Details still emerging but the more radical proposals have been discarded 8 min read
Following a series of consultations, the Government has announced final policy positions to heighten consumer protections in response to the Shield and First Guardian collapses. The changes will affect superannuation funds, financial advice providers, managed investment schemes, lead generators and the Compensation Scheme of Last Resort (CSLR). At the same time, APRA has announced a new consultation on reforms to lift investment governance standards.
The Government's proposals are fairly measured, and while some could have a material impact, the package is not as radical as expected based on the consultation papers. Many of the more impractical proposals have been left behind. However, there is little detail at this stage; all of the policy positions fit in a four-page Treasury document. The full impact will become clearer when detailed consultation papers, APRA standards and draft legislation are released.
In this Insight, we provide an overview and our first impressions. We look forward to following the detailed proposals as they emerge and discussing the implications.
Key changes
The changes most relevant to our clients fall into five main categories affecting APRA-regulated superannuation funds, managed investment schemes, the provision of financial advice, lead generation, and the CSLR. There are also proposals that affect SMSFs, which we won't cover.
APRA-regulated superannuation funds
The key proposed changes affecting superannuation funds are:
- a new obligation on trustees to set and enforce advice-fee caps;
- increasing civil penalties for breaches of core SIS Act obligations (from 2,400 units or $872,600 to 50,000 units or $18.2 million – aligned with unit-based civil penalties under the Corporations Act);
- empowering APRA to set 'risk-based capital requirements for superannuation trustees offering higher-risk investment options'; and
- empowering ASIC to direct super trustees to 'commence a remediation process when an investment option fails and there is reason to suspect a failure of trustee obligations.'
The details of each proposal will be critical, and many questions remain unanswered. How will the advice fee caps be defined, and will they be dollar or percentage based, or leave discretion to the trustee? What are 'higher-risk investment options', how will the new capital requirements be calculated, and what form must the capital take? We understand trustees will be required to demonstrate access to capital, rather than necessarily being required to hold capital on their balance sheet.
Finally, what level of responsibility for loss will trustees need to bear before the remediation obligation can be triggered, and if other parties bear partial responsibility, must they also contribute to compensation, and how? In the assistant treasurer's address yesterday announcing the reforms, he said, 'Trustees would be required to compensate their members' full capital losses where the trustee has breached its obligations.' Is it fair to impose this obligation only on trustees if there is only a 'reasonable suspicion' of breach and other parties are also responsible and may be able to contribute? And will the compensation obligation rely on existing rights for members to obtain compensation (eg, under s55 of the SIS Act) or will some new claim in the hands of the member be created? Furthermore, will ASIC also need to form a view and publish guidance about when it would direct trustees to compensate members under the new power?
Almost more important are the policy options which the Government is not proceeding with in the April 2026 consultation paper Enhancing member protections in the superannuation system, which included:
- imposing additional investment governance and other obligations only on 'platform trustees', including compensation for fraud or theft in an investment product;
- restricting or banning certain trustee operating models – in particular the 'trustee for hire' model; and
- slowing super switching and banning switching-related advice fees.
APRA consultation on investment governance
At the same time as the Treasury's policy announcements, APRA announced a new consultation on a package of reforms to lift investment governance standards. While again the detail will be clearer when the consultation paper is released, APRA indicated the proposals would include:
- ensuring that a trustee’s investment management capability is commensurate to the complexity of its investment menu;
- addressing weaknesses in onboarding, monitoring and offboarding practices; addressing material conflicts;
- improving member-level diversification; and
- strengthening trustee oversight and accountability.
These proposals broadly align with the approach APRA has taken in recent close oversight of investment governance by individual platform trustees.
Managed investment schemes
The key proposed changes affecting registered managed investment schemes (MISs) are:
- giving the Auditing and Assurance Standards Board (soon to become External Reporting Australia) the power to make mandatory audit and assurance standards for auditors of MIS compliance plans;
- requiring responsible entities of MISs to notify ASIC when they freeze or limit an investor’s ability to make redemptions; and
- as announced in the 2026-27 Budget, the Government will also soon consult on options to improve data collection on the MIS sector.
These proposals originate from Treasury's February 2026 consultation paper titled Enhancing oversight and governance of managed investment schemes. They reflect some of the more modest reform options canvassed in that paper. The Government does not appear to be proceeding with several of the more significant and contentious proposals, including:
- requiring responsible entities of registered MISs to have a majority of external directors and removing the option of having a mandatory compliance committee instead;
- prohibiting responsible entities of registered MISs from conducting related party transactions, with limited exceptions; and
- introducing stricter compliance plan requirements.
Treasury's earlier consultation paper in August 2023 titled Review of the regulatory framework for managed investment schemes raised a number of more far-reaching questions. Again, the Government does not appear to be proceeding on those matters. They included:
- whether there should be any changes to the procedure for MIS registration by ASIC, including the grounds on which ASIC should be permitted to refuse to register an MIS;
- whether there should be any changes to the voting or meeting provisions that allow members to replace the responsible entity of an MIS; and
- whether there should be any changes to the legislative framework for withdrawing from a MIS, including the definition of liquid assets.
The February 2026 consultation paper also foreshadowed that ASIC would be reviewing the net tangible assets (NTA) requirement for responsible entities of MISs. ASIC has now completed that review and, from 1 July 2027, responsible entities will be subject to higher NTA thresholds.
Financial advice
The key proposed changes affecting advice providers are:
- proceeding as soon as possible with the paused tranche 2a of the Delivering Better Financial Outcomes (DBFO) reforms – ie, changes to intra-fund charging intended to provide greater certainty for trustees, targeted superannuation prompts and statements of advice;
- introducing the 'new class of adviser' regime (originally planned as part of tranche 2b of DBFO) but only for APRA-regulated superannuation and life insurance entities in the first instance, with a prohibition on commissions, bonuses and volume-based payments, and review of the regime three years after commencement;
- keeping the existing best interests duty and safe harbour steps, but removing the broadest 'any other step' requirement;
- progressing review of the Financial Planner and Adviser Code of Ethics and reforms to the education requirements; and
- supporting ASIC’s work on fee deductions and superannuation.
We have previously commented on the tranche 2a DBFO consultation drafts from 2025, noting the proposals at that stage would have provided little practical relief. We will see if the Government makes any substantive changes that simplify and make the relief more useful when the draft legislation is revisited.
The 'new class of adviser' was flagged as a tranche 2b DBFO reform and will be welcomed by superannuation trustees and insurers, although banks miss out. We don't have details of the education and other requirements the new adviser class will need to satisfy or what restrictions will apply to the advice they can give. If there is no meaningful relief, trustees and insurers may not bother to take advantage of this measure.
The reform of the best interests duty was also flagged as a tranche 2b DBFO reform, but the Government has opted for just a minor tweak: removal of the broad 'any other step' in the safe harbour steps. Some advisers have worried about what this requires, and the Government thinks it has held back 'scaled' or limited topic advice, but the other steps can also cause difficulties – in particular identifying relevant circumstances and making inquiries. Largely retaining the existing regime at least has the advantage of familiarity for advisers.
Lead generation
The new restrictions on lead generation are likely to be of less interest to larger financial institutions that do not promote products through these channels. Nevertheless, the details of the reforms will need to be monitored for any unintended consequences.
The proposals include:
- banning unlicensed real-time communication with consumers about superannuation without prior consent, with targeted exemptions to protect advocacy, educational and employment communications;
- limiting the existing exemption from the anti-hawking regime for financial advisers to existing clients (and limited others);
- introduction of civil penalty provisions for breaches of the anti-hawking regime;
- imposing a reasonable steps obligation on licensees in overseeing lead generation activities; and
- undertaking further targeted consultation on data harvesting and data broking in the financial sector, to identify potential high-risk forms of lead generation and consumer harm.
The proposed data harvesting review could shed light on how data is currently collected on clients and potential client leads. Financial services entities may want to start looking at those issues now to prepare for any future regulatory review in this area.
Compensation Scheme of Last Resort
The key proposed changes to the Compensation Scheme of Last Resort (CSLR) are intended to safeguard the sustainability of the scheme, and include:
- limiting CSLR payments to actual investment losses, rather than hypothetical losses, for applications made to AFCA after 30 June 2027;
- implementing a rules-based special levy 'waterfall' framework to respond more predictably to large-scale, exceptional losses where costs exceed the annual sub-sector levy caps;
- including all SMSFs as tier 3 levy payers in the waterfall model in future years when a special levy is required;
- supporting the Productivity Commission’s review of insolvency frameworks to inform the Government’s consideration of their interaction with the CSLR and whether further reforms could improve the recovery of AFCA determinations; and
- other targeted reforms to improve the efficiency of the CSLR.
Next steps
Much more detail is still to come, and we expect a series of consultation papers, draft legislation, Prudential Standards and guidance as the Government, APRA and ASIC work through detailed implementation of each proposal. We look forward to discussing these in due course.