Explanatory Statement

Issued by the Authority of the Minister for Financial Services and Regulation

Superannuation Industry (Supervision) Act 1993

Superannuation Industry (Supervision) Amendment Regulations 2001 (No. 1)

Section 353 of the Superannuation Industry (Supervision) Act 1993 (the Act) provides that the GovernorGeneral may make regulations for the purposes of the Act.

The Act and the Superannuation Industry (Supervision) Regulations 1994 (the Principal Regulations) provide for the regulation of certain superannuation funds, approved deposit funds and pooled superannuation trusts by the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission, and the Australian Taxation Office.

The purpose of these Regulations is to provide standards for the management and control of certain superannuation funds in the Principal Regulations. Pursuant to section 332 of the Act, the Regulator may modify certain provisions of the Act or Principal Regulations in relation to a particular person or class of persons. In 1995, the former Insurance and Superannuation Commissioner (the Commissioner) made Modification Declaration No 10 (MD 10), which modified Part 9 of the Act, which sets out rules about the representation of employers and members in relation to the management and control of standard employersponsored superannuation funds. MD 10 also modified the Principal Regulations. The Financial Sector Legislation Amendment Act (No. 1) 2000 (FSLAA) incorporated the modifications made by MD 10 to Part 9 of the Act into the Act itself. The part of MD 10 that modifies the Act has been revoked. It is now desirable to revoke the remainder of MD 10 but there are some modifications made to the Principal Regulations by MD 10 which are still required. These Regulations ensure that those provisions are directly incorporated into the Principal Regulations and continue in force after the revocation of MD 10.

The superannuation funds that are affected by these Regulations are those non-public offer superannuation funds that are not a standard employer-sponsored fund, have more than four members, and do not have an acting trustee appointed under Part 17 of the Act. Those funds are required by MD 10 to have in place an arrangement in relation to the management and control of the fund that has been agreed to by a majority of the members, and which is approved in writing by APRA. MD 10 allows APRA to place and vary conditions on, and revoke, its approval. These Regulations reinstate these arrangements. In addition, these Regulations include a savings provision that ensures the continuing validity of approvals granted by the Commissioner.

These Regulations also amend Regulation. 8.03 of the Principal Regulations to replace a reference to subsection 113(1) of the Act with a reference to subsection 113(4). This follows an amendment to section 113 by the FSLAA.

The relevant provisions of the FSLAA to which the Regulations relate commenced on 18 January 2001.

Details of the Regulations are set out in the Attachment.

The Regulations commence on 1 March 2001.

Amendments to the Superannuation Industry (Supervision) Regulations 1994

Regulation 1 - Name of Regulations

Regulation 1 provides that these Regulations are the Superannuation Industry (Supervision) Amendment Regulations 2001 (No. 1).

Regulation 2 - Commencement

Regulation 2 commences on 1 March 2001.

Regulation 3 - Amendment

Regulation 3 provides that Schedule 1 amends the Superannuation Industry (Supervision) Regulations 1994 (the Principal Regulations).

Schedule 1

Item [1] - New Regulation 4.08A

Item 1 inserts Regulation 4.08A into the Principal Regulations.

Modification Declaration 10 (MD 10), made in 199,5 by the former Insurance and Superannuation Commissioner (the Commissioner), pursuant to section 332 of the Superannuation Industry (Supervision) Act 1993 (the Act), modified the Principal Regulations by providing that they were to have effect as if a new Regulation 4.08A was inserted.

The reason why MD 10 added Regulation 4.08A is as follows. Many non-standard employer-sponsored funds that would otherwise be public offer funds within the meaning of subsection 18(1) of the Act, but that are declared not to be public offer funds, have a membership consisting of a group of partners or associates, for example doctors, lawyers, accountants, business partners or members of a family. Often die membership will include employees of the partners or associates. (The partners or associates will contribute to the fund on behalf of the employees concerned solely pursuant to an arrangement between the employees and the trustee. If they contributed wholly or partly pursuant to an arrangement between themselves and the trustee, the fund would be a standard employer-sponsored fund, and would thus have to comply with the equal representation rules in Part 9.) Where such funds have five or more members, it was considered that the standards should require that the members be given a say in relation to the management and control of the fund.

The Financial Sector Legislation Amendment Act (No. 1) 2000 (FSLAA) incorporated the modifications made by MD 10 to Part 9 of the Act into the Act itself. The part of MD 10 that modifies the Act has been revoked. It is now desirable to revoke the remainder of MD 10 but there are some modifications made to the Principal Regulations by MD 10 which are still required. These Regulations ensure that those provisions are directly incorporated into the Principal Regulations and continue in force after the revocation of MD 10.

New Regulation 4.08A is substantially the same as the modification made by MD 10. However, references to the Commissioner in the MD 10 version of Regulation 4.08A have been replaced by references to the Australian Prudential Regulation Authority (APRA), and a savings provision has been added.

Subregulation 4.08A(1) provides that the standard set out in subregulation 4.08A(2) is an operating standard under subsection 3-1 (1) of the Act.

Subregulation 4.08A(2) applies to a regulated superannuation fund that:

•

is not a standard employer-sponsored fund;

•

has more than four members; and

•

has been declared not to be a public offer fund under subsection 18(7) of the Act.

Under subregulation 4.08A(2) such funds must have in place an arrangement in relation to the management and control of the fund that has been agreed to by a majority of the members of the fund, and which is approved in writing by APRA.

Subregulations 4.08A(3) and (4) provide that APRA may place conditions on the approval granted under subregulation 4.08A(2), and may revoke the approval by written notice to the holder. APRA may also vary the conditions to which an approval is subject.

Subregulation 4.08A(5) contains a savings provision, the effect of which is to ensure the continuing validity of approvals that may have been granted by the Commissioner or APRA under MD 10 and were in force immediately before these Regulations take effect.

Subregulation 4.08A(6) provides that APPA must have regard to any written guidelines it determines under this subregulation in deciding whether to grant approval for the purposes of subregulation 4.08A(2)(e).

Subregulation 4.08A(7) provides that Regulation 4.08A does not apply to a fund if the fund has an acting trustee appointed under Part 17 of the Act. This ensures consistency with section 88 of the Act which provides that the representation. requirements of Part 9 of the Act do not apply where a fund has an acting trustee appointed under, Part 17 of the Act.

Item [2] - Amendment to Regulation 8.03

This item amends Regulation 8.03 to replace a reference to subsection 113(1) of the Act with subsection 113(4). Regulation 8.03 sets out the period after the end of each year of income within which an auditor of a fund must give a report to the trustee, as required by section 113 of the Act. This period varies depending on the type of fund. Prior to the commencement of the FSLAA, the relevant period was prescribed under subsection 113(1). Therefore Regulation 8.03 referred to subsection 113(1). The FSLAA amended section 113 so that the period within which an auditor must give a report to the trustee is now specified under subsection 113(4). Regulation 8.03 is being amended accordingly.