Joint ASIC and APRA letter to superannuation trustees, on the impact of COVID-19

In brief 5 min read

It has been a week since we published our first article on the impact of COVID-19 on superannuation. Since then, we have continued to witness (from home) the turmoil caused by the virus, both in terms of health and wellbeing and the consequential impact on the international economy. At times, it has felt like we cannot even imagine, let alone predict, what will happen next.

A timely reminder, then, by way of a joint letter from ASIC and APRA that superannuation is a long-term proposition and that, while we cannot know what is around the corner, trustees must have the 'nous, dedication and preparedness' to appropriately safeguard members' savings through this difficult period.

With that at least, we agree.

Liquidity is a top priority

ASIC and APRA have written to all RSE licensees, reminding trustees of their obligations.

As we foreshadowed last week, liquidity and the ability to pay benefits are the key concerns for both regulators.

Emphasis is given to the importance of regular and detailed stress testing, as well as identifying and addressing specific issues that may impact liquidity, such as the deterioration in the liquidity profile of investments. The impact on liquidity of any liabilities and contractual commitments should also, the regulators say, be under review.

We have already seen recent examples of funds revaluing their underlying investment assets in light of shifts in the investment markets. The letter encourages trustees to continue to consider whether this would be appropriate for their own portfolios.

Beware the fake news

Timely and clear engagement with members is a must. This includes in relation to insurance, and trustees should understand the effect on insurance of the economic conditions and health restrictions, and communicate with members about how their cover may be affected by the crisis.

The letter goes on to say that trustees should monitor member concerns and complaints so that their communications (and any related resourcing) can be adjusted to best suit member needs. In preparing any COVID-19-related information, regard should be had to official sources (eg Treasury, or ASIC's Moneysmart website) to ensure that there is clear messaging to Australians.

Unfortunately, the letter also comes with a warning of a possible surge in scams and fraud and the related cyber-risk (given the unsettled market conditions) and funds should be alive to these risks.  

Pragmatism in the regulatory approach

While the regulatory focus of both APRA and ASIC may have shifted for the foreseeable future, the letter provides a clear reminder to trustees that their current legal, regulatory and reporting obligations remain the same.

However, there is room for relief. The letter indicates that where trustees engage early with APRA or ASIC in relation to any of their obligations that are proving difficult to meet, they can expect 'a constructive and pragmatic approach' in response.

Additionally, if the regulators have made any non-COVID-19-related requests to trustees and these are outstanding, trustees can seek an extension (from the relevant regulator) if this is needed.

Other information provided in FAQs

To assist trustees in understanding their current – and new (which we assume to mean the early release measures and minimum drawdown rates) – obligations, ASIC and APRA has each published a set of COVID-19 and superannuation FAQs.

In addition to the information provided in the media releases published last week¹, the FAQs address a number of issues, including (as of 2 April 2020):

ASIC FAQs

• Portfolio holdings disclosure: ASIC has stated that it is currently considering whether the first reporting date for portfolio holdings remains appropriate. In November last year, ASIC deferred this to 31 December 2020, but it recognises that the regulations relating to the regime are still to be published (and the difficultly that the current conditions may present to trustees). Trustees should watch this space for another possible deferral.
• Annual members' meetings: At this stage, no relief will granted from the requirement to hold annual members' meetings. By the time the first meetings need to be held (which can be as late as March 2021, with notice given by 31 December 2020) the challenges of holding meetings in person 'may not persist' (and we certainly hope that ASIC is right). Even if physical meetings cannot be held, ASIC emphasises that electronic and virtual annual members' meetings are expressly contemplated by the legislation.
• Oversight of fees and other charges: The publication of the findings of APRA's and ASIC's joint work on trustees' oversight of fees and other charges will be deferred for six months (this was originally due to be published in the first half of 2020).

APRA FAQS

• Business Performance Reviews: No relief will be provided from complying with the SPS 515 requirement to undertake a business performance review. If anything, in APRA's view, the current conditions make this review even more critical, and it will continue to address underperformance and hold entities to account in this respect.
• Heatmaps: The updated MySuper Product Heatmap and related fee data will be published in June, as expected.
• Outsourcing and conflicts management: The commencement of APRA's thematic activity relating to outsourcing and conflicts management has been postponed to Q4 2020.
• Data reporting: The Superannuation Data Transformation project will continue, but with a one-year deferral for data collections from funds until September 2021.

We are yet to see whether any specific COVID-19 regulatory measures will be introduced. However, trustees should keep a watching brief for updates – we expect that the regulators will use the FAQ pages as the key forum for providing additional information and insights over the coming weeks and months.