SUPERANNUATION LEGISLATION AMENDMENT (TRUSTEE OBLIGATIONS AND PRUDENTIAL STANDARDS) BILL 2012

i Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill

2012 No. , 2012

Contents

1 Short

title

...........................................................................................

2 Commencement

.................................................................................

3 Schedule(s)

........................................................................................

Schedule 1--Trustee obligations

Superannuation Industry (Supervision) Act 1993

Schedule 2--Prudential standards

Part 1--Prudential standards

Superannuation Industry (Supervision) Act 1993

Part 2--Consequential amendments

Superannuation Industry (Supervision) Act 1993

Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill

2012 No. , 2012 1

A Bill for an Act to amend the law relating to

superannuation, and for related purposes

The Parliament of Australia enacts:

1 Short title

This Act may be cited as the Superannuation Legislation

Amendment (Trustee Obligations and Prudential Standards) Act

2012.

2 Commencement

(1) Each provision of this Act specified in column 1 of the table

commences, or is taken to have commenced, in accordance with

column 2 of the table. Any other statement in column 2 has effect

according to its terms.

2 Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards)

Bill 2012 No. , 2012

Commencement information

Column 1

Column 2

Column 3

Provision(s)

Commencement

Date/Details

1. Sections 1 to 3

and anything in

this Act not

elsewhere covered

by this table

The day this Act receives the Royal Assent.

2. Schedule 1

1 July 2013.

1 July 2013

3. Schedule 2,

items 1 to 7

The day after this Act receives the Royal

Assent.

4. Schedule 2,

item 8

The later of:

(a) immediately after the commencement of

item 7 of Schedule 1 to the

Superannuation Legislation Amendment

(MySuper Core Provisions) Act 2012;

and

(b) the start of the day after this Act receives

the Royal Assent.

5. Schedule 2,

items 9 to 33

The day after this Act receives the Royal

Assent.

6. Schedule 2,

item 34

The later of:

(a) immediately after the commencement of

item 9 of Schedule 1 to the

Superannuation Legislation Amendment

(MySuper Core Provisions) Act 2012;

and

(b) the start of the day after this Act receives

the Royal Assent.

7. Schedule 2,

items 35 to 49

The day after this Act receives the Royal

Assent.

Note:

This table relates only to the provisions of this Act as originally

enacted. It will not be amended to deal with any later amendments of

this Act.

(2) Any information in column 3 of the table is not part of this Act.

Information may be inserted in this column, or information in it

may be edited, in any published version of this Act.

Schedule 1 Trustee obligations

4 Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards)

Bill 2012 No. , 2012

Schedule 1--Trustee obligations

Superannuation Industry (Supervision) Act 1993

1 Subsection 10(1)

Insert:

enhanced director obligations, for MySuper products, means the

obligations imposed by:

(a) section 29VO; and

(b) covenants prescribed under section 54A that are specified in

the regulations as forming part of the enhanced director

obligations.

2 Subsection 10(1)

Insert:

enhanced trustee obligations, for MySuper products, means the

obligations imposed by:

(a) covenants referred to in section 52, as enhanced by the

obligations imposed under section 29VN; and

(b) covenants prescribed under section 54A that are specified in

the regulations as forming part of the enhanced trustee

obligations.

3 Subsection 10(1)

Insert:

superannuation entity director has the meaning given by

subsection 29VO(3).

4 Paragraph 29D(1)(g)

Repeal the paragraph, substitute:

(g) in a case where the application is for a licence of a class that

enables a trustee that holds a licence of the class to be a

trustee of a public offer entity subject to any condition

imposed under subsection 29EA(3)--APRA is satisfied that

the applicant is a constitutional corporation; and

Trustee obligations Schedule 1

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2012 No. , 2012 5

5 Section 29DA

Repeal the section.

6 Subsection 29E(3)

Repeal the subsection, substitute:

(3) An additional condition is imposed on each RSE licence that

enables a trustee that holds a licence of that class to be a trustee of

a public offer entity. The condition is that the RSE licensee that

holds the licence must continue to be a constitutional corporation.

7 After paragraph 29T(1)(h)

Insert:

(ha) where the RSE licensee is a body corporate--APRA is

satisfied that the directors of the RSE licensee are likely to

comply with the enhanced director obligations for MySuper

products; and

8 After paragraph 29U(2)(c)

Insert:

(ca) where the RSE licensee is a body corporate--APRA is no

longer satisfied that the directors of the RSE licensee are

likely to comply with the enhanced director obligations for

MySuper products (whether because of a previous failure to

do so, or for any other reason); or

9 After Division 5 of Part 2C

Insert:

Division 6--Trustee obligations relating to MySuper

29VN Additional obligations of a trustee in relation to a MySuper

product

Each trustee of a regulated superannuation fund that includes a

MySuper product must:

(a) promote the financial interests of the beneficiaries of the fund

who hold the MySuper product, in particular returns to those

beneficiaries (after the deduction of fees, costs and taxes);

and

Schedule 1 Trustee obligations

6 Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards)

Bill 2012 No. , 2012

(b) determine on an annual basis whether the beneficiaries of the

fund who hold the MySuper product are disadvantaged, in

comparison to the beneficiaries of other funds who hold a

MySuper product within those other funds, because the

financial interests of the beneficiaries of the fund who hold

the MySuper product are affected:

(i) because the number of beneficiaries of the fund who

hold the MySuper product is insufficient; or

(ii) because the number of beneficiaries of the fund is

insufficient; or

(iii) where the assets of the fund that are attributed to the

MySuper product are, or are to be, pooled with other

assets of the fund or assets of another entity or other

entities--because that pool of assets is insufficient; or

(iv) in a case to which subparagraph (iii) does not apply--

because the assets of the fund that are attributed to the

MySuper product are insufficient; and

the details of the trustee's determination of the matters

mentioned in paragraph (b); and

(d) include in the investment strategy for the MySuper product,

and update each year:

(i) the investment return target over a period of 10 years for

the assets of the fund that are attributed to the MySuper

product; and

(ii) the level of risk appropriate to the investment of those

assets.

29VO Additional obligations of a director of a corporate trustee in

relation to a MySuper product

(1) Each director of a corporate trustee of a regulated superannuation

fund that includes a MySuper product must exercise a reasonable

degree of care and diligence for the purposes of ensuring that the

corporate trustee carries out the obligations referred to in

section 29VN.

(2) The reference in subsection (1) to a reasonable degree of care and

diligence is a reference to the degree of care and diligence that a

superannuation entity director would exercise in the corporate

trustee's circumstances.

Trustee obligations Schedule 1

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2012 No. , 2012 7

(3)

superannuation entity director is a person whose profession,

business or employment is or includes acting as director of a

corporate trustee of a superannuation entity and investing money

on behalf of beneficiaries of the superannuation entity.

29VP Contravention of section 29VN or 29VO

(1) A person must not contravene section 29VN or 29VO.

(2) A contravention of subsection (1) is not an offence and a

contravention of that subsection does not result in the invalidity of

a transaction.

(3) A person who suffers loss or damage as a result of the conduct of

another person that was engaged in in contravention of

subsection (1) may recover the amount of the loss or damage by

action against that other person or against any person involved in

the contravention.

(4) An action under subsection (3) may be begun at any time within 6

years after the day on which the cause of action arose.

29VQ Governing rules void to the extent that they are inconsistent

with obligations under section 29VN or 29VO

A provision of the governing rules of a regulated superannuation

fund is void to the extent that it is inconsistent with:

(a) the obligations that apply to a trustee of the fund under

section 29VN; or

(b) if the trustee of the fund is a body corporate--the obligations

that apply to the directors of the body corporate under

section 29VO.

10 Division 6 of Part 2C

Repeal the heading, substitute:

Division 7--Offences

11 After section 51

Insert:

Schedule 1 Trustee obligations

8 Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards)

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51A Covenants are cumulative

To avoid doubt, each covenant referred to in sections 52 to 53 or

prescribed under section 54A, and each obligation referred to in

sections 29VN and 29VO, that applies to a trustee of a

superannuation entity, or a director of a corporate trustee of a

superannuation entity, applies in addition to every other covenant

or obligation referred to in those sections that applies to the trustee

or director.

12 Section 52

Repeal the section, substitute:

52 Covenants to be included in governing rules--registrable

superannuation entities

Governing rules taken to contain covenants

(1) If the governing rules of a registrable superannuation entity do not

contain covenants to the effect of the covenants set out in this

section, those governing rules are taken to contain covenants to

that effect.

General covenants

(2) The covenants referred to in subsection (1) include the following

covenants by each trustee of the entity:

(a) to act honestly in all matters concerning the entity;

(b) to exercise, in relation to all matters affecting the entity, the

same degree of care, skill and diligence as a prudent

superannuation trustee would exercise in relation to an entity

of which it is trustee and on behalf of the beneficiaries of

which it makes investments;

powers in the best interests of the beneficiaries;

(d) where there is a conflict between the duties of the trustee to

the beneficiaries, or the interests of the beneficiaries, and the

duties of the trustee to any other person or the interests of the

trustee or an associate of the trustee:

Trustee obligations Schedule 1

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2012 No. , 2012 9

(i) to give priority to the duties to and interests of the

beneficiaries over the duties to and interests of other

persons; and

(ii) to ensure that the duties to the beneficiaries are met

despite the conflict; and

(iii) to ensure that the interests of the beneficiaries are not

adversely affected by the conflict; and

(iv) to comply with the prudential standards in relation to

conflicts;

(e) to act fairly in dealing with classes of beneficiaries within the

entity;

(f) to act fairly in dealing with beneficiaries within a class;

(g) to keep the money and other assets of the entity separate from

any money and assets, respectively:

(i) that are held by the trustee personally; or

(ii) that are money or assets, as the case may be, of a

standard employer-sponsor, or an associate of a standard

employer-sponsor, of the entity;

(h) not to enter into any contract, or do anything else, that would

prevent the trustee from, or hinder the trustee in, properly

performing or exercising the trustee's functions and powers;

(i) if there are any reserves of the entity--to formulate, review

regularly and give effect to a strategy for their prudential

management, consistent with the entity's investment

strategies and its capacity to discharge its liabilities (whether

actual or contingent) as and when they fall due;

(j) to allow a beneficiary of the entity access to any prescribed

information or any prescribed documents.

Superannuation trustee

(3) In paragraph (2)(b), a superannuation trustee is a person whose

profession, business or employment is or includes acting as a

trustee of a superannuation entity and investing money on behalf of

beneficiaries of the superannuation entity.

Schedule 1 Trustee obligations

10 Superannuation Legislation Amendment (Trustee Obligations and Prudential

Standards) Bill 2012 No. , 2012

Obligations to beneficiaries override obligations under certain

other Acts

(4) The obligations of the trustee under paragraph (2)(d) override any

conflicting obligations an executive officer or employee of the

trustee has under:

(a) Part 2D.1 of the Corporations Act 2001; or

(b) Division 4 of Part 3 of the Commonwealth Authorities and

Companies Act 1997.

Trustee not prevented from engaging or authorising persons to act

on trustee's behalf

(5) A covenant referred to in paragraph (2)(h) does not prevent the

trustee from engaging or authorising persons to do acts or things on

behalf of the trustee.

Investment covenants

(6) The covenants referred to in subsection (1) include the following

covenants by each trustee of the entity:

(a) to formulate, review regularly and give effect to an

investment strategy for the whole of the entity, and for each

investment option offered by the trustee in the entity, having

regard to:

(i) the risk involved in making, holding and realising, and

the likely return from, the investments covered by the

strategy, having regard to the trustee's objectives in

relation to the strategy and to the expected cash flow

requirements in relation to the entity; and

(ii) the composition of the investments covered by the

strategy, including the extent to which the investments

are diverse or involve the entity in being exposed to

risks from inadequate diversification; and

(iii) the liquidity of the investments covered by the strategy,

having regard to the expected cash flow requirements in

relation to the entity; and

(iv) whether reliable valuation information is available in

relation to the investments covered by the strategy; and

(v) the ability of the entity to discharge its existing and

prospective liabilities; and

Trustee obligations Schedule 1

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2012 No. , 2012 11

(vi) the expected tax consequences for the entity in relation

to the investments covered by the strategy; and

(vii) the costs that might be incurred by the entity in relation

to the investments covered by the strategy; and

(viii) any other relevant matters;

(b) to exercise due diligence in developing, offering and

reviewing regularly each investment option;

allow adequate diversification.

Insurance covenants

(7) The covenants referred to in subsection (1) include the following

covenants by each trustee of the entity:

(a) to formulate, review regularly and give effect to an insurance

strategy for the benefit of beneficiaries of the entity that

includes provisions addressing each of the following matters:

(i) the kinds of insurance that are to be offered to, or

acquired for the benefit of, beneficiaries;

(ii) the level, or levels, of insurance cover to be offered to,

or acquired for the benefit of, beneficiaries;

(iii) the basis for the decision to offer or acquire insurance of

those kinds, with cover at that level or levels, having

regard to the demographic composition of the

beneficiaries of the entity;

(iv) the method by which the insurer is, or the insurers are,

to be determined;

(b) to consider the cost to all beneficiaries of offering or

acquiring insurance of a particular kind, or at a particular

level;

particular level, if the cost of the insurance does not

inappropriately erode the retirement income of beneficiaries;

(d) to do everything that is reasonable to pursue an insurance

claim for the benefit of a beneficiary, if the claim has a

reasonable prospect of success.

Schedule 1 Trustee obligations

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Covenants relating to risk

(8) The covenants referred to in subsection (1) include the following

covenants by each trustee of the entity:

(a) to formulate, review regularly and give effect to a risk

management strategy that relates to:

(i) the activities, or proposed activities, of the trustee, to the

extent that they are relevant to the exercise of the

trustee's powers, or the performance of the trustee's

duties and functions, as trustee of the entity; and

(ii) the risks that arise in operating the entity;

(b) to maintain and manage in accordance with the prudential

standards financial resources (whether capital of the trustee, a

reserve of the entity or both) to cover the operational risk that

relates to the entity.

52A Covenants relating to directors to be included in governing

rules--registrable superannuation entities

Governing rules taken to contain covenants

(1) If the governing rules of a registrable superannuation entity of

which a trustee is a body corporate do not contain covenants to the

effect of the covenants set out in subsection (2), those governing

rules are taken to contain covenants to that effect.

The covenants

(2) The covenants referred to in subsection (1) are the following

covenants by each director of a corporate trustee of the entity:

(a) to act honestly in all matters concerning the entity;

(b) to exercise, in relation to all matters affecting the entity, the

same degree of care, skill and diligence as a prudent

superannuation entity director would exercise in relation to

an entity where he or she is a director of the trustee of the

entity and that trustee makes investments on behalf of the

entity's beneficiaries;

powers as director of the corporate trustee in the best

interests of the beneficiaries;

Trustee obligations Schedule 1

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2012 No. , 2012 13

(d) where there is a conflict between the duties of the director to

the beneficiaries, or the interests of the beneficiaries, and the

duties of the director to any other person or the interests of

the director, the corporate trustee or an associate of the

director or corporate trustee:

(i) to give priority to the duties to and interests of the

beneficiaries over the duties to and interests of other

persons; and

(ii) to ensure that the duties to the beneficiaries are met

despite the conflict; and

(iii) to ensure that the interests of the beneficiaries are not

adversely affected by the conflict; and

(iv) to comply with the prudential standards in relation to

conflicts;

(e) not to enter into any contract, or do anything else, that would:

(i) prevent the director from, or hinder the director in,

properly performing or exercising the director's

functions and powers as director of the corporate

trustee; or

(ii) prevent the corporate trustee from, or hinder the

corporate trustee in, properly performing or exercising

the corporate trustee's functions and powers as trustee

of the entity;

(f) to exercise a reasonable degree of care and diligence for the

purposes of ensuring that the corporate trustee carries out the

covenants referred to in section 52.

Obligations to beneficiaries override obligations under certain

other Acts

(3) The obligations of the director under paragraph (2)(d) override any

conflicting obligations the director has under:

(a) Part 2D.1 of the Corporations Act 2001; or

(b) Division 4 of Part 3 of the Commonwealth Authorities and

Companies Act 1997.

Schedule 1 Trustee obligations

14 Superannuation Legislation Amendment (Trustee Obligations and Prudential

Standards) Bill 2012 No. , 2012

Director not prevented from engaging or authorising persons to

act on behalf of the trustee

(4) A covenant referred to in paragraph (2)(e) does not prevent the

director from engaging or authorising persons to do acts or things

on behalf of the trustee.

Using reasonable care and diligence to ensure compliance by

corporate trustee

(5) The reference in paragraph (2)(f) to a reasonable degree of care and

diligence is a reference to the degree of care and diligence that a

superannuation entity director would exercise in the circumstances

of the corporate trustee.

Covenants operate as if director party to the governing rules

(6) A covenant referred to in subsection (2) operates as if the director

were a party to the governing rules.

52B Covenants to be included in governing rules--self managed

superannuation funds

Governing rules taken to contain covenants

(1) If the governing rules of a self managed superannuation fund do

not contain covenants to the effect of the covenants set out in this

section, those governing rules are taken to contain covenants to

that effect.

The covenants

(2) The covenants referred to in subsection (1) are the following

covenants by each trustee of the fund:

(a) to act honestly in all matters concerning the fund;

(b) to exercise, in relation to all matters affecting the fund, the

same degree of care, skill and diligence as an ordinary

prudent person would exercise in dealing with property of

another for whom the person felt morally bound to provide;

powers in the best interests of the beneficiaries;

Trustee obligations Schedule 1

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2012 No. , 2012 15

(d) to keep the money and other assets of the fund separate from

any money and assets, respectively:

(i) that are held by the trustee personally; or

(ii) that are money or assets, as the case may be, of a

standard employer-sponsor, or an associate of a standard

employer-sponsor, of the fund;

(e) not to enter into any contract, or do anything else, that would

prevent the trustee from, or hinder the trustee in, properly

performing or exercising the trustee's functions and powers;

(f) to formulate, review regularly and give effect to an

investment strategy that has regard to the whole of the

circumstances of the fund including, but not limited to, the

following:

(i) the risk involved in making, holding and realising, and

the likely return from, the fund's investments, having

regard to its objectives and its expected cash flow

requirements;

(ii) the composition of the fund's investments as a whole

including the extent to which the investments are

diverse or involve the fund in being exposed to risks

from inadequate diversification;

(iii) the liquidity of the fund's investments, having regard to

its expected cash flow requirements;

(iv) the ability of the fund to discharge its existing and

prospective liabilities;

(g) if there are any reserves of the fund--to formulate, review

regularly and give effect to a strategy for their prudential

management, consistent with the fund's investment strategy

and its capacity to discharge its liabilities (whether actual or

contingent) as and when they fall due;

(h) to allow a beneficiary of the fund access to any prescribed

information or any prescribed documents.

Trustee not prevented from engaging or authorising persons to act

on trustee's behalf

(3) A covenant referred to in paragraph (2)(e) does not prevent the

trustee from engaging or authorising persons to do acts or things on

behalf of the trustee.

Schedule 1 Trustee obligations

16 Superannuation Legislation Amendment (Trustee Obligations and Prudential

Standards) Bill 2012 No. , 2012

Covenant referred to in paragraph (2)(f)

(4) An investment strategy is taken to be in accordance with

paragraph (2)(f) even if it provides for a specified beneficiary or a

specified class of beneficiaries to give directions to the trustee,

where:

(a) the directions relate to the strategy to be followed by the

trustee in relation to the investment of a particular asset or

assets of the fund; and

(b) the directions are given in circumstances prescribed by

regulations made for the purposes of this paragraph.

52C Covenant relating to directors to be included in governing

rules--self managed superannuation funds

Governing rules taken to contain covenant

(1) If the governing rules of a self managed superannuation fund of

which a trustee is a body corporate do not contain a covenant to the

effect of the covenant set out in subsection (2), those governing

rules are taken to contain a covenant to that effect.

The covenant

(2) The covenant referred to in subsection (1) is a covenant by each

director of a corporate trustee of the fund to exercise a reasonable

degree of care and diligence for the purposes of ensuring that the

corporate trustee carries out the covenants referred to in

section 52B.

Reasonable degree of care and diligence

(3) The reference in subsection (2) to a reasonable degree of care and

diligence is a reference to the degree of care and diligence that a

reasonable person in the position of director of the corporate

trustee would exercise in the corporate trustee's circumstances.

Covenant operates as if director party to the governing rules

(4) The covenant referred to in subsection (2) operates as if the

director were a party to the governing rules.

13 After section 54

Trustee obligations Schedule 1

Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill

2012 No. , 2012 17

Insert:

54A Regulations may prescribe other covenants

(1) The regulations may prescribe a covenant to be included in the

governing rules of a superannuation entity and, if the governing

rules of such a superannuation entity do not contain a covenant to

the effect of the prescribed covenant, those rules are taken to

contain a covenant to that effect.

Prescribed covenants may deal with same matters as other

requirements

(2) Without limiting the generality of subsection (1), the regulations

may prescribe, for the purposes of that subsection, a covenant that

elaborates, supplements, or otherwise deals with, any aspect of:

(a) a matter to which a covenant in sections 52 to 53 relates; or

(b) a matter to which a provision of this Act relates.

But prescribed covenants must be capable of operating

concurrently with other requirements

(3) However, a covenant prescribed under subsection (1) must be

capable of operating concurrently with:

(a) all the covenants referred to in sections 52 to 53; and

(b)

this

Act.

(4) The regulations may specify that a covenant prescribed under

subsection (1) is to form part of the enhanced trustee obligations,

or the enhanced director obligations.

14 Subsections 55(5) and (6)

Repeal the subsections, substitute:

(5) It is a defence to an action for loss or damage suffered by a person

as a result of the making of an investment by or on behalf of a

trustee of a superannuation entity if the defendant establishes that

the defendant has complied with all of the covenants referred to in

sections 52 to 53 and prescribed under section 54A, and all of the

obligations referred to in sections 29VN and 29VO, that apply to

the defendant in relation to the investment.

Schedule 1 Trustee obligations

18 Superannuation Legislation Amendment (Trustee Obligations and Prudential

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(6) It is a defence to an action for loss or damage suffered by a person

as a result of the management of any reserves by a trustee of a

superannuation entity if the defendant establishes that the

defendant has complied with all of the covenants referred to in

sections 52 to 53 and prescribed under section 54A, and all of the

obligations referred to in sections 29VN and 29VO, that apply to

the defendant in relation to the management of the reserve.

15 Subsection 55(7)

After "under subsection (3)", insert ", section 29VP".

16 Subsection 56(1)

Omit "A provision", substitute "Subject to subsections (2) and (2A), a

provision".

17 Paragraph 56(1)(b)

Omit "subject to subsection (2),".

18 After subsection 56(2)

Insert:

(2A) A provision in the governing rules of a registrable superannuation

entity is void in so far as it would have the effect of allowing a

trustee of the entity:

(a) to indemnify itself out of the assets of the entity for any

amount expended out of capital of the trustee managed and

maintained by the trustee to cover the operational risk of the

entity; or

(b) to indemnify itself out of any assets of the entity that do not

form part of a reserve maintained for the purpose of covering

the operational risk relating to the entity, any amount that

relates to that risk, without first exhausting the reserve and

any other financial resources managed and maintained by the

trustee to cover the risk.

19 Paragraph 58(2)(d)

Repeal the paragraph, substitute:

(d) a direction given by a beneficiary to take up, dispose of or

alter the amount invested in an investment option, where:

(i) the entity is a registrable superannuation entity; and

Trustee obligations Schedule 1

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2012 No. , 2012 19

(ii) the direction is given in circumstances prescribed by the

regulations for the purposes of this paragraph; or

20 Section 115

Repeal the section, substitute:

115 Trustee of superannuation entity may maintain reserves

(1) The trustee of a superannuation entity may maintain a reserve of

the entity for a particular purpose, unless the governing rules of the

entity prohibit the maintenance of a reserve for that purpose.

Governing rules of an RSE must not prohibit reserves to cover

operational risk

(2) The governing rules of a registrable superannuation entity must not

prohibit the maintenance of a reserve to cover the operational risk

relating to the entity.

(3) If the governing rules of a registrable superannuation entity are

inconsistent with subsection (2):

(a) subsection (2) prevails; and

(b) the governing rules are invalid, to the extent of the

inconsistency.

Schedule 2 Prudential standards

Part 1 Prudential standards

20 Superannuation Legislation Amendment (Trustee Obligations and Prudential

Standards) Bill 2012 No. , 2012

Schedule 2--Prudential standards

Part 1--Prudential standards

Superannuation Industry (Supervision) Act 1993

1 After Part 3

Insert:

Part 3A--Prudential standards

34B Object of this Part

The object of this Part is to provide for a system of standards in

relation to prudential matters concerning registrable

superannuation entities.

34C APRA may determine prudential standards

(1) APRA may determine (in writing) standards (prudential

standards) relating to prudential matters that must be complied

with by:

(a) all RSE licensees of registrable superannuation entities; or

(b) the connected entities of all RSE licensees of registrable

superannuation entities; or

(d) a specified class of connected entities of RSE licensees of

registrable superannuation entities; or

(e) one or more specified RSE licensees of registrable

superannuation entities; or

(f) one or more specified connected entities of RSE licensees of

registrable superannuation entities.

(2) A prudential standard may impose different requirements to be

complied with:

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(a) by different classes of RSE licensees of registrable

superannuation entities or connected entities of RSE

licensees of registrable superannuation entities; or

(b) in different situations; or

(3) Without limiting the prudential matters in relation to which APRA

may determine a prudential standard, a prudential standard may

require the following entities to ensure that the entity's connected

entities (or particular connected entities), or the entity and the

entity's connected entities (or particular connected entities),

collectively satisfy particular requirements:

(a) each RSE licensee of a registrable superannuation entity;

(b) each RSE licensee of a registrable superannuation entity

included in a specified class of RSE licensees;

entity;

(d) each of 2 or more RSE licensees of registrable

superannuation entities.

(4)

prudential matter is a matter relating to:

(a) the conduct by an RSE licensee of a registrable

superannuation entity of the affairs of the registrable

superannuation entity, or the affairs of a connected entity of

the RSE licensee, in such a way as to:

(i) protect the interests of the beneficiaries of the

registrable superannuation entity; or

(ii) meet the reasonable expectations of the beneficiaries of

the registrable superannuation entity; or

(b) the conduct by a connected entity of an RSE licensee of a

registrable superannuation entity of the affairs of the

connected entity in such a way as to:

(i) protect the interests of the beneficiaries of the

registrable superannuation entity; or

(ii) meet the reasonable expectations of the beneficiaries of

the registrable superannuation entity; or

superannuation entity of the affairs of the licensee in such a

way as:

(i) to keep itself in a sound financial position; or

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22 Superannuation Legislation Amendment (Trustee Obligations and Prudential

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(ii) not to cause or promote instability in the Australian

financial system; or

(d) the conduct by an RSE licensee of a registrable

superannuation entity of the affairs of the registrable

superannuation entity in such a way as not to cause or

promote instability in the Australian financial system; or

(e) the conduct by a connected entity of an RSE licensee of a

registrable superannuation entity of the affairs of the

connected entity in such a way as:

(i) to keep itself in a sound financial position; or

(ii) not to cause or promote instability in the Australian

financial system; or

(f) the conduct by an RSE licensee of a registrable

superannuation entity, or a connected entity of the RSE

licensee, of any of its affairs that are relevant to the

registrable superannuation entity with integrity, prudence and

professional skill; or

(g) the appointment of auditors and actuaries; or

(h) the conduct of audits and actuarial investigations.

(5) The prudential standards may provide for APRA to exercise

powers and discretions under the standards, including but not

limited to discretions to approve, impose, adjust or exclude specific

prudential requirements in relation to the following:

(a) a particular RSE licensee of a registrable superannuation

entity;

(b) a particular connected entity of an RSE licensee of a

registrable superannuation entity;

entities;

(d) specified connected entities of RSE licensees of registrable

superannuation entities.

(6) APRA may, in writing, vary or revoke a standard.

(7) A standard referred to in paragraph (1)(e) or (f), or a variation of a

standard referred to in those paragraphs, comes into force on the

later of:

(a) the day on which APRA satisfies subsection 34E(1) in

relation to the standard or variation (obligation to give a copy

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2012 No. , 2012 23

to each RSE licensee and connected entity to which it

applies); and

(b) if APRA includes with the copy of the standard or variation a

notice that the standard or variation will come into force on a

later day--that later day.

(8) The revocation of a standard referred to in paragraph (1)(e) or (f)

comes into force on the later of:

(a) the day on which APRA satisfies subsection 34E(2) in

relation to the revocation (obligation to give notice of the

revocation to each RSE licensee or connected entity to which

the standard relates); and

(b) the day specified in that notice as the day on which the

revocation comes into force.

(9) The following instruments made under this section are not

legislative instruments:

(a) a standard referred to in paragraph (1)(e) or (f);

(b) an instrument varying or revoking a standard referred to in

paragraph (1)(e) or (f).

(10) Otherwise, an instrument made under this section is a legislative

instrument.

34D Relationship between prudential standards, this Act and the

regulations

(1) A prudential standard may be determined that elaborates,

supplements or otherwise deals with any aspect of:

(a) a prudential matter to which a covenant referred to in

sections 52 to 53 or prescribed under section 54A relates; or

(b) a prudential matter to which a provision of this Act or the

regulations relates.

(2) However, a prudential standard is of no effect to the extent that it

conflicts with this Act or the regulations.

34E Notice of determination, variation or revocation of certain

prudential standards

(1) If APRA determines or varies a prudential standard referred to in

paragraph 34C(1)(e) or (f), APRA must give a copy of the standard

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24 Superannuation Legislation Amendment (Trustee Obligations and Prudential

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or of the variation to each RSE licensee and connected entity to

which the standard applies.

(2) If APRA revokes a prudential standard referred to in paragraph

34C(1)(e) or (f), APRA must give notice of the revocation to each

RSE licensee and connected entity to which the standard applies.

34F APRA to monitor prudential matters

The functions of APRA include:

(a) collecting and analysing information on prudential matters

concerning RSE licensees of registrable superannuation

entities and connected entities of RSE licensees of registrable

superannuation entities; and

(b) encouraging and promoting the carrying out of sound

practices in relation to prudential matters by RSE licensees of

registrable superannuation entities and connected entities of

RSE licensees of registrable superannuation entities; and

practices.

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2012 No. , 2012 25

Part 2--Consequential amendments

Superannuation Industry (Supervision) Act 1993

2 Section 4 (after table item dealing with Part No. 3)

Insert:

Prudential standards concerning registrable

superannuation entities

3 After subparagraph 6(1)(a)(i)

Insert:

(ia)

Part

3A;

4 Subsection 10(1)

Insert:

connected entity, in relation to an RSE licensee of a registrable

superannuation entity, means:

(a) a subsidiary of the RSE licensee (where the RSE licensee is a

body corporate); and

(b) any other entity of a kind prescribed by the regulations.

5 Subsection 10(1)

Insert:

prudential matter has the meaning given by subsection 34C(4).

6 Subsection 10(1)

Insert:

prudential standard means a standard determined by APRA under

subsection 34C(1).

7 Subsection 10(1) (paragraph (dla) of the definition of

reviewable decision)

Repeal the paragraph.

8 Subsection 10(1) (paragraph (do) of the definition of

reviewable decision)

Schedule 2 Prudential standards

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26 Superannuation Legislation Amendment (Trustee Obligations and Prudential

Standards) Bill 2012 No. , 2012

Repeal the paragraph.

9 Subsection 10(1) (before paragraph (dp) of the definition of

reviewable decision)

Insert:

(doc) a decision to determine, vary or revoke a prudential standard

referred to in paragraph 34C(1)(e) or (f); or

10 Subsection 10(1) (after paragraph (a) of the definition of

RSE licensee law)

Insert:

(aa) prudential standards; and

11 Subsection 10(1)

Insert:

subsidiary has the same meaning as in the Corporations Act 2001.

12 Subsection 13A(1)

Omit "and the regulations", substitute ", the regulations and the

prudential standards".

13 Subsections 13A(2), (4), (5), (6) and (7)

Omit "or the regulations", substitute ", the regulations or the prudential

standards".

14 Subsection 29A(2)

Omit:

Note 3:

In order to obtain an RSE licence, the trustee, or group of

individual trustees, must have a risk management

strategy.

15 Subsection 29A(2)

Omit:

Note 2:

In order to obtain registration of a fund or trust, the

trustee, or group of individual trustees, must have a risk

management plan for that fund or trust.

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2012 No. , 2012 27

16 Paragraph 29C(4)(c)

Omit "paragraph; and", substitute "paragraph.".

17 Paragraphs 29C(4)(d) and (e)

Repeal the paragraphs.

18 Subsection 29C(8)

Repeal the subsection.

19 Subsection 29C(9)

Omit ", (7) or (8)", substitute "or (7)".

20 Paragraph 29D(1)(d)

Repeal the paragraph, substitute:

(d) APRA is satisfied that:

(i) if the application is made by a body corporate--the

body corporate meets the requirements of the prudential

standards relating to fitness and propriety for RSE

licensees; or

(ii) if the application is made by a group of individual

trustees--the group as a whole meets the requirements

of the prudential standards relating to fitness and

propriety for RSE licensees and each of the members of

the group meets the requirements of the prudential

standards relating to fitness and propriety for members

of groups of trustees that are RSE licensees; and

21 Paragraph 29D(1)(e)

Repeal the paragraph.

22 Paragraphs 29E(1)(c) and (e)

Repeal the paragraphs.

23 After subsection 29EA(2)

Insert:

(2A) A condition may be expressed to have effect despite anything in

the prudential standards.

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28 Superannuation Legislation Amendment (Trustee Obligations and Prudential

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24 Paragraph 29GB(a)

Omit "or the regulations", substitute ", the regulations or the prudential

standards".

25 Division 8 of Part 2A

Repeal the Division.

26 Section 29JC

Repeal the section.

27 Section 29JD

Omit ", 29JB or 29JC", substitute "or 29JB".

28 Paragraph 29L(2)(d)

Omit "rules); and", substitute "rules).".

29 Paragraphs 29L(2)(e) and (f)

Repeal the paragraphs.

30 Subsection 29L(5)

Repeal the subsection.

31 Subsection 29L(6)

Omit ", (4) or (5)", substitute "or (4)".

32 Paragraph 29M(1)(d)

Repeal the paragraph.

33 Divisions 5 and 6 of Part 2B

Repeal the Divisions.

34 Paragraph 29UB(a)

Omit "or the regulations", substitute ", the regulations or the prudential

standards".

35 Paragraph 35C(5)(c)

Omit "form; and", substitute "form.".

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2012 No. , 2012 29

36 Paragraph 35C(5)(d)

Repeal the paragraph.

37 Subsections 68(6) and (7)

Omit "or the regulations", substitute ", the regulations or the prudential

standards".

38 After paragraph 135(1)(b)

Insert:

(ba) the prudential standards; and

39 Paragraph 139(b)

After "the regulations", insert ", the prudential standards".

40 Subsection 262A(1)

After "this Act", insert ", the regulations or the prudential standards".

41 Paragraph 263(1)(a)

Omit "or the regulations", substitute ", the regulations, the prudential

standards".

42 Section 301 (definition of SIS officer)

Repeal the definition, substitute:

SIS officer means a person exercising powers or performing

functions under or in relation to this Act, the regulations or the

prudential standards.

43 Section 301 (paragraphs (a), (b), (c) and (d) of the

definition of statement made to an SIS officer)

Omit "or the regulations", substitute ", the regulations or the prudential

standards".

44 Paragraphs 303(1)(a) and (b)

Omit "or the regulations", substitute ", the regulations or the prudential

standards".

45 Paragraphs 306(1)(a) and (2)(a)

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30 Superannuation Legislation Amendment (Trustee Obligations and Prudential

Standards) Bill 2012 No. , 2012

Omit "or the regulations", substitute ", the regulations or the prudential

standards".

46 Paragraphs 307(1)(h) and (i) and 308(1)(f) and (g)

Omit "or the regulations", substitute ", the regulations or the prudential

standards".

47 Section 341

Omit "or the regulations", substitute ", the regulations or the prudential

standards".

48 Section 349

Omit "and the regulations", substitute ", the regulations and the

prudential standards".

49 Section 349A

Omit "or the regulations", substitute ", the regulations or the prudential

standards".

Commonwealth of Australia Bills

SUPERANNUATION LEGISLATION AMENDMENT (TRUSTEE OBLIGATIONS AND PRUDENTIAL STANDARDS) BILL 2012