers.

ASIC and APRA are committed to working together effectively to create better outcomes for superannuation members, consistent with the principles in the revised APRA–ASIC MOU. On 14 February 2020, ASIC and APRA issued a joint letter to superannuation trustees about how regulatory oversight will operate following the legislative reforms to ASIC’s role.

Insurance in Superannuation Voluntary Code of Practice

The Insurance in Superannuation Voluntary Code of Practice (IS Code) sets standards aimed at improving industry practices in benefit design, claims handling and communications to members. The IS Code is being adopted in whole or in part by 70% of superannuation trustees. Full compliance is not necessary until July 2021.

Along with APRA, ASIC engaged with industry – trustees, administrators and the Code owners – to understand how effectively the implementation and coverage of the IS Code is improving industry practice. We undertook over 100 website disclosure reviews, a desk-based ‘mystery shopping exercise’ to 100 superannuation hotlines, a survey of trustees about claim timeframes, and structured meetings with 18 trustees.

We observed some improvements in practice being introduced as a result of adoption of the IS Code by a significant number of trustees. However, further work needs to be done to achieve the high industry standards that consumers expect.

We identified several inconsistencies in implementation, some relating to fundamental aspects of the IS Code. In our view, the IS Code could go further in detailing how trustees should proactively identify and engage with vulnerable consumers, and in embedding a consumer-centric approach to vulnerability.

Our findings were outlined in Report 646 Insurance in Superannuation: Industry implementation of the Voluntary Code of Practice, published on 13 December 2019.

Consolidation of superannuation accounts

Working with the ATO and the Australian Competition and Consumer Commission (ACCC), ASIC identified financial advisers, trustees, fund promoters and unlicensed providers running marketing campaigns based around the provision of ‘free’ lost superannuation search and consolidation services. In many cases, these ‘free’ services were accompanied by the charging of various significant advice fees. Although consolidation of superannuation accounts can benefit consumers, if not done appropriately it can lead to the loss of valuable insurance and the payment of higher fees.

The primary tool used by those offering ‘free’ lost superannuation and consolidation services was the ATO’s SuperMatch2 service, which allows trustees and entities authorised by the trustee to obtain a list of active superannuation accounts belonging to their members or clients.

Concerns highlighted by this review included:

  • trustees’ poor oversight of how third parties use their SuperMatch2 access
  • trustees’ inadequate oversight of payments to advisers, including payments for general advice
  • lost superannuation search providers setting up fake adviser profiles with a trustee in order to gain access to the trustee’s service
  • the use of high-pressure sales tactics or forged signatures
  • advisers inappropriately encouraging members to apply for early release of superannuation and targeting funds that appeared to be more lenient in granting the release of funds.

We are investigating this conduct for suspected contraventions of the law and continue to work with the ATO in relation to potential misuse of the SuperMatch2 service. The ATO has temporarily removed all access to SuperMatch2 and is working with industry and other government agencies to strengthen controls on access to SuperMatch2, including consideration of the issues identified by ASIC.

Protecting Your Superannuation Package review

The Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 and accompanying Regulations (PYSP measures) were introduced in order to reduce erosion of Australians’ superannuation savings by inappropriate fees or insurance arrangements.

To assess superannuation trustees’ initial implementation of these reforms, we undertook a detailed review of approximately 1,100 documents distributed by a sample of 12 trustees. We focused on trustees more likely to be affected by the reforms – for example, due to a relatively high proportion of inactive accounts. We also examined disclosures about the PYSP measures from a number of other trustees and third parties.

We reviewed how well the documents that were mandated under the PYSP measures complied with legal requirements, and how well other communications and marketing materials (including call centre scripts and SMS campaigns) helped members understand and respond to the reforms.

While some aspects of communication were addressed well, there were several areas of concern that had the potential to cause consumer harm. We intervened to improve communications where we identified problems and provided all 12 trustees in the sample with feedback about their communications approach.

Report 655 Review of member communications: Protecting Your Superannuation Package (PYSP) reform, which summarised our review findings, highlighted to trustees the importance of:

  • providing clear and balanced information about the importance and purpose of PYSP measures
  • providing appropriate options and avoiding techniques that influence members to take a specific course of action
  • improving member data, so that information can be delivered that is relevant to particular members.

Our report set clear expectations of trustees when developing further PYSP communications and provided general guidance that trustees should consider when communicating with members in the future.