In brief 4 min read
The Senate has passed amendments that will greatly expand the scope of the prohibition on trustees and their associates providing incentives to employers in section 68A of the Superannuation Industry (Supervision) Act 1993 (Cth). It will also make the section a civil penalty provision. The amendments will need to be passed by the House of Representatives to become law, but this appears to be imminent, and the expanded prohibition will apply from the day after the Royal Assent – meaning it could begin to apply as early as sometime next week. Trustees and their associates should urgently review how they currently interact with employer-sponsors and prospective employer-sponsors. Senior Regulatory Counsel Michael Mathieson and Senior Associate Stephanie Malon report.
Section 68A of the Superannuation Industry (Supervision) Act 1993 (Cth) (the SIS Act) currently contains a relatively narrow restriction on trustees or their associates supplying or offering to supply goods or services (amongst other benefits) to a person 'on the condition that one or more of the employees of the person will be, or will apply or agree to be, members of the fund'.
The current provision does not prevent trustees supplying entertainment or other benefits to employers in the hope (but not on the condition) that they would nominate the trustee's fund as the default fund for their employees.
The Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the Royal Commission) recommended that the prohibition be broadened in light of concerns that decisions by employers about default funds are being affected by irrelevant considerations. Recommendation 3.6 in the Royal Commission's Final Report stated (emphasis added):
Section 68A of the SIS Act should be amended to prohibit trustees of a regulated superannuation fund, and associates of a trustee, doing any of the acts specified in section 68A(1)(a), (b) or (c) where the act may reasonably be understood by the recipient to have a substantial purpose of having the recipient nominate the fund as a default fund or having one or more employees of the recipient apply or agree to become members of the fund. The provision should be a civil penalty provision enforceable by ASIC.
The Federal Government amended the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 1) Bill 2017 (which deals with a range of other matters) to include its changes to s68A.
Broadly speaking, the amendment to s68A would prohibit trustees and their associates from offering, or refusing to offer, certain benefits to employers that would be reasonably expected to influence the employer's choice of the trustee's fund as a default fund, or whether the employer encourages its employees to be members of the fund. It would also make the relevant section a civil penalty provision for the purposes of s193.
The amendment to s68A goes further than the recommendation in the Royal Commission Final Report – it contains no reference to the 'substantial purpose' of the trustee or associate in providing (or refusing to provide) the relevant benefit. The test in the proposed new s68A(1) seems to be based on the definition of conflicted remuneration in s963A of the Corporations Act 2001 (Cth). This 'influence' test is likely to be more easily satisfied than the purpose test proposed by the Commissioner.
In addition to entertainment-type incentives that Commissioner Hayne was particularly concerned with, the amended s68A is also likely to catch numerous other arrangements – a number of which are probably inadvertently caught. Further, at the moment there are exceptions to s 68A in regulation 13.18A, but the exceptions mirror the narrower language of the existing s68A. It is likely that there will need to be exceptions to the amended s68A, but it is unclear whether anyone has considered what these will look like in the rush to push the amendments through.
The amendments will now be returned to the House of Representatives, but can be expected to be passed by the House imminently. As mentioned, the amendments will become effective from the day after the Royal Assent. Superannuation trustees and their associates will need to urgently consider the impact of the expanded ban on their activities.