SUPER ALERT – 18 NOVEMBER 2022: REPLACING SPS 114, PRUDENTIAL GUIDANCE SPG 530; COURT RULES ON APPLICATION OF CRIMES ACT TO MIS

Welcome to the latest issue of the KHQ Super Alert. This week APRA released a discussion paper proposing to replace and enhance the existing SPS 114 on Operational Risk Financial Requirements and also released an updated draft Prudential Guidance SPG 530 on Investment Governance for consultation. In addition, the NSW Supreme Court made a decision in relation to the application of the Crimes Act to managed investment scheme trustee retirements.

APRA – Investment governance draft guidance released for consultation

On 17 November 2022, APRA released for consultation updated draft Prudential Practice Guide SPG 530 Investment Governance. According to APRA, the ‘updated guidance on investment governance’ is to assist trustees ‘in meeting their requirements under the recently strengthened Prudential Standard SPS 530 Investment Governance’.

Consultation will close on 17 March 2023.

Click here for details.

ATO – Updated TBAR guidance

On 16 November 2022, the ATO issued updated guidance to APRA-regulated funds in relation to amending transfer balance account reporting. The updates outline what needs to be done to make amendments to previously reported information and what needs to be done when responding to an ATO commutation authority.

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APRA – Resources for risk events discussion paper released

On 14 November 2022, APRA released a discussion paper titled Financial resources for risk events in superannuation, that proposes to replace and enhance the existing Prudential Standard SPS 114 Operational Risk Financial Requirement. The proposed amendments ‘seek to adopt a more sophisticated risk-based approach to the management of operational risk financial resources, informed by an RSE Licensee’s risk profile and risk appetite’.

This approach, called the Baseline+ model, has two components:

1. the baseline component, which seeks ‘to ensure ready access to financial resources to fund recovery or exit activity’; and
2. the operational risk component, which seeks ‘to spread the impact of operational risk fairly across different cohorts of members. The operational risk component will largely reflect the approach of the existing ORFR but with greater flexibility’.

In addition to the Baseline+ model, the prudential framework will be enhanced to require an RSE licensee to:

• ensure ‘the Board approves the amount held for the [two] components’ (of the Baseline+ model);
• ‘determine how the financial resources to meet each component are to be held and invested’; and
• ‘document the RSE licensee’s approach in a strategy that is approved by the Board and reviewed at least annually or following a material change to its operation risk profile’.

Written submissions will be accepted until 17 March 2023.

Click here for details.

NSW Supreme Court – Judgement regarding application of the Crimes Act

On 10 November 2022, the NSW Supreme Court released its decision in Re application of MLC Investments Ltd [2022] NSWSC 1541. It concerned a proposed retirement of MLC Investments (MLCI) as trustee of various managed investments schemes and the appointment of Channel Investment Management Limited (CIML) as the new trustee. Certain transaction expenses were to be paid by another entity and standard indemnities were to be granted to the retiring trustee by the incoming trustee. The application was brought by MLCI, pursuant to section 249E of the Crimes Act 1900 (NSW) (see our 20 May 2022 and 21 October 2022 Super Alert for details on similar applications in a successor fund transfer context).

In this case, Stevenson J granted the Court’s consent to the soliciting, offering, giving and receiving of the expenses and indemnities in question. The Court found that the proposed conduct in relation to both the reimbursement of the expenses and the giving and receiving of the indemnities ‘would likely fall within the ambit of [section 249E]’. Corruption is not a necessary element. It was noted that the indemnities would not extend beyond the indemnities that are otherwise available at general law, which ‘might lead to the conclusion that the [i]ndemnities should not be seen as an “inducement”’, however, the judge held that they may be seen as a reward.

Click here for details.