Do You Need an AFSL to Provide Superannuation Trustee Services? Understanding the Licensing Requirements

Introduction

In Australia’s complex financial system, providing a superannuation trustee service is now defined as a financial service under the Corporations Act 2001 (Cth). Consequently, any entity that operates a registrable superannuation entity as trustee must be aware of the Australian Financial Services Licence (AFSL) licensing requirements. This new financial service designation means that businesses engaging in these activities may require to hold an AFSL.

This guide aims to clarify the requirement to hold an AFSL for those intending to provide a superannuation trustee service. It will offer essential insights into the AFS licensing framework and explain the requirements that apply under the Corporations Act 2001 for businesses authorised to provide a superannuation trustee service. Understanding these licensing requirements is crucial for RSE licensees and other service providers in the superannuation fund sector.

Defining “Superannuation Trustee Service” as a Financial Service

Broad Scope of Superannuation Trustee Services

The concept of a “superannuation trustee service” is defined broadly within the reforms. It is designed to encompass all actions essential to running a Registrable Superannuation Entity (RSE) as a trustee. This expansive definition ensures comprehensive coverage of the trustee’s role in managing superannuation entities.

This includes all stages of interaction and transactions with members and other stakeholders. The aim is to regulate the entirety of operating a superannuation entity under the umbrella of this new financial service.

Activities Included Within Superannuation Trustee Services

The definition of “superannuation trustee service” is intentionally broad, encompassing a wide array of activities. This is to ensure that all key aspects of operating an RSE are included under this financial service category.

Examples of activities captured under the umbrella of ‘superannuation trustee services’ include:

• Product design and development: This covers the initial creation and ongoing refinement of superannuation products offered to members.
• Marketing to employers and consultants: Encompasses efforts to promote superannuation products to businesses and advisory services.
• Investment selection: Includes the crucial process of choosing and managing investments for the superannuation fund.
• Fee charging: Relates to the establishment and application of fees for fund management and member services.
• Death benefit nominations: Covers the handling of member instructions regarding the distribution of death benefits.
• Oversight of service providers: Includes the important task of monitoring and managing external entities that provide services to the superannuation fund.
• Insurance claims handling: Encompasses the processes involved in managing and settling insurance claims made by members, noting the separate financial service for ‘claims handling and settling service’.

Why an AFSL is Required for Superannuation Trustee Services

Legislative Basis for AFSL Requirement

The obligation to hold an AFSL in order to provide superannuation trustee services originates from the reforms introduced by the Financial Sector Reform (Hayne Royal Commission Response) Bill 2020. These reforms established “superannuation trustee service” as a new financial service under the Corporations Act 2001. Consequently, entities operating a Registrable Superannuation Entity in their role as a trustee are now legally required to hold an AFSL with specific authorisation to provide this financial service.

This legislative update was a direct response to the recommendations of the Financial Services Royal Commission. The introduction of the new financial service category reflects the government’s commitment to strengthening regulatory oversight, enhancing trustee accountability, and improving consumer protection within the superannuation industry. By requiring AFSL authorisation, these measures aimed to address misconduct issues identified during the Royal Commission and to promote higher standards of service delivery for superannuation members.

Extending AFS Licensing Obligations to RSE Licensees

This reform significantly expands the scope of AFS licensing obligations for RSE licensees, bringing previously unregulated trustee activities under the oversight of the Corporations Act 2001. Before the reforms, superannuation trustees were generally required to hold an AFSL only when engaging in activities such as:

• Providing financial product advice,
• Dealing in financial products, or
• Dealing specifically in superannuation products.

However, with the introduction of the “superannuation trustee service” as a distinct financial service, the AFS licensing framework now extends to encompass the entire range of activities performed by RSE licensees in their role as trustees of superannuation entities. This includes:

• Activities such as product design, marketing, and investment decision-making;
• Administrative processes like fee applications, handling of member communications, and death benefit nominations; and
• Critical trustee functions, such as oversight of external service providers and claims handling.

All of these activities are now subject to AFS licensing requirements, meaning superannuation trustees must comply with the legal, operational, and conduct obligations imposed by the Corporations Act 2001. This reform aligns trustee responsibilities with the regulatory oversight applied to other financial services, ensuring that trustees act efficiently, honestly, and fairly—key principles underpinning the AFSL regime.

This expansion effectively makes nearly all functions central to operating a superannuation entity as trustee subject to ASIC’s regulatory oversight. By doing so, the reforms aim to promote greater accountability among superannuation trustees and provide additional protections to superannuation members by enforcing robust compliance measures across all facets of superannuation fund management.

Deemed Authorisation for Existing and New Entrants

Automatic Authorisation for Existing AFS Licensees

RSE licensees holding an AFS licence with authorisation to deal in superannuation products before 1 January 2021 benefited from automatic deemed authorisation. This ensured these licensees could continue their services uninterrupted as the new licensing requirements took effect from 1 January 2021. The process specifically targeted public offer superannuation trustees with existing AFS licences, eliminating the need for a separate application to ASIC for a licence variation. Moreover, from 1 July 2021, all RSE licensees were required to possess an AFS licence authorising them to deal in superannuation and provide superannuation trustee services.

Authorisation for Pending AFS Licence Applications

RSE licensees with pending applications for an AFS licence authorisation to deal in superannuation products before 1 January 2021 were subject to specific provisions for deemed authorisation. The conditions under the Corporations Regulations 2001 included:

• Lodging applications by 30 April 2021 in compliance with section 913A of the Corporations Act.
• Securing approval from ASIC for these applications on or after 1 January 2021 while also holding an RSE licence.

These arrangements ensured that businesses in the process of obtaining necessary authorisations were not penalised during the regulatory shift. Additionally, it extended to RSE licensees requesting a variation of their AFS licence conditions to include dealings in superannuation products before 1 January 2021. If these variation requests were approved by ASIC after this date, deemed authorisation was granted from the date of approval.

Relief from Dealing Authorisation for Superannuation Trustees

ASIC supported the transition further by granting relief from dealing authorisations for superannuation trustees, including non-public offer fund trustees, ensuring consistent regulatory treatment with public offer superannuation trustees. Through the ASIC Corporations (Amendment) Instrument 2021/550, the following measures were implemented:

• An exemption was established for both public and non-public offer trustees, removing the need for a dealing authorisation under their AFS licence when operating a registrable superannuation entity.
• This exemption was limited to dealings in financial products, excluding interests in the entity itself, and applied automatically without requiring action from trustees.

This relief covered an 18-month period, concluding on 31 December 2022, providing time for ASIC to assess its impact and consult on longer-term regulations. Following this review, ASIC would decide on whether to remove, maintain, or modify this relief, reducing operational compliance burdens for eligible trustees during the transitional phase.

Conclusion

In summary, the provision of superannuation trustee services is now recognised as a financial service, necessitating entities operating a registrable superannuation entity as a trustee to hold an AFSL. This regulatory change, stemming from the Financial Sector Reform (Hayne Royal Commission Response) Bill 2020, mandates that RSE licensees obtain specific authorisation to provide superannuation trustee services, ensuring comprehensive oversight by ASIC. This requirement significantly broadens the scope of AFS licensing, encompassing a wide array of trustee activities previously outside direct regulatory purview, thereby enhancing accountability and consumer protection within the superannuation industry.

Navigating the complexities of AFS licensing for superannuation trustee services can be challenging, but expert guidance is readily available. AFSL House stands ready to assist your organisation in understanding and meeting these new regulatory obligations. To ensure your business remains compliant and operates efficiently within the updated legal framework, contact our experienced team today and explore our tailored solutions designed to support your AFSL needs in the superannuation sector.

Frequently Asked Questions