Commonwealth Numbered Regulations - Explanatory Statements

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SUPERANNUATION INDUSTRY (SUPERVISION) AMENDMENT REGULATIONS 2004 (NO. 3) 2004 NO. 113

Subsection 353(1) of the Superannuation Industry (Supervision) Act 1993 (the SIS Act) provides, in part, that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed, for carrying out or giving effect to the Act.

The SIS Act is the principal piece of legislation establishing the prudential framework for the regulation of the superannuation industry. Under the SIS Act, the Australian Prudential Regulation Authority (APRA) supervises regulated superannuation funds (other than self-managed superannuation funds (SMSFs), which are regulated by the Australian Taxation Office), approved deposit funds (ADFs) and pooled superannuation trusts (PSTs).

The Superannuation Safety Amendment Act 2004 (the SSA Act) amends the SIS Act from 1 July 2004. Among other things, the SIS Act is amended to provide for the licensing of trustees of APRA-regulated superannuation entities. Under the amended SIS Act, and subject to transitional provisions, it will be an offence for a person to be a trustee, or act as the trustee, of a 'registrable superannuation entity' unless the person holds a registrable superannuation entity licence (called an RSE licence) that enables the person to be the trustee of the registrable superannuation entity. Section 10 of the SIS Act defines a 'registrable superannuation entity' to be an ADF, a PST or a regulated superannuation fund, other than a SMSF.

The purpose of the Regulations is to prescribe or specify certain matters regarding the establishment of the RSE licensing regime, the registration of registrable superannuation entities and certain other matters.

The primary purpose of licensing superannuation trustees is to ensure that all superannuation trustees are honest and competent and have appropriate risk management arrangements, resources and outsourcing arrangements to look after the interests of members and beneficiaries of superannuation entities. Licensing will be conducted by APRA.

The SSA Act also amends the SIS Act to provide for the registration of registrable superannuation entities. Registration of registrable superannuation entities is important as it serves as a mechanism by which APRA will gain important information about superannuation entities that it regulates, before those entities begin operating in the superannuation industry.

Details of the Regulations are in the Attachment.

The SIS Act does not impose any conditions that need to be met before the power to make the proposed Regulations may be exercised.

Regulations 1 to 3 and Schedule 1 to the Regulations commence on 1 July 2004, to coincide with the commencement of the licensing transition period. Schedule 2 to the Regulations commences on 1 July 2006, immediately after the end of the licensing transition period on 30 June 2006.

Subsections 4(1) and (2A) of the Acts Interpretation Act 1901, read together, allow the making of regulations between the passing and commencement of legislation upon which they rely for their authority, as long as such regulations do not commence before the legislation.

The Office of Regulation Review has advised that a Regulation Impact Statement (RIS) is not required for the proposed Regulations, as the measures contained in the proposed Regulations have either been adequately addressed in the RIS for the SSA Act or are of a minor or machinery of government nature.

Authority:       Subsection 353(1) of the Superannuation Industry (Supervision) Act 1993

ATTACHMENT

DETAILS OF THE PROPOSED SUPERANNUATION INDUSTRY (SUPERVISION) AMENDMENT REGULATIONS 2004 (No. 3)

REGULATION 1

Name of Regulations

Regulation 1 specifies that the Regulations are the Superannuation Industry (Supervision) Amendment Regulations 2004 (No. 3).

REGULATION 2

Commencement

Regulation 2 establishes that Regulations 1 to 3 and Schedule 1 commence on 1 July 2004, and that Schedule 2 commences on 1 July 2006.

REGULATION 3

Amendment of Superannuation Industry (Supervision) Regulations 1994

Regulation 3 establishes that Schedules 1 and 2 amend the Superannuation Industry (Supervision) Regulations 1994 (the Principal Regulations).

SCHEDULE 1       AMENDMENTS COMMENCING 1 JULY 2004

ITEMS [1] AND [2] - REGULATION 3.03

Net Tangible Assets of Approved Trustees

Under section 26 of the Superannuation Industry (Supervision) Act 1993 (SIS Act), the Australian Prudential Regulation Authority (APRA) may only approve an applicant to become an approved trustee if it meets certain minimum capital requirements. In establishing the minimum capital requirements for approved trustees, section 26 makes reference to the net tangible assets of the trustee. Subsection 26(7) provides for the regulations to specify a meaning of net tangible assets for the purposes of section 26.

Items [1] and [2] of Schedule 1 of the Regulations amend regulation 3.03 to provide, for the purposes of section 26, the meaning of net tangible assets given in Schedule 5.

The amendment to regulation 3.03 maintains the status quo regarding the definition of net tangible assets as currently specified in approved trustees' instruments of approval. The meaning of net tangible assets given in Schedule 5 is consistent with the meaning of net tangible assets that is currently established in approved trustees' instruments of approval. The purpose of establishing a definition of net tangible assets in regulation 3.03 that is consistent with the meaning currently established in approved trustees' instruments of approval is to avoid any potential confusion between the meaning of net tangible assets for the purposes of section 26, and the different meaning of net tangible assets regarding holders of registrable superannuation entity licenses (called RSE licences) for the purposes of section 29DA established by Item [3] of the Regulations.

ITEM [3] - AFTER PART 3

New Part 3A - Matters Prescribed or Specified in relation to licensing of Trustees and groups of individual trustees

Division 3A.1 - Licence Classes

Reflecting the fact that business operations vary in complexity and size, the SIS Act provides for different classes of RSE licences to be granted to trustees operating different classes of funds.

Regulations are required to prescribe certain matters relating to the operation of RSE licence classes. Section 29B of the SIS Act establishes that there are to be classes of RSE licences and provides for certain classes of licences.

Public offer entity licences

Subsection 29B(2) establishes a class of RSE licence that enables holders of that class to operate public offer superannuation entities (i.e. public offer superannuation funds, approved deposit funds (ADFs) other than excluded ADFs, and pooled superannuation trusts (PSTs)). This class of licence is called a public offer entity licence. Subsection 29B(2) also allows for regulations to specify other classes of registrable superannuation entities for which the holder of a public offer entity licence may be the trustee.

Item [3] of Schedule 1 of the Regulations inserts a new regulation 3A.01. Regulation 3A.01 specifies certain classes of registrable superannuation entities for which a public offer entity licence holder may be the trustee, in addition to public offer entities.

The purpose of regulation 3A.01 is to enable holders of a public offer entity licence to be the trustee of the same classes of superannuation entities as the existing approval regime. Consistent with the current approval regime, in addition to public offer superannuation entities, regulation 3A.01 allows the holder of a public offer entity licence to be the trustee of excluded ADFs and superannuation entities that are superannuation funds with fewer than five members that are not self-managed superannuation funds, subject to any condition imposed by APRA under section 29EA.

Non-public offer entity licences

Subsection 29B(3) provides for a class of RSE licence which enables holders of that class to operate any class of registrable superannuation entities, other than public offer superannuation entities, that are prescribed in regulations.

Item [3] of Schedule 1 of the Regulations inserts a new regulation 3A.02. Regulation 3A.02 specifies the classes of registrable superannuation entities for which a holder of the class of RSE licence established by subsection 29B(3) may be the trustee. Regulation 3A.02 also establishes that the class of RSE licence established by subsection 29B(3) is called a non-public offer entity licence.

The purpose of regulation 3A.02 is to enable holders of a non-public offer entity licence to be the trustee of all registrable superannuation entities that are not covered by the public offer entity licence (non-public offer funds). Regulation 3A.02 allows the holder of a non-public offer entity licence to be the trustee of any registrable superannuation entity other than a public offer entity, excluded ADF or superannuation entity that is a superannuation fund with fewer than five members that is not a self-managed superannuation fund, subject to any condition imposed by APRA under section 29EA.

Extended public offer entity licences

Subsection 29B(4) provides for other classes of RSE licence to be established by regulations. Subsection 29B(4) provides that, for each class of licence established by regulations, the regulations must also specify the classes of registrable superannuation entities for which the holder of that class of licence may be the trustee.

Item [3] of Schedule 1 of the Regulations inserts new regulation 3A.03 which creates a new class of RSE licence, to be called an extended public offer entity licence. Regulation 3A.03 also specifies the classes of registrable superannuation entities for which a holder of an extended public offer entity licence may be the trustee.

The purpose of regulation 3A.03 is to enable holders of an extended public offer entity licence to be the trustee of the classes of registrable superannuation entities covered by both the public offer entity licence and non-public offer entity licence via a single licence. Regulation 3A.03 allows the holder of an extended public offer entity licence to be a trustee of any registrable superannuation entity, subject to any condition imposed by APRA under section 29EA.

Division 3A.2 - Grant of RSE licences

Under section 291), for APRA to grant an RSE licence of a class that would enable a holder of that class of licence to be the trustee of a public offer entity, APRA must be satisfied that that the applicant is a constitutional corporation that meets capital requirements established under section 29DA. Subsections 29DA(2), (3) and (4) allow regulations to prescribe the amount of capital that is required to satisfy the capital requirements under those subsections.

Item [3] of Schedule 1 of the Regulations also inserts new regulation 3A.04. This regulation establishes, for the purposes of subsection 29DA(2) and paragraphs 29DA(3)(a) and 29DA(4)(b), a prescribed capital amount for RSE licensees of $5 million.

Subsections 29DA(2) and (4) refer to the net tangible assets of a constitutional corporation. Subsection 29DA(6) provides for the regulations to specify a meaning of net tangible assets for the purposes of section 29DA.

New regulation 3A.04 also defines the meaning of net tangible assets for the purposes of subsections 29DA(2) and (4).

ITEM [4] - AFTER REGULATION 4.07

Division 4.1A - Content of Risk Management Strategies and Risk Management Plans

Parts 2A and 2B of the SIS Act establish requirements for an RSE licensee to prepare and implement a Risk Management Strategy (RMS) covering the licensee's operations and a Risk Management Plan (RMP) for each registrable superannuation entity under the licensee's control.

Item [4] of Schedule 1 of the Regulations inserts new regulations 4.07A and 4.07B. The purpose of these provisions is to establish minimum standards for RMSs and RMPs, to ensure that trustees are aware of the risks to which they and the funds under their trusteeship are exposed and help ensure that those risks are adequately identified, monitored and managed.

Risk Management Strategies

Part 2A of the SIS Act requires all trustees of RSEs to be licensed by APRA. Under paragraph 29D(1)(e), for APRA to grant a licence, amongst other things, it must be satisfied that the RMS of the applicant meets the requirements set out in section 29H. Section 29H establishes the formal requirements for RMSs.

Subsection 29H(1) requires that an RSE licensee's RMS must set out reasonable measures and procedures the RSE licensee is to apply to identify, monitor and manage risks that arise in relation to its activities, or proposed activities, as an RSE licensee, and all its other activities, or proposed activities, to the extent that they are relevant to its activities, or proposed activities, as an RSE licensee. Subsection 29H(2) establishes certain specific types of risk that an RSE licensee's RMS must address. Paragraph 29H(2)(c) provides that the regulations may prescribe other matters that must be set out in an RMS.

Regulation 4.07A requires that an RMS identifies and analyses material risks that are relevant to the RSE licensee. Regulation 4.07A also requires that the RMS sets out the proposed treatment of each relevant material risk and describes the proposed arrangements for internal oversight, implementation and reporting arrangements regarding the management of the relevant material risks.

Risk Management Plans

Part 2B establishes the requirements for registering RSEs. Paragraph 29E(1)(d) of the SIS Act places a condition on all RSE licences that the licensee must ensure that each registrable superannuation entity of which it is the RSE licensee is registered under Part 2B of the SIS Act or is the subject of an application for registration under Part 2B that has not been finally determined or otherwise disposed of. Under paragraph 29M(1)(d) of Part 2B, for APRA to register an RSE, it must be satisfied that the RMP of the entity meets the requirements set out in section 29P.

Subsection 29P(1) requires that an RSE licensee's RMS must set out reasonable measures and procedures the RSE licensee is to apply to identify, monitor and manage risks that arise in relation to operating the RSE. Subsection 29P(2) establishes certain specific types of risk that the RMP of a registrable superannuation entity must address. Paragraph 29P(2)(c) provides that the regulations may prescribe other matters that must be set out in an RMP.

Regulation 4.07B requires that an RMP identifies and analyses material risks that are relevant to the registrable superannuation entity. This regulation also requires that an RMP sets out the proposed treatment of each relevant material risk and describes the proposed arrangements for internal oversight, implementation and reporting arrangements regarding the management of the relevant material risks.

ITEMS [5] AND [6] - AFTER REGULATION 4.10

Transitional Arrangements regarding Acquisition of Units in a PST and Acceptance of Deposits with an ADF

Part 2B of the SIS Act establishes requirements for registering registrable superannuation entities.

Operating standards that may be prescribed under Part 3 of the SIS Act include standards relating to the circumstances in which units may be acquired in PSTs (paragraph 33(2)(aa)) and the circumstances in which amounts maybe deposited with ADFs (paragraph 32(2)(aa)).

Items [5] and [6] of Schedule 1 of the Regulations insert new regulations 4.10A and 4.11A in a transitional form.

Regulation 4.10A require a PST that is established after the start of the licensing transition period by a trustee who holds an RSE licence to be registered under Part 2B before a trustee of the PST may offer ownership of units in the PST. Similarly, regulation 4.11A requires an ADF that is established after the start of the licensing transition period by a trustee who holds an RSE licence to be registered under Part 2B before a trustee of the ADF may accept deposits with the ADF.

Under regulations 4.10A and 4.11A, an existing approved trustee that does not hold an RSE licence may continue to offer units in a PST or accept deposits with an ADF established after the start of the licensing transition period without the PST or ADF having first been registered under Part 2B. However, under regulations 4.10A and 4.11A, if an approved trustee is granted an RSE licence, it is prohibited from offering units in a PST or accepting deposits with an ADF unless the PST or ADF has been registered under Part 2B.

The purpose of regulations 4.10A and 4.11A in their transitional form is to ensure that trustees who were approved trustees at the start of the licensing transition period (1 July 2004) may continue with their business activities during the licensing transition period.

From the end of the licensing transition period (30 June 2006) regulations 4.10A and 4.11A will require a PST or ADF to be registered under Part 2B before a trustee of the PST or ADF may offer units in the PST or accept deposits with the ADF (refer to Items [4] and [5] of Schedule 2 of the Regulations).

The purpose of regulations 4.10A and 4.11A is to prohibit the inflow of money to registrable superannuation entities that have not been registered under Part 2B, subject to the transitional arrangements outlined above. This is to ensure that registrable superannuation entities operated by RSE licensees meet the regulatory requirements established in Part 2B prior to dealing with superannuation savings.

ITEM [7] - AFTER REGULATION 4.13

Fitness and Propriety of RSE licensees

Under paragraph 29D(1)(d), for APRA to grant an RSE licence, APRA must be satisfied that the applicant for a licence meets the requirements of standards prescribed under Part 3 relating to fitness and propriety of RSE licensees and trustees of funds.

Operating standards that may be prescribed under Part 3 of the SIS Act include standards relating to the fitness and propriety of RSE licensees and trustees of regulated superannuation funds (paragraph 31(2)(ma)), ADFs (paragraph 32(2)(fa)) and PSTs (paragraph 33(2)(ba)).

Item [7] of Schedule 1 of the Regulations inserts new regulation 4.14 which establishes a Fit and Proper Standard applicable to RSE licensees.

The purpose of the Fit and Proper Standard is to impose minimum competency standards concerning the fitness and propriety of RSE licensees to ensure that the interests of superannuation fund members are managed and overseen competently and by honest and trustworthy individuals.

The Fit and Proper Standard requires RSE licensees to possess the relevant attributes to enable the RSE licensee to properly discharge the duties of an RSE licensee in a prudent manner. Regulation 4.14 establishes that the relevant attributes are comprised of, but not limited to, character, competence, diligence, experience, honesty, integrity and judgement, and education or technical qualifications, knowledge and skills relevant to the duties and responsibilities of an RSE licensee. Regulation 4.14 also specifies certain circumstances where an RSE licensee would fail to meet the Fit and Proper Standard.

Adequacy of Resources of, or available to, RSE licensees

Under paragraph 29D(1)(a) of the SIS Act, for APRA to grant an RSE licence, APRA must have no reason to believe the applicant for a licence would fail to comply with RSE licensee law. The definition of RSE licensee law in section 10 includes the SIS Act and SIS Regulations, including the proposed operating standard regarding adequacy of resources of, or available to, RSE licensees.

Operating standards that may be prescribed under Part 3 of the SIS Act include standards relating to the adequacy of resources of, or available to, trustees of regulated superannuation funds (paragraph 31(2)(sb)), ADFs (paragraph 32(2)(lb)) and PSTs (paragraph 33(2)(jb)).

Item [7] of Schedule 1 of the Regulations inserts new regulation 4.15. Regulation 4.15 establishes a standard relating to the adequacy of resources applicable to trustees of registrable superannuation entities that are RSE licensees. The effect of the application of this standard is that trustees of registrable superannuation entities would not have to comply with the standard unless they were granted an RSE licence.

The purpose of the adequacy of resources standard is to establish minimum standards regarding the adequacy of resources of, or available to, the trustees of registrable superannuation entities that hold an RSE licence to ensure that the interests of superannuation fund members are managed by trustees with sufficient resources available to them to perform their role satisfactorily.

Regulation 4.15 requires trustees who hold RSE licences to maintain adequate financial, technological and human resources to undertake the activities of an RSE licensee.

Outsourcing Arrangements of RSE licensees

Under paragraph 29D(1)(a) of the SIS Act, for APRA to grant an RSE licence, APRA must have no reason to believe the applicant for a licence would fail to comply with RSE licensee law. The definition of RSE licensee law in section 10 includes the SIS Act and SIS Regulations, including the proposed operating standard regarding outsourcing arrangements of RSE licensees.

Operating standards that may be prescribed under Part 3 of the SIS Act include standards regarding outsourcing arrangements relating to the operation of regulated superannuation funds (paragraph 31(2)(sa)), ADFs (paragraph 32(2)(la)) and PSTs (paragraph 33(2)(ja)).

Item [7] of Schedule 1 of the Regulations inserts new regulations 4.16 and 4.17. Regulations 4.16 and 4.17 establish standards regarding certain outsourcing arrangements relating to the operation of registrable superannuation entities.

The purpose of the outsourcing standards is to prescribe minimum standards regarding the outsourcing arrangements of trustees of registrable superannuation entities to ensure that the interests of superannuation fund members are protected in respect of such arrangements.

Regulation 4.16 imposes minimum standards for outsourcing arrangements of trustees of registrable superannuation entities that are RSE licensees. Amongst other things, regulation 4.16 requires that material outsourcing arrangements of trustees of registrable superannuation entities that are

RSE licensees are made in writing, and also requires the inclusion of certain terms, including a right for APRA and/ or trustees to access an outsourced service provider's records, documentation and premises and a right for APRA and/ or trustees to request an independent audit of the outsourced service provider.

Regulation 4.17 establishes transitional arrangements for outsourcing arrangements of trustees of registrable superannuation entities made before the end of the licensing transition period. Regulation 4.17 provides that outsourcing arrangements entered into by trustees of registrable superannuation entities before the end the licensing transition period (30 June 2006), including those entered into before the start of the licensing transition period, where the trustees were not RSE licensees when the agreement was entered into, either have to comply with the outsourcing standards or terminate the agreement before the end of the licensing transition period.

ITEMS [8] TO [12]

Transitional Arrangements regarding Transfers, Rollovers and Contributions

Part 2B of the SIS Act establishes requirements for registering registrable superannuation entities.

Operating standards that may be prescribed under Part 3 of the SIS Act include standards relating to the acceptance of contributions and the transfer and rollover of benefits in regulated superannuation funds and ADFs (paragraphs 31(2)(d), (h) and (i) and paragraph 32(2)(c)).

Items [8] to [11] of Schedule 1 of the Regulations transitionally amend Division 6.4. Item [12] of Schedule 1 of the Regulations inserts new regulation 7.03A in a transitional form.

The amendments to Division 6.4 require a regulated superannuation fund or an ADF that is established after the start of the licensing transition period by a trustee who holds an RSE licence to be registered under Part 2B before a trustee of the funds may accept transfers or rolled over benefits. Similarly, regulation 7.03A requires a regulated superannuation fund that is established after the start of the licensing transition period by a trustee who holds an RSE licence to be registered under Part 2B before a trustee of the fund may accept contributions to the fund.

Paragraphs 29J(1)(a) to (e) of the SIS Act establish the circumstances in which a trustee may be the trustee of a regulated superannuation fund or ADF after the start of the licensing transition period. In these circumstances, the amendments to Division 6.4 and regulation 7.03A allow trustees, who are not RSE licensees, to continue to accept transfers, rolled over benefits or contributions to regulated superannuation funds and ADFs established after the start of the licensing transition period. However, under the amendments to Division 6.4 and regulation 7.03A, if a trustee is granted an RSE licence, it is prohibited from accepting transfers, rolled over benefits or contributions to a regulated superannuation fund or ADF unless the regulated superannuation fund or ADF has been registered under Part 2B.

The purpose of regulation 7.03A in its transitional form and the transitional amendments to Division 6.4 is to ensure that existing trustees may continue with their business activities during the licensing transition period.

From the end of the licensing transition period (30 June 2006), regulation 7.03A and the amendments to Division 6.4 require a regulated superannuation fund or ADF to be registered under Part 2B before a trustee of the regulated superannuation fund or ADF can accept transfers, rolled over benefits or contributions (refer to Items [6] to [10] of Schedule 2 of the Regulations).

The purpose of regulation 7.03A and the amendments to Division 6.4 is to prohibit the inflow of money to registrable superannuation entities that have not been registered under Part 2B, subject to the transitional arrangements outlined above. This is to ensure that registrable superannuation entities operated by RSE licensees meet the regulatory requirements established in Part 2B prior to dealing with superannuation savings.

ITEMS [13] TO [16]

Funding and Solvency of, and Actuarial Standards applicable to, Defined Benefit Funds

Operating standards that may be prescribed under Part 3 of the SIS Act include standards relating to actuarial standards for regulated superannuation funds (paragraph 31(2)(f)) and the funding and solvency of regulated superannuation funds (paragraph 31(2)(t)).

Items [13] and [14] of Schedule 1 amend regulations 9.06 and 9.09 to give the Regulator (APRA in relation to registrable superannuation funds, or the Australian Taxation Office in relation to self-managed superannuation funds (SMSFs)) the power to require a trustee of a defined benefit fund (DBF) to obtain a new funding and solvency certificate for the fund. Once such a certificate had been obtained, the employer-sponsor for the fund is required, under the existing

Principal Regulations, to make minimum contributions as specified in the certificate. The Regulator can only require a new funding and solvency certificate where it considers, on reasonable grounds, that it would be in the prudential interests of the fund and in the best interests of the members and beneficiaries of the fund to do so.

Items [15] and [16] of Schedule 1 of the Regulations amend regulation 9.29 to give the Regulator the power to require an actuarial investigation to be made in relation to a DBF. The Regulator can only require an actuarial investigation where it considers, on reasonable grounds, that it would be in the prudential interests of the fund and in the best interests of the members and beneficiaries of the fund to do so.

The purpose of these amendments is to strengthen the Regulator's powers in respect of the safety of DBFs by enabling the Regulator to request a new funding and solvency certificate outside the normal five-year cycle and an actuarial investigation outside the normal triennial period.

ITEM [17] AND [18] - SUBREGULATION 10.06(1)

Transitional Arrangements regarding Eligible Rollover Funds

Part 2B of the SIS Act establishes requirements for registering registrable superannuation entities.

Operating standards may prescribe the circumstances in which contributions may be accepted by regulated superannuation funds (paragraph 31(2)(d)) and the circumstances in which amounts may be deposited with ADFs (paragraph 32(2)(aa)). An eligible rollover fund (ERF) can be a regulated superannuation fund or an ADF.

Items [17] and [18] of Schedule 1 of the Regulations transitionally amend Division 10.3.

The amendments to Division 10.3 require an ERF that is established after the start of the licensing transition period by a trustee who holds an RSE licence to be registered under Part 2B before a trustee of the ERF can accept rollovers.

Under the amendments to Division 10.3, an existing approved trustee that does not hold an

RSE licence may continue to accept rollovers to an ERF established after the start of the licensing transition period without the ERF having first been registered under Part 2B. However, under the amendments to Division 10.3, if an approved trustee is granted an RSE licence, it is prohibited from accepting rollovers to an ERF unless the ERF has been registered under Part 2B.

The purpose of the amendments to Division 10.3 in their transitional form is to ensure that trustees who were approved trustees at the start of the licensing transition may continue with their business activities during the licensing transition period.

From the end of the licensing transition period (30 June 2006) the amendments to Division 10.3 require an ERF to be registered under Part 2B before a trustee of the ERF can accept rollovers to the ERF (refer to Item [11] of Schedule 2 of the proposed Regulations).

The purpose of the amendments to Division 10.3 is to prohibit the inflow of money to registrable superannuation entities that have not been registered under Part 2B, subject to the transitional arrangements outlined above. This is to ensure that registrable superannuation entities operated by RSE licensees meet the regulatory requirements established in Part 2B prior to dealing with superannuation savings.

ITEM [19] - NEW PART 11A

Register of Registrable Superannuation Entities

Subsection 353(2) of the SIS Act establishes that the regulations may make provision for, and in relation to, the keeping of one or more registers by the Regulator, where the register relates to matters arising under the SIS Act or SIS Regulations.

Item [19] of Schedule 1 of the Regulations inserts a new Part 11A. Part 11A establishes a requirement for APRA to maintain a public register of all registrable superannuation entities that have been registered under Part 2B of the SIS Act. The register will include information to assist members of the public to identify registrable superannuation entities registered under Part 2B and the RSE licensees of those entities. The register will also provide contact details for both registrable superannuation entities and the RSE licensees of the entities. The new Part I IA comprises regulations 11.08 to 11.11. New regulation 11.08 requires a register to be maintained by APRA. New regulations 11.09 to 11.11 specify the content of the register in respect of registrable superannuation entities that are regulated superannuation funds (regulation 11.09), ADFs (regulation 11.10) and PSTs (regulation 11.11).

ITEM [20] - PARAGRAPHS 13.15A (1) (C) AND (D)

Derivatives Risk Statements

Regulation 13.15A establishes that a trustee of a regulated superannuation fund or ADF may only give a charge over, or in relation to, an asset of a fund, if certain requirements are met. One of these requirements is that the fund must have in place a risk management statement and the investment to which the charge relates must be made in accordance with the risk management statement.

Item [20] of Schedule 1 of the Regulations changes the name of a 'risk management statement' prepared under regulation 13.15A to be a 'derivatives risk statement'. The purpose of this amendment is to avoid any potential confusion between the term 'risk management statement', as it was previously designated, and a 'risk management strategy' prepared under section 29H or 'risk management plan' prepared under section 29P.

ITEM [21] - AFTER SCHEDULE 5

New Schedule 5 - Net Tangible Assets

Under section 26 of the SIS Act, APRA may only approve an applicant to become an approved trustee if it meets certain minimum capital requirements. In establishing the minimum capital requirements for approved trustees, section 26 makes reference to the net tangible assets of the trustee. Subsection 26(7) provides for the regulations to specify a meaning of net tangible assets for the purposes of section 26.

As noted above, Items [1] and [2] of Schedule 1 of the Regulations amend regulation 3.03 to provide, for the purposes of section 26, the meaning of net tangible assets given in Schedule 5.

Item [21] of Schedule 1 of the Regulations inserts a new Schedule 5 to the Principal Regulations. Schedule 5 provides a meaning of net tangible assets that is consistent with the meaning of net tangible assets that is already established in approved trustees' instruments of approval.

SCHEDULE 2       AMENDMENTS COMMENCING 1 JULY 2006

ITEMS [1] AND [2]

Removal of references regarding Approved Trustees

Section 121A of the SIS Act makes it an offence for a person to be, or act as, a trustee of a superannuation entity that is a superannuation fund with fewer than five members that is not a SMSF unless the person is an approved trustee. The Superannuation Safety Amendment Act 2004 (SSA Act) repeals section 121A at the end of the licensing transition period (30 June 2006). At that time, the arrangements for trustee approval will be replaced by the new RSE licensing regime.

Item [1] of Schedule 2 of the Regulations amends subregulation 1.04AAA(3) by removing the reference to section 121A. Subregulation 1.04AAA(3) provides an interpretation of the definition of 'member' for the purposes of subsection 17A(5) and section 121A of the SIS Act. This definition will continue to be relevant for subsection 17A(5) of the SIS Act as it relates to SMSFs. SMSFs are not affected by either of the trustee approval or trustee licensing regimes. However, the reference to section 121A will become redundant at the end of the licensing transition period, as section 121A will be repealed by the SSA Act.

Item [2] of Schedule 2 of the Regulations also amends subregulation 1.04AAA(5) to remove the reference to section 121A. Subregulation 1.04AAA(5) provides a further interpretation of the definition of 'member' for the purposes of subsection 17A(5) and section 121A of the SIS Act. The reference to section 121A will become redundant at the end of the licensing transition period, as section 121A will be repealed by the SSA Act.

ITEM [3] - REGULATIONS 3.02 AND 3.03

Repeal of Application Fees and Net tangible Assets for Approved Trustees

Part 2 of the SIS Act contains the requirements to be met by a trustee under the trustee approval regime. The SSA Act repeals Part 2 of the SIS Act at the end of the licensing transition period (30 June 2006). At that time, the arrangements for trustee approval will be replaced by the new RSE licensing regime.

Paragraph 23(2)(c) of the SIS Act requires the trustee to pay an application fee of the prescribed amount upon applying for approval under this regime. Regulation 3.02 prescribes an amount of $2,000 as the application fee for the purpose of this paragraph.

Under section 26 of the SIS Act, APRA may only approve an applicant to become an approved trustee if it meets certain minimum capital requirements. Subparagraphs 26(1)(b)(i) and (ii) and subsection 26(1A) of the SIS Act require a trustee to demonstrate access to net tangible assets or an approved guarantee of an amount prescribed by the regulations. Regulation 3.03 prescribes an amount of $5 million for the purposes of those provisions.

Item [3] of Schedule 2 of the Regulations repeals regulation 3.02 because, at that time, the Regulator will no longer be able to accept an application under the trustee approval regime and therefore, the application fee will be redundant.

Item [3] of Schedule 2 of the Regulations also repeals regulation 3.03 because, at that time, the Regulator will no longer be able to approve an application under the trustee approval regime and therefore, the minimum capital requirements that must be met in order to obtain approval will be redundant.

ITEM [4] - SUBREGULATION 4.10A(1)

Repeal of Transitional Arrangements regarding Acquisition of Units in a PST

Item [4] of Schedule 2 of the Regulations amends regulation 4.10A, inserted by Item [5] of Schedule 1.

The amendment to regulation 4.10A requires, from the end of the licensing transition period, a PST to be registered under Part 2B of the SIS Act before a trustee of the PST can offer ownership of units in the PST. This amendment removes the transitional arrangements in Item [5] of Schedule 1 that allows an approved trustee of a PST that had not been registered under Part 2B to continue to offer ownership of units in the PST during the licensing transition period.

ITEM [5] - SUBREGULATION 4.11A(1)

Repeal of Transitional Arrangements regarding Acceptance of Deposits with an ADF

Item [5] of Schedule 2 of the Regulations amends regulation 4.11A, inserted by Item [6] of Schedule 1.

The amendment to regulation 4.11A requires, from the end of the licensing transition period, an ADF to be registered under Part 2B of the SIS Act before a trustee of the ADF can accept deposits with the ADF. This amendment will remove the transitional arrangements in Item [6] of Schedule 1 that allow an approved trustee of an ADF that had not been registered under Part 2B to continue to accept deposits with the ADF during the licensing transition period.

ITEMS [6] TO [9]

Repeal of Transitional Arrangements regarding Transfers and Rollovers

Items [6] to [9] of Schedule 2 of the Regulations amend the transitional amendments to regulations 6.28 and 6.29 (refer to Items [8] to [11] of Schedule 1).

The amendment to regulations 6.28 and 6.29 requires, from the end of the licensing transition period, a regulated superannuation fund or ADF to be registered under Part 2B of the SIS Act before a trustee of the regulated superannuation fund or ADF can accept transfers or rolled over benefits. This amendment removes the transitional arrangements in Items [8] to [11] of Schedule 1 that allow a trustee of a regulated superannuation fund or ADF that had not been registered under Part 2B to continue to accept transfers or rolled over benefits to the regulated superannuation entity or ADF during the licensing transition period.

ITEM [10] - SUBREGULATION 7.03A(1)

Repeal of Transitional Arrangements regarding Contributions

Item [10] of Schedule 2 of the Regulations amends regulation 7.03A, inserted by Item [12] of Schedule 1.

The amendment to regulation 7.03A requires, from the end of the licensing transition period, a regulated superannuation fund to be registered under Part 2B of the SIS Act before a trustee of the fund can accept contributions to the regulated superannuation fund. This amendment removes the transitional arrangements in Item [12] of Schedule 1 that allow a trustee of a regulated superannuation fund that had not been registered under Part 2B to continue to accept contributions to the fund during the licensing transition period.

ITEM [11] - SUBREGULATION 10.07(1)

Repeal of Transitional Arrangements regarding Eligible Rollover Funds

Item [11] of Schedule 2 of the Regulations amends the transitional amendments to regulation 10.07 (refer to Items [17] and [18] of Schedule 1).

The amendment to regulation 10.07 requires, from the end of the licensing transition period, an ERF to be registered under Part 2B of the SIS Act before a trustee of the ERF can accept rollovers to the ERF. This amendment removes the transitional arrangements in Items [17] and [18] of Schedule 1 that allow a trustee of an ERF that had not been registered under Part 2B to continue to accept rollovers to the ERF during the licensing transition period.

ITEM [12] - SCHEDULE 5

Repeal of Schedule 5 - Net Tangible Assets

Part 2 of the SIS Act contains the requirements to be met by a trustee under the trustee approval regime. The SSA Act repeals Part 2 of the SIS Act at the end of the licensing transition period (30 June 2006). At that time, the arrangements for trustee approval will be replaced by the new RSE licensing regime.

Under section 26 of the SIS Act, APRA may only approve an applicant to become an approved trustee if it meets certain minimum capital requirements. In establishing the minimum capital requirements for approved trustees, section 26 makes reference to the net tangible assets of the trustee. Subsection 26(7) provides for the regulations to specify a meaning of net tangible assets for the purposes of section 26.

As noted above, Items [1] and [2] of Schedule 1 of the Regulations amend regulation 3.03 to provide, for the purposes of section 26, the meaning of net tangible assets given in Schedule 5. Item [21] of Schedule 1 inserts Schedule 5 of the SIS Regulations. Schedule 5 provides a meaning of net tangible assets that is consistent with the meaning of net tangible assets that is already established in approved trustees' instruments of approval.

Item [12] of Schedule 2 of the Regulations repeals Schedule 5 at the end of the licensing transition period. With the removal of Part 2 of the SIS Act at that time, the definition of net tangible assets in Schedule 5 will no longer be applicable.