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Early release update: ATO/ASIC on fraud & APRA’s latest numbers
The ATO and ASIC have this week provided more detail to Parliament on fraud and eligibility issues related to the COVID early release scheme, while the latest APRA data suggests the application rate is slowing.
In response to questions in Parliament last week, the ATO’s Jeremy Hirschhorn, second commissioner, client engagement group said the ATO had commenced a pilot audit program to examine the eligibility of COVID early release applicants.
Mr Hirschhorn said the regulator had spoken to “hundreds of people” in a bid to gain insights into the level of ineligibility among applicants and was considering whether it would proceed with an expanded audit program.
In addition, Mr Hirschhorn said he anticipated that the rate of fraud related to the scheme would be very low – about one in 5000 applications.
On further questioning about fraud and eligibility checks, Mr Hirschhorn suggested that super funds would be liable to pay out individuals in the event of any fraud, pointing to a requirement under the scheme for super funds to do their own checks before they release any money.
“The super fund is the one who's had the fraud committed on it, and the practice is that the super funds are ensuring that the individual is not disadvantaged,” Mr Hirschhorn said. “The super fund is told that the ATO considers that the application means that their condition of release has been met. The super fund then has the obligation to check using its normal controls on paying out money.”
The ATO is yet to issue any fines or warnings to individuals in relation to the scheme.
Meanwhile, ASIC has confirmed that serious and organised criminals are targeting the scheme, although it has not indicated the extent to which this is happening or the material impact on the scheme.
In answers to parliamentary questions taken on notice, ASIC said it had received referrals from nine Commonwealth agencies related to the scheme, including the Australian Cyber Security Centre (ACSC) and the Australian Criminal Intelligence Commission (ACIC).
Types of concerns raised relate to matters that are both within and outside of ASIC’s jurisdiction. Examples of matters referred to ASIC include: Serious and organised crime targeting early release of super, real estate agents encouraging tenants to access early release to meet rental payments, credit providers advising borrowers to use early release to meet loan repayments and members of the public being charged fees by third party providers to access early release.
Labor’s shadow minister for financial services, Stephen Jones has asked the attorney general to investigate these matters.
On a more positive note, the rate of applications to the early release scheme appears to be slowing.
APRA’s most recent data for the week ending 2 August, shows 103,000 applications were received by funds, roughly 25 per cent less than the 140,000 applications received the previous week.
Since the scheme’s inception, more than 4.1 million applications have been lodged with the ATO, and more than $30 billion has been paid out.
APRA restarts work on select policy reforms
APRA is restarting its work on select policy reforms and new licences after announcing a suspension in March to enable super funds and other financial entities to manage COVID challenges.
After a six-month suspension, APRA will restart policy consultations and licensing activity on a narrowed agenda that prioritises (in the super space):
The regulator will also pick up its work on insurance capital reforms to incorporate changes in the accounting framework in AASB17, which establishes principles for the recognition, measurement and disclosure of insurance contracts.
APRA’s policy program for 2021 will be reviewed in light of the current environment, and with a view to continuing to support the financial sector as it responds to the impact of COVID.
Policy initiatives will be responsive to “industry capacity and government priorities”, in recognition of the high degree of continuing uncertainty.
APRA’s recommencement of assessing and issuing new banking, insurance and superannuation licenses will occur in two phases.
In the first phase, starting in September 2020, new licences will be issued to branches or subsidiaries of foreign entities with significant financial resources and strong records in a similar business.
APRA will also accept new licence applications from any entity from September 2020.
In the second phase, from March next year, new licences will be issued to firms meeting the relevant prudential requirements.
AIST seeks more time for industry to consult on APRA’s data transformation project
AIST has written to APRA seeking a delay to the regulator’s proposed consultation timeline on its data transformation project.
While AIST acknowledges the importance of improving APRA’s collected data, we are concerned that the proposed September start date for consultation on the project puts at risk the quality of these data collections and other data submissions to APRA.
AIST has pointed out that funds face additional pressure over the next 8-10 weeks from a range of regulatory requirements including resource-intensive pandemic reporting, annual external audit compliance and annual and quarterly APRA reporting.
We also note many funds are still working remotely due to the current COVID restrictions that are still in place (particularly in Melbourne).
Accordingly, AIST has requested a delay to the consultation to early 2021 and a corresponding delay in the commencement of data collection. This will allow for a robust and meaningful consultation and provide sufficient time for reports to be built and tested.
We have also asked that APRA consider removing the requirement of the provision of pilot data in the initial consultation and allow funds the opportunity first to concentrate on understanding and clarifying the reporting requirements, including APRA issuing FAQs.
Enhanced cyber security obligations for super funds
The Government has this week released a consultation paper on the security of critical infrastructure which suggests that super funds – along with other critical sectors - could be subject to more stringent cyber security obligations.
The Consultation Paper on Protecting Critical Infrastructure and Systems of National Significance, broadens the definition of critical infrastructure from electricity, gas, water and maritime ports sectors to include another nine sectors, including banking and finance.
The Government has agreed that the proposed enhanced framework will apply to an expanded set of critical infrastructure sectors, comprising of three key elements:
AIST will arrange a discussion about the Consultation paper, submissions are due 16 September. If you would like to be involved or would like to provide member input please contact Mel Birks, Head of Advocacy, email@example.com
SuperStream rollover implementation period extended
The ATO has written to large super fund trustees to advise that it has pushed out by six months the deadline for funds to move to version three of the SuperStream rollover message.
Both the ATO and APRA have supported the extended transition period - which will incorporate SMSF rollovers into the SuperStream data and payment standards to take effect from 31 March 2021 with a transition period ending on 30 September 2021.
APRA has encouraged trustees to comply with the requirements as soon as possible, but does not expect failure to comply with these requirements to be reported as a breach prior to 30 September 2021.
The letter also asked trustees to provide initial readiness information to assist with ATO planning to support of the testing and onboarding process.
ASIC to examine affordable advice impediments
ASIC is examining ways to overcome impediments the industry is facing in providing affordable and scaled advice to consumers.
In response to Questions on Notice to the Parliamentary Joint Committee on Corporations and Financial Services, ASIC said it was working to deliver additional guidance on affordable advice (including more case studies and examples) using various mediums such as videos, webinars, checklists etc.
ASIC is also engaging external experts to undertake several pieces of research to further understand key issues related to Access to Advice.
On adifferent matter and in response to a question on the use of member reserves to pay regulator fines, ASIC said it continues to work with APRA in relation to the appropriate use of reserves by RSE licensees. It is conducting its own analysis of the current law in relation to indemnification of trustees from trust assets and proposed changes to sections 56 and 57 of the Superannuation Industry Supervision Act 1993 (Cth).