Welcome to Issue 30 of the FSC Policy Update – a fortnightly member briefing on the main legislative and regulatory changes across the financial services industry. In this issue, the FSC team analyses requests for regulatory relief and waiver relating to the impact of COVID-19, Your Super, Your Choice and Enhancements to Unfair Contract Term Protections.
The FSC team is actively focused on triaging a number of issues across every portfolio in financial services, including but not limited to – writing to every state government and territory requesting that financial services be defined as an “essential service”; holding regular, often daily meetings with Government, regulators and agencies to (a) inform them of urgent and emerging market issues and (b) requesting relief and waiver from specific legislative and regulatory initiatives and sharing information with peer industry association colleagues in NZ and the UK, and here at home. Thanks again to those highly engaged members who understand the value of their industry association as a swift and well-connected conduit to decision-makers during this COVID-19 emergency. And while most of the BAU handbook has been shelved in the past fortnight, we have managed to deliver a comprehensive submission on Design and Distribution Obligations (DDO), among other things.
To share any relevant feedback with the FSC about this issue, please email the team.
Sally Loane, FSC CEO
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Click on the topic of interest below to read more
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Parliament sitting on Wednesday 8 April
Financial Services as an essential service
Request for regulatory relief relating to COVID-19
Design and Distribution Obligations (DDO)
ASIC and APRA letter to trustees
Early release of superannuation
Mental Health & Life Insurance Roundtable
Industry letter to ASIC REP 633
Enhancements to Unfair Contract Term Protections
Relief for tax (financial) advisers
The Financial Adviser Standards and Ethics Authority (FASEA) developments
Call for further submissions to the Senate’s Fintech Inquiry
Representations to the Minister for Home Affairs
Regulator and key stakeholder engagement during COVID-19
ASIC Derivative Transaction Rules (Reporting) 2013 (the Rules) Time-Limited Relief
Ministerial power to exempt or modify obligations under the Corporations Act
ASIC measures in response to COVID-19
Efficiently, honestly and fairly in the Federal Court
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PARLIAMENT, LEGISLATION AND REGULATION
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Parliament sitting on Wednesday 8 April
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Federal Parliament is sitting again this Wednesday 8 April, to consider legislation relating to the response to COVID-19, particularly the JobKeeper policy announced on 30 March. As with the previous sitting on 23 March, there will be a minimal number of MPs physically going to Canberra for Parliament, and the Parliament will consider only the urgent issues and not other legislation currently before Parliament.
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Financial Services as an essential service
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The FSC wrote to all the State and Territory Premiers/Chief Ministers requesting that the businesses represented by the FSC (superannuation funds, fund managers, advice licensees and life insurers) be treated as essential services if there is further tightening of the rules about businesses that are able to operate. The FSC has received feedback from several jurisdictions that thanked the FSC for its representations and stated the States/Territories are very mindful of the issues raised by the FSC.
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Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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Request for regulatory relief relating to COVID-19
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The FSC wrote to the Minister for Home Affairs, ASIC, APRA, AFCA and the ATO requesting regulatory relief for FSC members as a result of COVID-19, as our members prioritise the operations of their businesses and focus on assisting their customers and clients. This letter followed media releases announcing ASIC and APRA were reprioritising work as a result of COVID-19.
- The release by the Council of Financial Regulators is here.
- The ASIC release is here.
- The APRA release is here.
The FSC has received responses from APRA, ASIC and AFCA thanking the FSC for writing and indicating they are working on changes to priorities as a result of COVID-19. The FSC will maintain dialogue with the regulators.
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Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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On 30 March, the Prime Minister announced a JobKeeper payment to help businesses affected by COVID-19 to retain staff. The payment for eligible businesses will be $1,500 per fortnight per employee for up to 6 months. Employers will be eligible if they have turnover less than $1 billion and turnover is reduced by more than 30% (relative to last year); or if they have turnover more than $1 billion and turnover is reduced by more than 50%. More details are here.
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Design and Distribution Obligations (DDO)
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The FSC’s submission on ASIC’s draft regulatory guide on DDO was submitted on 1 April after significant member input. Thank you to those who participated.
The submission noted the impact of COVID-19 on the economy, and noted the public commitments from the Government, ASIC and other financial regulators to provide regulatory relief in this current period.
With this in mind, the key DDO issues raised in the submission, were as follows:
- A request for facilitative compliance once the DDO regime commences, particularly with the difficulties and changing priorities financial services firms are facing in the context of the COVID-19 pandemic.
- The DDO regime will mean a substantial increase in information required of consumers, particularly for products issued direct to consumers.
- Further clarity is needed on how to collect this information so that individuals are not left with the impression their personal situation has been considered and hence that personal advice has been given.
- Further clarity is also requested on how to design consumer interactions to ensure distribution is consistent with Target Market Determinations (TMDs), for example whether, and when, knockout questions should be used.
- Issues with how a TMD should be approached for superannuation products, particularly how changes in superannuation interests, such as insurance arrangements and investment choices, should be treated.
- Requesting exemptions from the DDO regime for:
- Issues of superannuation interests that are not chosen by the member (eg successor fund transfers, reversionary benefits, and family law splits); and
- superannuation trustees relating to employer default products, in addition to the existing MySuper exemption.
- The need to extend the DDO exemption relating to personal advice to also cover dealings (particularly by platforms) following financial advice from a non-associated adviser.
- The need for clarity about how DDO applies to exchange traded products.
- A request that ASIC remove requirements for issuers to supervise and monitor distributors.
- Can ASIC’s support for a consumer-centric approach by issuers and distributors extend to the DDO regime avoiding approaches that produce poor customer outcomes?
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Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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SUPERANNUATION
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ASIC and APRA letter to trustees
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On 1 April, APRA and ASIC wrote to superannuation trustees in relation to their response to the COVID-19 pandemic.
The letter is intended to provide guidance to assist trustees in meeting their obligations to members in the current environment. Both regulators also published FAQs in conjunction with the letter.
The letter includes guidance in relation to regulator expectations on issues including liquidity, member communications, and business as usual activity.
The FSC will continue to engage closely with the regulators over the coming months to ensure industry-level issues can be addressed as they arise.
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Early release of superannuation
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Following the Government’s announcement on 22 March that it would introduce an additional avenue for the early release of superannuation in response to the current pandemic, the ATO has published a range of materials relating to the development and implementation of the scheme, which can be found on its website.
AUSTRAC has also announced it will introduce a Rule to ensure funds are not required to conduct additional AML/CTF customer verifications. See the AUSTRAC announcement here.
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APRA has announced plans to change the timelines relating to the Data Transformation project in light of the COVID-19 pandemic.
APRA has advised that the Phase 1 data collection will be deferred by one year, to September 2021. During the deferral, APRA plans to continue working through consultation on the expanded data collection for choice superannuation products.
The FSC will continue to engage with APRA on key issues in relation to the data initiative.
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Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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On Friday 20 March, the Senate Economics Legislation Committee published its report on the Treasury laws Amendment (Your Superannuation, Your Choice) Bill 2019.
The FSC’s Jane Macnamara and Michael Potter appeared at the Committee hearing on 9 March.
The timing of the Bill is now unknown given Parliament is not sitting in accordance with its regular schedule.
The Committee recommended:
- A review be conducted two years after implementation to understand the impact on defined benefit funds.
- The Government consider other changes suggested to improve the superannuation system.
- Passage of the Bill.
In a dissenting report, Labor recommended:
- Amendments be adopted to safeguard defined benefit funds.
- Amendments be made to include a provision allowing workers to bargain for a single fund or set of funds, where it is determined by the Fair Work Commission to be in their best interests.
- Passage of the bill subject to 1&2.
Senator Patrick recommended:
- Passage of the Bill with amendments.
- An amendment to require a formal ‘dashboard’ and ‘heatmap’ regime to inform workers of their super choices.
- An amendment to include a legislative review by APRA after two years into the effect of the Bill on defined benefit schemes.
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Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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LIFE INSURANCE
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Mental Health & Life Insurance Roundtable
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On 7 April, the FSC will be hosting a roundtable between life insurance industry and mental health industry stakeholders. Held biannually since 2017, this will be the sixth roundtable and the first held virtually. Its purpose is to build the relationship between the two groups and progress common goals with respect to mental health in life insurance.
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Industry letter to ASIC REP 633
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The FSC has written to ASIC on behalf on the industry to outline the actions and expectations that members would have difficulty meeting either due to an action being unachievable for life insurers or the expectation not being proportionate to the consumer harm it is trying to address. Relevant members who are interested in receiving a copy of this letter are requested to get in touch.
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Enhancements to Unfair Contract Term Protections
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The FSC has lodged a submission in response to Treasury’s consultation for a review of these new protections for small business contracts (UCT Review). The submission focussed on the relevant points to life insurance which included the proposed legality and penalties and the rebuttal presumption.
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Please contact Aidan Nguyen for more information.
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Work on Code 2.0 continues to progress with several meetings held including with ASIC and a number of consumer groups to better understand how the approach taken on enforceability and discuss the approach going forward on seeking ASIC approval under the new enforceable code model. A number of working groups will be meeting in the coming week to discuss particular issues relating to claims, enforcement, sanctions and vulnerable consumers.
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Please contact Jamie Kennedy for more information.
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ADVICE
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The FSC has been continuing to engage the Government and regulators on issues relating to financial advice. This is to ensure that industry and Government’s collective efforts are firmly focused on the issues of priority as Australia unites against COVID-19. Much of this advocacy has been to seek deferral of non-essential work.
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Relief for tax (financial) advisers
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The Tax Practitioners Board (TPB) recently has announced support measures for tax (financial) advisers (TFAs) as the impact of the COVID-19 is felt. This includes:
- A temporary waiver of annual declarations for some practitioners and with certain requirements
- Lifting of the 25% cap for relevant technical/professional reading activity until 30 September 2020 for practitioners who explore and undertake online CPE offerings and keep their log-books up to date. All other elements of CPE requirements continue to apply: the number of CPE hours a TFA must take over three years, the minimum number of CPE hours they must take annually, undertaking activities relevant to what the TFA is registered to provide.
For more information see here. The FSC actively engages the TPB on behalf of its members. Please get in touch if you are seeking help here.
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The Financial Adviser Standards and Ethics Authority (FASEA) developments
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- FASEA last week published an announcement regarding approval of courses additional recognised prior learning (RPL), link and approved degrees, link. All standards are available here.
- The Government has reappointed Professor Mark Brimble and Dr. Simon Longstaff AO as part-time directors of FASEA for a further three-year period commencing from 11 April. Full media release is available here.
- The FSC has met with FASEA to discuss the Guidance on the Code of Ethics and ongoing specific issues as to it clarity and practicality. The FSC through the working group process will continue to engage FASEA on these matters.
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Call for further submissions to the Senate’s Fintech Inquiry
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A call for further submissions to the Fintech inquiry has been sought by the Senate Select Committee for Financial Technology and Regulatory Technology as a result of the unfolding pandemic. Submissions for this are due 10 April. For more information please visit see here.
The FSC submitted to the inquiry in January. Its submission is available here.
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The FSC will release a report on the Future of Advice later this year. It will look at the need, value and model of advice. It will also look at long-term issues impacting accessibility and affordability. Hear more from the FSC's Policy Manager (Advice), Zach Castles, here.
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Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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TAX
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- As noted in the regulation update section, the FSC wrote to the ATO requesting a deferral of ATO actions currently underway, including:
- Deferring the implementation of version 13 of the Annual Investment Income Report
- In response to the Burton v Commissioner case, relating to foreign tax credits, not applying the decision retrospectively to managed investments, applying the decision narrowly, particularly so that changes to the AIIR and SDS are minimal, and applying the decision so it does not result in over-taxation of foreign capital gains.
- Postpone current ATO reviews, including top 1000 and top 100 reviews, or provide substantially longer for taxpayers to respond.
- Defer compliance date for changes to SMSF rollovers
- Provide deadline flexibility for processing ATO release authorities, particularly commutation authorities.
- Provide administrative and compliance relief for measures in the Miscellaneous Amendments Bill, particularly if the start date of the measures are not postponed.
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- The FSC hosted a meeting of members to discuss the tax issues relating to COVID-19. Issues discussed included:
- The ATO will be shortly making a decision about timing of the existing and upcoming streamlined assurance reviews (SARs).
- In relation to the CGT rollover relief for merging superannuation funds (successor fund transfers or SFTs), the Government now has a power to postpone the sunsetting of this relief, which is currently due to end on 1 July.
- The significant market movements are meaning managed fund cash distributions could be significantly different from attributed income for tax purposes. This raises various tax issues which managed funds need to look at carefully.
- Substantial redemptions from funds may mean some funds may fail the widely held test. The FSC is planning to ask the ATO to provide targeted industry-wide relief from the widely held test.
- For early release of superannuation, members noted this may cause issues for funds that are currently undergoing SFTs.
- Some managed funds are considering early cut-off in distributions. The FSC will raise this issue with the ATO.
- The business turnover threshold for access to the JobKeeper payment may be based on the GST definition of turnover, and exclude turnover relating to input taxed supplies. This will be clarified when the legislation for the JobKeeper payment is presented to Parliament – this is scheduled to occur on Wednesday 8 April.
- Another meeting on this issue may be called if there are significant updates.
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State Stamp Duties
- A meeting of the FSC Insurance Duty working group was held and discussed State duty relief relating to COVID-19; the impact of remediation on State insurance duties; and potential guidance from Revenue NSW relating to life insurance duties.
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Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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INVESTMENTS
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Representations to the Minister for Home Affairs
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The FSC wrote to Minister Dutton MP outlining the uncertainty the industry is facing in relation to resourcing and capacity.
In order to assist industry in managing resourcing and maintain critical services for customers, the FSC asked that the Department of Home Affairs assist by providing:
- deferrals of non-essential work currently underway; and
- relief in relation to reforms due to be implemented over the next 6-12 months.
The specific policy requests were:
Significant Investor Visa (SIV)
Defer altering the SIV program outside of improving its integrity.
Modern Slavery
Request to push back all the reporting dates by at least 6 months to 1 year.
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Please contact Vincent So for more information.
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Regulator and key stakeholder engagement during COVID-19
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The FSC continues to have regular catch-ups with ASIC and other key stakeholders during COVID-19, with regulator and industry engagement of key importance during this period.
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LEGAL
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ASIC Derivative Transaction Rules (Reporting) 2013 (the Rules) Time-Limited Relief
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ASIC has granted conditional time-limited relief until 30 September 2022 from two elements of the Rules, relating to trade identifiers and New Zealand banks reporting entity information.
The ASIC Corporations (Amendment) Instrument 2020/242 instrument was registered on the Federal Register of Legislation on 27 March. Please see the ASIC Exemption relief for reporting entities homepage for access to the instrument and explanatory statement.
In broad terms, the instrument gives conditional relief to Reporting Entities:
- from the requirement to report a ‘universal transaction identifier’ or a ‘single transaction identifier’ (trade identifier relief) where an alternative trade identifier is reported;
- that are New Zealand registered banks from the requirement to report Entity Information (entity identifier relief) for transactions with smaller NZ companies in certain circumstances where an internal identifier is reported.
The trade identifier relief introduces a new condition in response to the recent proposals of the Commodity Futures Trading Commission (CFTC) to require use of a unique transaction identifier (UTI) from 31 December and to switch to T+1 reporting at a date yet to be determined.
The condition requires that a UTI determined under future provisions of the CFTC Rules must also be reported as a UTI under the ASIC Rules. The condition addresses CFTC/ASIC cross-jurisdictional UTIs by requiring that the CFTC Rules for UTI generation prevail. Given that the proposed CFTC Rules have not come into force, the condition applies where a Reporting Entity reasonably believes that a UTI must be reported under the CFTC rules.
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Ministerial power to exempt or modify obligations under the Corporations Act
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The Coronavirus Economic Response Package Omnibus Act 2020 came into force on 24 March. Under Schedule 8 of that Act, a new Part 9.11 was inserted into the Corporations Act giving the Treasurer very broad powers to make exemptions from or modifications to any provision of the Corporations Act. The Treasurer may exercise this power:
- if an exemption or modification is necessary or appropriate to facilitate the continuation of business in circumstances relating to COVID-19 or to mitigate COVID-19’s economic impact; or
- where it would not be reasonable to expect compliance with a provision because of the impact of COVID-19.
Mandatory conditions may be attached to exemptions or modifications. These powers can only be used until 25 September and any exemption or modification made may last up to six months.
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ASIC measures in response to COVID-19
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As discussed elsewhere in this Update, ASIC has announced a recalibration of regulatory priorities and that it has suspended all non-essential enforcement activity until at least 30 September. ASIC also intends to provide accommodation, relief or waivers from regulatory requirements where necessary. See generally ASIC 20-070MR.
ASIC will focus its regulatory efforts on challenges created by the COVID-19 pandemic. Until at least 30 September, ASIC will also give priority to matters where there is a risk of significant consumer harm, serious breaches of the law, risks to market integrity and time-critical matters.
Other points to note here (see ASIC 20-068MR):
- ASIC has taken a no-action position if AGMs due to be held by 31 May are held virtually or are postponed for two months (until the end of July);
- ASIC also has said that it
is closely monitoring developments that may affect financial reporting, talking to market participants and auditors, and considering possible impacts and responses. At present, there appear to be no widespread indications of any significant issues for entities in meeting their full-year and half-year financial reporting obligations at 31 December 2019.
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Efficiently, honestly and fairly in the Federal Court
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In ASIC v AGM Markets Pty Ltd (in liq) (No 3) [2020] FCA 208 Beach J of the Federal Court made a number of interesting observations in relation to the obligation of an Australian financial services (AFS) licensee under s 912A(1)(a) of the Corporations Act to do all things necessary to ensure that the financial services it provided under its AFSL were provided efficiently, honestly and fairly.
The following points were made by his Honour-
- The expression is a compendious indication requiring a licensee to go about their duties efficiently having regard to the dictates of honesty and fairness, honestly having regard to the dictates of efficiency and fairness, and fairly having regard to the dictates of efficiency and honesty;
- The words “efficiently, honestly and fairly” connote a requirement of competence in providing advice and in complying with relevant statutory obligations;
- The word “efficient” refers to a person who performs his duties efficiently;
- It is not necessary to establish dishonesty in the criminal sense;
- “honestly” when used in conjunction with the word “fairly” tends to give the flavour of a person who not only is not dishonest, but also a person who is ethically sound;
- Fairness is to be judged having regard to the interests of both parties, i.e., AFSL holder and consumer. Beach J said in the regard-
This section is not a back door into an “act in the [best] interests of” obligation. Other specific provisions of the Act nicely fulfil that role. There is nothing to indicate that s 912A(1)(a) was to have that bias.
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As noted above, AUSTRAC will introduce a rule supporting the early release of superannuation in the specified circumstances without requiring customer ID and verification.
AUSTRAC also has published guidance to assist reporting entities comply with their customer verification requirements during the COVID-19 pandemic: The guidance outlines the flexibility that exists in the AML/CTF Rules including the ability to use alternative proof of identity processes and to accept scanned copies or photographs of reliable and independent documents to facilitate customer verification.
AUSTRAC also has indicated to the FSC that it is working on a package of measures that is likely to encompass more guidance and Rule changes to provide reporting entities with some clarity and relief.
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