House of Representatives

Revised Explanatory Memorandum

(Circulated by authority of the Assistant Treasurer, the Hon Stuart Robert MP)

Chapter 9 Reporting standards

Outline of chapter

9.1 Schedule 8 to this Bill amends the FSCODA to provide APRA with the ability to obtain information on expenses incurred by RSE and RSE licensees in managing or operating the RSE.

9.2 All legislative references in this chapter are to the FSCODA unless otherwise indicated.

Context of amendments

9.3 The FSCODA provides APRA with the power to make reporting standards that require RSE licensees to report expenses relating to investments of an RSE on a look through basis.

9.4 Look-through reporting involves requiring the RSE licensee to seek information from the third party to which expenses are being paid for reporting purposes.

9.5 Look-through reporting of investment expenses enables APRA to obtain a full picture of how RSEs are investing member contributions and provides APRA with the ability to consider whether the investments of individual RSEs are in line with their obligations under the SIS Act.

9.6 While expenses relating to investments are subject to look through reporting obligations, expenses relating to the management and operation of the RSE are not currently captured.

9.7 The amendments in this Schedule enable reporting standards to be made that require RSEs to provide APRA with their expenses relating to the management and operation on a look through basis, allowing all RSE expenses to be collected under reporting standards.

9.8 This additional information will enable APRA to understand the full picture of how RSEs are using member contributions and will enable APRA to consider whether expenses of individual RSEs are in line with the RSE licensee's obligations under the SIS Act, including the obligation to act in the best interests of beneficiaries as per paragraph 52(2)(c).

Summary of new law

9.9 The amendments enhance the ability of APRA to collect information in relation to a transaction between an RSE licensee and another entity where the money, consideration or other benefit originated from the assets of an RSE of the RSE licensee.

9.10 In those situations, the reporting standards may require the RSE licensee to provide information in relation to the transaction including:

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details of the other entity;

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the purpose for the transaction;

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the way the other entity used the money, consideration or benefit received; and

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any entity with which the other entity deals.

9.11 Amendments made by the Senate to this Schedule that were tabled by the Greens extend the reporting requirements to amounts paid by a person connected with the RSE licensee and expand the listed examples of the types of information that can be required to be provided by an RSE licensee about the receiving entity.

9.12 To facilitate the information gathering process in order for the RSE licensee to meet its obligation to report the required information to APRA under the reporting standards, the amendments also require the RSE licensee to notify the other entity and the other entity to provide the required information after being notified.

9.13 The Senate amendments also expand on the list of information that a reporting standard may require an RSE licensee to provide in relation to the investment of assets of the RSE licensee's registerable superannuation entities.

Comparison of key features of new law and current law

Detailed explanation of new law

9.14 The amendments enhance APRA's ability to collect information in relation to a transaction between an RSE licensee and another entity where the money, consideration or other benefit originated from the assets of an RSE of the RSE licensee.

9.15 APRA is able to collect the information through the reporting standards determined by APRA under section 13 of the FSCODA.

9.16 If an RSE licensee gives money, consideration or some other benefit out of the assets of an RSE of the licensee to another entity, the reporting standards may require the RSE licensee to provide information in relation to the transaction including:

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details of the other entity;

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the purpose for which the money, consideration or other benefit is given;

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the way in which the other entity used the money, consideration or benefit received; and

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any entity with which the other entity deals.

[Schedule 8, item 3, subsection 13(4D)]

9.17 That is, where the money, consideration or benefit received by the other entity was used in its dealings with any further entities, information about the further entities are required to be provided by the RSE licensee in accordance with the reporting standard. This is in addition to the RSE licensee needing to provide information about the details of the other entity, the purpose for the transaction and the way the other entity used the money, consideration or benefit received.

Example 9.1

The trustee of BetterSuper enters into a contract with Bubbles Ltd (an associated entity of BetterSuper) to provide assistance with their administration including their advertising campaigns. Subsequently, Bubbles Ltd enters into a contract with BetterLook Promotion Company to create an advertisement to create BetterSuper's membership base.

When tracing the expenses of BetterSuper, BetterSuper's trustee will need to capture the expenses relating to advertising undertaken by BetterLook through Bubbles Ltd and the expenses relating to the administration services provided by Bubbles Ltd.

9.18 Amendments made by the Senate to this Schedule that were tabled by the Greens expanded the listed examples of the types of information that can be required to be provided by an RSE licensee to include:

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information about how money is given to the other entity;

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if the entity receiving the money, consideration or benefit is not the RSE licensee - the relationship between the licensee and the other entity; and

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the extent to which the other entity's profit is attributable to the money, consideration or benefit it received.

[Schedule 8, item 3, paragraphs 13(4D)(b), (c) and (e)]

9.19 The Senate amendments also extended the reporting requirements to amounts paid by a person connected with the RSE licensee. To facilitate this extension, the amendments specify that a person is connected to an RSE licensee for the purposes of reporting information related to the payment of money, consideration or a benefit from the assets of an RSE if the person is:

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a related body corporate of the RSE licensee; or

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a custodian in relation to assets of the RSE licensee's registerable superannuation entities, and in relation to the license or a related body corporate; or

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a person who invests the assets of the RSE licensee's registerable superannuation entities, or provides a financial service in relation to such assets, under a contract with the RSE licensee, a related body corporate or a custodian.

[Schedule 8, item 3, subsection 13(4F)]

9.20 These requirements are consistent with the equivalent connected person rules in subsection 13(4C) for reporting standards in relation to the investment of assets, or assets derived from assets, of the licensee's registerable superannuation entities.

9.21 Where an RSE licensee, or a connected person, gives money, consideration or some other benefit out of the assets of its RSE to another entity under a contract or arrangement, the contract or arrangement is taken to contain the following terms:

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at the time of the money, consideration or other benefit is given, or as soon as reasonably practicable after that time, the RSE licensee must notify the other entity that the transaction is made out of the assets of the RSE; and

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the other entity must, as soon as reasonably practicable after being notified by the RSE licensee, provide the RSE licensee with the required information of which the other entity is aware.

[Schedule 8, item 3, subsection 13(4E)]

9.22 This mechanism is to facilitate the information gathering process in order for the RSE licensee to meet its obligation to report the required information to APRA under the reporting standards.

9.23 However, if the transaction is in relation to investment assets of the RSE licensee's RSE by the RSE licensee, then the amendments do not apply. [Schedule 8, item 3, subsection 13(4F)]

9.24 This reflects that APRA can currently determine reporting standards requiring the RSE licensee to provide information in relation to investment assets under subsection 13(4A).

9.25 The Senate amendments also expand on the list of information that a reporting standard may require an RSE licensee to provide in relation to the investment of assets of the RSE licensee's registerable superannuation entities. The intent of these amendments is to ensure that information can be obtained about the entity that makes the investment and the impact of the costs of the investment on members.

9.26 To this end, the amendments clarify, that in addition to the existing examples of information that can be required under a reporting standard in relation to the investment of assets, such reporting standards may require information about:

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the extent to which the profits of the investor are attributable to the deductions made by the investor;

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the effect of any deductions on the returns on the investment that are passed on to members;

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if the investor is a person connected with the RSE licensee - the relationship between the licensee and the investor.

[Schedule 8, item 3, paragraphs 13(4A)(aa) to (ac)]

Consequential amendments

9.27 Subsection 56(1) of the APRA Act is updated to ensure that the information collected by APRA under the amendments are given the same treatment as the information collected in relation to investment assets under subsection 13(4A). [Schedule 8, items 1 and 2, paragraphs (ca) of the definitions of 'protected document' and 'protected information' in subsection 56(1) of the APRA Act 1998]

Application and transitional provisions

9.28 These amendments commence on or after the day after the Bill receives the Royal Assent, so from that date APRA can determine reporting standards giving effect to the amendments.

9.29 The obligation for the RSE licensee to notify the other entity and the obligation for the other entity to provide the required information will be implied into a contract or arrangement, regardless of whether it is entered into before or after these amendments commence. [Schedule 8, subitem 4(1)]

9.30 The ability to imply such terms into existing contracts is to address future transactions under contracts that are currently on foot.

9.31 For example, if a contract or arrangement provides for payments over a period of time, the obligations on the RSE licensee to notify, and the other entity to provide, the required information will only apply to the payments made on or after the day after the Bill receives the Royal Assent.

9.32 That is, the RSE licensee does not need to notify the other entity in respect of past transactions made under the contract or arrangement, and the other entity would not have the obligation to provide the information as there is no requirement for the RSE licensee to notify.

9.33 This ensures that all transactions to be made on or after the commencement of the amendments are subject to the same requirements, regardless of whether the transaction is made under an existing contract or a contract entered into after the commencement of the amendments.

9.34 However, to the extent that the operation of the reporting standard would result in an acquisition of property from a person other than on just terms, the obligations will not be implied into a contract or arrangement that is entered into before the commencement of these amendments. [Schedule 8, subitem 4(2)]

9.35 This is to recognise the different circumstances in which the contracts are entered into. Where contracts are entered into after the commencement of these amendments, the RSE licensee (and entities it contracts with) would be aware of the requirements under the reporting standards and are able to address the potential acquisition of property matters in the terms of the contract.

9.36 Furthermore, if an RSE licensee is unable to obtain particular required information to provide to APRA due to the obligations not being implied into the contract or arrangement, then the RSE licensee is not required to comply with the reporting standard to the extent that it is required to provide that particular information. [Schedule 8, subitem 4(3)]

STATEMENT OF COMPATIBILITY OF HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Reporting standards

9.37 This Schedule 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

9.38 Schedule 8 to this Bill amends the FSCODA to provide APRA with the ability to obtain information on expenses incurred by RSE and RSE licensees in managing or operating the RSE

Human rights implications

9.39 This Schedule does not engage any of the applicable rights or freedoms.

Conclusion

9.40 This Schedule is compatible with human rights as it does not raise any human rights issues.