S99FA stoush continues in Senate hearing

The controversial changes to section 99FA of the Superannuation Industry (Supervision) Act 1993 took centrestage during the Senate economics legislation committee’s public hearing into the first bill stemming from the Quality of Advice Review.

Included within Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill 2024 is a provision to rework s99FA, which is the portion of the SIS Act that concerns super fund trustees’ obligations when allowing advice fees to be paid from members’ funds.

While the well-publicised concerns around the wording of s99FA have prompted the government to recently amend the bill’s explanatory memorandum (EM) to clarify that it does not require a rigorous review of each statement of advice (SOA), the Law Council of Australia (LCA) said this is not an adequate solution.

Nathan Hodge, the head of submissions for the LCA’s superannuation committee, said the legislation itself needs to be amended.

“We would say that the courts would likely place limited weight on the explanatory memorandum in this situation,” Hodge told the committee.

“The courts have come across this type of issue before and the following statement which has been adopted by the High Court states that where extrinsic material appears to cast doubt on the construction of words favoured by a plain meaning of those words, then the explanatory memorandum cannot override a clear purpose of the act as deduced from its own language.

“So, in effect the words in the explanatory memorandum cannot be substituted for the text of the law.”

Hodge also explained that as it is drafted, the changes to s99FA do not achieve the government’s stated policy intent.

“If we look at the explanatory memorandum, it states that the bill implements the government’s response to recommendation seven of the Quality of Advice Review. In discussing recommendation seven, the final report of the review recommended that section 99FA be replaced with a provision giving trustees permission to pay advice fees on the direction of a member,” he said.

“The government’s response in June 2023 was that superannuation trustees would be provided with legal clarity regarding current practices for payment of advice fees … Proposed section 99FA remains drafted as a prohibition.

“It contains no express permission to pay advice fees, and accordingly there’s no improvement in legal clarity regarding the payment of advice fees.”

Associations echo concerns

The Law Council’s testimony received praise from Financial Services Council (FSC) chief executive Blake Briggs, who described it as a “body of legal experts without political bias” that clearly explained how an error in the bill would create an “unacceptable legal burden on trustees” and impose “unacceptable regulatory costs on advice businesses”.

“It is an undeniable fact, unfortunately, because we would love to be able to solve the through amendments, or through statements from the regulator. However, I think what the legal advice makes abundantly clear is when the black letter law is clear, none of these other extraneous materials can rectify that issue,” Briggs said.

Financial Advice Association Australia (FAAA) general manager policy, advocacy and standards Phil Anderson agreed, noting the FAAA is “concerned that there is an inconsistency between what the bill says and what the explanatory memorandum now says, and the bill will prevail should the matter get into the courts”.

The accounting bodies also backed changes beyond simply amending the bill’s explanatory memorandum, with Chartered Accountants ANZ senior manager, advocacy and retirement policy Michael Davison maintained the bill does not codify the steps trustees need to take.

"The bill does not clarify to what extent they need to go to validate that position before they pay the fee out,” Davison said.

"Having that clarified in the EM, having an assurance from the regulator, does not provide that clarity. The law stands over the EM, the EM has no legal standing. The assurances that the regulator gives us today do not necessarily stand in the future."

Briggs added that he was hopeful the government would take the “broad-based industry feedback” on board and understand that the evidence should be “taken seriously and take the opportunity to consider what options are available to address these concerns”.

Discord from the SMC

On the other side of the debate, the Super Members Council (SMC) was confident that the updated explanatory memorandum, along with regulator assurances, provided the clarity that its members need to continue with the status quo.

“One claim that’s been made is that the bill would require super fund trustees to check every single statement of advice ... This claim is not correct. The bill clarifies the trustees can continue to adopt a risk-based compliance approach, including using techniques such as spot auditing,” SMC CEO Misha Schubert said.

In the session immediately following the SMC’s appearance, FAAA CEO Sarah Abood took issue with the SMC’s dismissal of issues related to the drafting of the legislation.

"Many have suggested that the new section 99FA wording is not intended to change current practice; however, as we’ve already heard, the current proposed language in the act states definitively that super trustees must verify that the advice meets the sole purpose test before funds can be released,” Abood said.

“We do appreciate that changes have been made to the explanatory memorandum; however, we do suggest that a change to the wording of the act itself would be both simpler and clearer.”

Abood also referred to comments that Association of Superannuation Funds of Australia (ASFA) CEO Mary Delahunty made to the committee that while the majority of its members support the changes, “it doesn’t provide [comfort] to all of the members because they all have different risk tolerances”.

“The issues that we are hearing is that interpretations are differing. So as Ms Delahunty mentioned, some super trustees are receiving advice that the wording of the act requires them to check all advice,” Abood explained.

Treasury and ASIC not convinced

Despite the considerable disagreement with the way the bill has been drafted by Treasury and the government (and the Australian Securities and Investments Commission (ASIC), based on Dr Andre Moore’s answers to committee deputy chair Andrew Bragg’s questions), the regulator was content that its pledge not to enforce tighter rules should give industry enough confidence going forward.

"We articulated our view in that report 781. And we made it clear that that was our view based on the proposed reforms as well that we didn’t expect trustees to have to check every statement of advice,” said ASIC commissioner Alan Kirkland.

“I’ve said that in several speeches as well. But once the legislation has passed, we would produce in consultation with industry, formal regulatory guidance, and the purpose of that guidance is to give industry as much certainty as is possible around how we would interpret the law and how we would apply it in our regulatory and enforcement work.”

This wasn’t enough for the FSC’s Briggs, who noted that “public statements from the regulator don’t bind the regulator”.

“With all due respect to the current commissioners, they could say whatever they like now; in the future, a commissioner or even themselves in a future point in time, aren’t bound by those comments,” he told the committee.

“This would not be the only possible situation where ASIC has changed its opinion or changed a course of action after legislation has come into effect.”

Indeed, WT Financial managing director Keith Cullen pointed out that if there is no disagreement on how the bill should operate among any of the stakeholders as they have professed, then why is there such reticence to make the change within the wording of the bill?

“It is a real risk that super funds take this legislation notwithstanding what the EM says, on its literal meaning,” Cullen told the committee.

“Now, if ASIC says that’s not the case, if APRA says that’s not the case, if the minister says that’s not the case, if the EM says it’s not the case, then why are we being bloody-minded about not moving some simple amendments to clarify the matter at law?”