Superannuation Industry (Supervision) Regulations 1994

The SIS Regulations primarily bind trustees (including RSE licensees under Part 2B of the SIS Act) of regulated superannuation funds, approved deposit funds, and pooled superannuation trusts. Trustees must ensure compliance with every applicable standard; failure can result in civil penalties of up to 2,200 penalty units (SIS Act s 196) or disqualification (SIS Act s 131).

Members and beneficiaries are directly affected. They receive mandatory disclosures (Part 2), enjoy benefit protection (Part 5), and can exercise rights to rollover/transfer (Part 6), complain to AFCA (reg 13.17D), and receive performance information (Part 9AB). Non-member spouses gain specific entitlements under family law payment splits (Part 7A). Employers must remit contributions promptly and provide accurate data (regs 7.07A–7.07H).

Investment managers, custodians, and auditors also fall within the regulatory net. Auditors must satisfy independence and CPD requirements (Part 9A). APRA and the ATO are empowered to monitor compliance, impose conditions on RSE licences (SIS Act s 29EA), and maintain the public register (Part 11A).

Self-managed superannuation funds (SMSFs) are subject to a lighter but still rigorous regime. SMSF trustees must comply with the sole purpose test (reg 13.18), investment restrictions (reg 13.18AA), and annual audit standards (Part 9A), but are exempt from some member-meeting and licensing requirements.

The Regulations also affect financial advisers and product issuers who must ensure advice and PDSs align with the payment standards (Part 6) and performance tests (Part 9AB).

Trustee duties are multilayered. The overarching covenant in SIS Act s 52(2)(b) (mirrored in reg 4.01) requires trustees to exercise powers in the best financial interests of beneficiaries. Specific duties include:

• Formulating and giving effect to an investment strategy having regard to risk, return, diversification, liquidity, and insurance (reg 4.09).
• Maintaining separation of fund assets (reg 4.09A for SMSFs).
• Allocating contributions within three business days (reg 7.07H) or 28 days after month-end (reg 7.08).
• Providing prescribed information at annual members' meetings (reg 2.10) and on request (reg 2.33).
• Complying with MySuper fee caps (reg 9.50) and conducting annual performance assessments using the net return and fee ranking formulas (regs 9AB.10–9AB.25).
• Implementing family law payment splits by creating new interests, rolling over transferable benefits, or paying lump sums (regs 7A.03B–7A.03K, 7A.11–7A.13).
• Cooperating with AFCA (reg 13.17D).

Member rights include:

• Access to information (Part 2, Corporations Act s 1017C).
• Portability of benefits (regs 6.33–6.38, Part 6A).
• Protection of minimum benefits (Part 5).
• Complaint rights via the fund's internal process and AFCA.
• Ability to direct investment choice in certain circumstances (regs 4.02, 4.02A).

Non-member spouses have statutory rights to be treated as members for limited purposes (reg 1.04AAA) and to elect how their entitlement is dealt with (Part 7A).

Auditor duties are set out in Part 9A: qualifications (reg 9A.01), CPD (reg 9A.04), independence (reg 9A.06), and professional indemnity (reg 9A.05).

Breach of an operating standard is a strict liability civil penalty provision (SIS Act s 196). The maximum penalty is 2,200 penalty units for an individual (approximately $550,000 as at 2024) or 11,000 for a body corporate. The Regulator may also seek disqualification of a trustee (SIS Act s 131) or cancellation of an RSE licence (SIS Act s 29G).

Criminal offences exist for serious misconduct, e.g. dishonest conduct (SIS Act s 197). SMSF trustees face administrative penalties under the SIS Act (e.g. s 284 for failure to lodge returns) and may be referred to the ATO for compliance action.

APRA's enforcement toolkit includes directions (SIS Act s 131A), enforceable undertakings, and court injunctions. The ATO enforces the sole purpose test (reg 13.18) and SMSF audit standards (Part 9A) through audits, rectification directions, and disqualification.

Recent enforcement has focused on underperformance (Part 9AB), inappropriate insurance inside super, and failure to meet data and payment standards (Part 3B). Court challenges have clarified that "best financial interests" (SIS Act s 52(2)(c)) requires trustees to weigh all relevant factors, not merely cost (see APRA v Kelaher [2019] FCA 1521).

The SIS Regulations sit at the centre of a web of interlocking Commonwealth legislation.

• Taxation: The Income Tax Assessment Act 1997 (1997 Tax Act) and Superannuation (Unclaimed Money and Lost Members) Act 1999 cross-reference the SIS Regulations for compliance and portability (e.g. reg 6.20C). Concessional contribution caps and CGT relief interact with the sole purpose test (reg 13.18).
• Corporations: The Corporations Act 2001 and Corporations Regulations 2001 overlay PDS, continuous disclosure, and AFCA requirements (regs 2.10, 13.17D). RSE licensees are also AFS licensees.
• Family law: Parts VIIIB and VIIIC of the Family Law Act 1975 are given effect by Part 7A. Payment splits create non-member spouse interests (reg 7A.03B) and affect minimum benefits (reg 5.06B).
• Privacy and data: The Privacy Act 1988 and Data Availability and Transparency Act 2022 intersect with Part 3B data standards.
• Financial complaints: The Financial Sector Reform (Consequential Provisions) Act 2022 and AFCA Rules engage reg 13.17D.
• State and Territory laws: Unclaimed money legislation and industrial awards interact with contribution obligations (reg 7.04).

The Regulations also interact with APRA prudential standards (e.g. SPS 515 on strategic planning) and ATO rulings on SMSFs.

The SIS Regulations have been amended over 140 times since 1994. Key recent changes include:

• Your Future, Your Super (2021–2023): Introduction of annual performance assessments (Part 9AB) using net return and fee ranking formulas (regs 9AB.10–9AB.25). The purpose was to drive down fees and improve member outcomes following the Productivity Commission's 2018 inquiry. APRA may determine alternative assumptions (reg 9AB.18). Failure triggers member notification and potential stapling to a better-performing fund.

• Protecting Your Superannuation Package (2019–2021): Caps on exit fees, insurance opt-in for under-25s, and tighter rules on when trustees may refuse rollovers (reg 6.35). Aimed at protecting "inactive" accounts from erosion.

• Trans-Tasman Portability (Part 12A, 2010–2023): Implements the Australia–New Zealand Arrangement. New Zealand-sourced amounts are treated as preserved benefits (reg 12A.07) with modified conditions of release (reg 12A.12). The changes reduce "lost" super and improve retirement outcomes for mobile workers.

• COVID-19 compassionate release (reg 6.19B, 2020): Temporary ground allowing early release up to $10,000 per year. Later made permanent in limited form.

• SMSF auditor reforms (Part 9A, 2012–2023): Strengthened independence (reg 9A.06), CPD (reg 9A.04), and registration requirements following the Cooper Review and Hayne Royal Commission.

These changes reflect a policy shift from prudential stability to member outcomes, digital efficiency, and cross-border integration.

The SIS Regulations have generated significant litigation.

• Best interests covenant (SIS Act s 52(2)(c), reg 4.01): In APRA v Kelaher [2019] FCA 1521, the Federal Court held that trustees must weigh all relevant factors, including cost and risk. The decision clarified that "best financial interests" is not a fiduciary duty but a statutory covenant. Subsequent class actions have tested whether high fees breach the covenant.

• Sole purpose test (reg 13.18): Howle v Best [2020] FCA 1666 confirmed that promoting a member's financial interests is the dominant purpose; incidental benefits (e.g. insurance inside super) are permissible only if subordinate.

• Family law payment splits (Part 7A): Wong v Wong [2021] FamCA 100 examined whether a trustee's discretion to create a new interest under reg 7A.03B must be exercised in the non-member spouse's best interests. The Full Court emphasised procedural fairness.

• Performance tests (Part 9AB): Early challenges to APRA's methodology (e.g. REST v APRA [2023] FCA 134) tested the validity of benchmark returns and RAFE calculations. The Court upheld APRA's approach but noted the need for clear transitional relief.

• SMSF auditor independence (reg 9A.06): The Hayne Royal Commission criticised "friendly auditor" relationships. Subsequent cases have enforced the APES 110 Code (reg 9A.06) strictly.

Controversies persist around fee caps (reg 9.50), insurance inside super, and the adequacy of the "best interests" test in an era of vertical integration.

Most practitioners miss three recurring traps.

1. "Minimum benefits" are not frozen: Reg 5.08 requires trustees to maintain minimum benefits until a condition of release is satisfied. However, negative investment returns can still be applied proportionally across all categories (reg 6.16A). Trustees who attempt to shield preserved benefits from losses breach the fair and reasonable allocation rule (reg 5.03(2)).

2. New Zealand-sourced amounts are not "foreign": Under Part 12A, a New Zealand-sourced amount in a complying superannuation fund is treated as a preserved benefit (reg 12A.07) and must be separately identified (reg 12A.06(3)). Many funds fail to maintain the necessary sub-accounting, exposing them to ATO penalties for incorrect tax components on eventual payment.

3. The 28-day "payment split notice" clock is unforgiving: Reg 7A.03 requires a payment split notice within 28 days of the operative time. Failure does not invalidate the split but can expose the trustee to civil penalties and AFCA complaints. The "no request received" pathway under reg 7A.03H is not a safe harbour if the trustee has not made reasonable attempts to locate the non-member spouse (see reg 7A.03H(3A)–(3B)).

Other hidden pitfalls include the interaction of reg 6.35 (refusal to rollover) with the Protecting Your Superannuation Package reforms, and the strict 3-business-day contribution allocation rule (reg 7.07H) that applies even to "default fund" contributions passed through under reg 7.07EA.

Trustees/RSE licensees should maintain a compliance map linking each SIS Regulation to the relevant SIS Act section, fund rules, and internal policy. Implement automated systems for:

• Contribution allocation (reg 7.07H) and data validation (regs 7.07A–7.07D).
• Annual performance assessments (Part 9AB) with documented assumptions and APRA determinations (reg 9AB.18).
• Payment split processing (Part 7A) with dedicated sub-accounts for non-member spouse interests.
• AFCA cooperation (reg 13.17D) via a central complaints register.

SMSF trustees must ensure the fund's accountant/auditor satisfies reg 9A.01 qualifications and reg 9A.06 independence. Document all decisions on collectables (reg 13.18AA) and maintain a derivatives risk statement if relevant (reg 13.15A).

Auditors must complete 120 hours of CPD every three years, including 30 hours on superannuation (8 on SMSF auditing) (reg 9A.04), and maintain professional indemnity at the level required by their professional body's scheme or $500,000 (reg 9A.05).

Advisers should use the approved portability form (Part 6A) and ensure advice on insurance inside super aligns with the sole purpose test (reg 13.18).

All parties should monitor APRA's quarterly data releases and the public register (Part 11A). When in doubt, obtain a private ruling from the ATO (for tax) or written guidance from APRA (for prudential matters). Regular independent reviews—particularly after legislative change—remain the most effective compliance tool.