Revised Explanatory Memorandum
(Circulated by the authority of the Minister for Financial Services and Superannuation, the Hon Bill Shorten MP)Chapter 7 - Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Superannuation Legislation Amendment (Service Providers and Other Governance Measures) Bill 2012
7.1 This Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .
Overview
7.2 This Bill makes amendments relating to:
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- the use of specific service providers;
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- infringement notices;
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- trustees providing reasons for their decisions;
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- an increase in the time limit for members to lodge complaints with the Superannuation Complaints Tribunal;
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- resource and risk requirements for dual regulated entities;
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- actions for breaches of directors duties;
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- removing voting prohibitions;
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- MySuper administration fees rules;
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- the direction of contributions requirements
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- product dashboard requirements and the commencement of portfolio holding disclosure requirements;
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- clarifying that no member who holds a MySuper product can be precluded from holding a choice product, and vice versa;
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- clarifying the definition of 'superannuation contribution'; and
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- consequential amendments.
Human rights implications
7.3 This Bill engages the following rights and freedoms:
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- Article 14 of the International Covenant on Civil and Political Rights (ICCPR)-Presumption of innocence; and
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- Article 17 of the ICCPR- Right to privacy.
Presumption of innocence
7.4 Sections 35A, 35B and 35AE offences engage the presumption of innocence due to the application of strict liability in these provisions. Section 29WB and subsection 135(3) also engage this right. However, the limitations on the presumption of innocence are reasonable, necessary and proportionate.
7.5 The strict liability offences in subsections 35A(1) and (2), subsection 35AB(1) and subsection 35AE(1) and (2) are all existing strict liability offences.
7.6 Article 14(2) of the ICCPR states that everyone charged with a criminal offence shall have the right to be presumed innocent until proved guilty according to law. Strict liability offences are examples of provisions which will engage the presumption of innocence in that, if the physical elements of the offence are proven by the prosecution, the only means by which a defendant may avoid conviction is by making out a mistake of fact defence.
7.7 Subsections 35A(1) and (2) require accounting records to be kept by registrable superannuation entities (RSEs). This requirement reflects the current requirement in the Superannuation Industry (Supervision) Act 1993 (SIS Act) at subsections 35A(1) and (2). Superannuation funds need to maintain records which explain and record the financial position of the fund. This requirement facilitates the regulator's role in prudential regulation and is a reasonable request of superannuation entities.
7.8 Subsections 35A(4) and (5) requirements to notify APRA of the address of accounting records are now also strict liability offences. This reflects the importance of this information being available. Without notification of where these documents are kept, APRA would be limited in its ability to follow up on specific information should trustees become uncooperative. Subsections 35A(4) and (5) were not previously strict liability offences under the SIS Act and non-compliance with the requirement to provide or update an address of where accounting records are kept could only be acted upon by APRA taking administrative action, such as issuing a direction to comply with the requirement (where APRA had reasonable grounds to believe the RSE was in breach). The new treatment of subsections 35A(4) and (5) as strict liability offences will help to ensure APRA has the available information should it need to act to verify accounting records.
7.9 Non-compliance with the new section 35AB will be a strict liability offence, as it is currently for trustees of RSEs and self managed superannuation funds (SMSFs) under the existing subsection 35C(2). The audit of superannuation entities provides beneficiaries with a level of assurance that the claimed assets will be available to meet their retirement needs. Further, the auditor has a limited time in which to prepare the audit report. Failure by the trustee to provide necessary records within the time specified in the request would undermine confidence in the audit process. The consequence of hindered auditing could have a detrimental impact on tracking financial decisions which impacts the fund's members, thus it is appropriate that this remain a strict liability offence in section 35AB.
7.10 The new section 35AE outlines the type of accounting records SMSFs must keep and mirrors section 35A which now applies only to RSEs. Non-compliance with new section 35AE is not a new strict liability offence as the existing treatment under section 35A will continue to apply. A strict liability offence is necessary as the consequences of contravening this requirement and hindering auditing could have a detrimental impact on tracking financial decisions. It is a reasonable expectation that records are kept in an appropriate manner for audit.
7.11 A strict liability offence in section 29WB ensures that employees appropriately have their contributions placed in the MySuper product tailored for their benefit, rather than any other MySuper product offered by the trustee. This is to prevent contributions of a sub-set of employees being paid into a tailored MySuper product while other employees of the same employer have their contributions paid into a generic MySuper product. An offence of strict liability assists in ensuring all sub-sets of employees receive equal treatment in regards to where their contributions are placed. This strict liability offence reflects the importance of protecting members' interests. The consequences of a trustee failing to comply may be reduced retirement savings.
7.12 It is common for APRA to have issues with former trustees facilitating the role of acting trustees due to the difficult circumstances than can surround the removal or suspension of a trustee. Therefore, there is a risk of the former trustee obstructing, or failing to facilitate, the role of the acting trustee, thus an offence of strict liability is required for a breach of subsection 135(3).
7.13 The provisions of the Bill limiting the presumption of innocence through the use of strict liability offences are reasonable, proportional and necessary in the circumstances given the importance of transparency in prudential regulation and for members.
7.14 The new infringement notice scheme is a no fault offence scheme. Itis limited in application to existing offences which are already strict liability offences. Broadly, these offences impinge upon APRA's ability to administer the law in a timely, and effective manner, therefore their limitation on the right of presumption of innocence is reasonable and necessary to facilitate effective administration of the SIS Act.
Right to Privacy
7.15 Section 35AB requires a trustee to provide certain documents to an auditor upon request. These documents have the potential to contain personal information; therefore this engages the right to privacy.
7.16 The documents that must be given to auditors include details about the fund's finances. These details will often contain membership numbers and balances of members' accounts.
7.17 In order for an interference with privacy not to be 'arbitrary', any interference with privacy must be in accordance with the provisions, aims and objectives of the ICCPR and should be reasonable in the particular circumstances. Reasonableness, in this context, incorporates notions of proportionality to the end sought.
7.18 The disclosure of member numbers and account balances is reasonable as it is inevitable that in the financial statements of a superannuation fund, the amount held in each account and the losses and gains made by those accounts are disclosed. Without the inclusion of member accounts and balances, auditors' roles would be more challenging as the ability to document changes in finances would be more difficult. The specific details which will be disclosed also relate to how much a member has contributed.
7.19 The provision of member information to an auditor is reasonable and is proportional to the end goal of prudential regulation of a superannuation fund which is necessary to protect members' interests. Without disclosure of specific information relating to members, it would be too difficult for APRA to monitor financial transactions.
7.20 Auditors are required to be fit and proper in accordance with the prudential standard on fitness and propriety. This provides a safeguard to the types of persons who have access to the information required to be handed over in the audit process.
7.21 The provisions of the Bill are therefore proportional and necessary in the circumstances. Consequently, the limitation to the right to privacy is reasonable according to Article 17 of the ICCPR.
Conclusion
7.22 The Bill is compatible with human rights. To the extent that it limits human rights, those limitations are reasonable, necessary and proportionate.
Minister for Financial Services and Superannuation, the Hon Bill Shorten MP