Welcome to Issue 48 of the FSC Policy Update. In 2021, this member briefing on the main legislative and regulatory changes across the financial services industry will be issued monthly.
The new Design and Distribution Obligations (DDO) commence in October this year. I provide an update here on work the FSC is doing to prepare template Target Market Determinations (TMDs).
On Wednesday 17 February, the FSC policy team and I will be outlining the FSC’s policy priorities for 2021. The team will also outline what to expect from the Government on financial services policy, including the looming debate on the Your Future, Your Super reforms, the remaining elements of the Royal Commission package, and the lead up to a likely Federal Election.
Blake Briggs, FSC Deputy CEO
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Click on the topic of interest below to read more
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Design and Distribution Obligations (DDO) update
Your Future, Your Super reforms
SPS 250 Insurance in Superannuation
ASIC letter to trustees regarding AFSL changes
GNGB tests Business Continuity Plan (BCP)
COVID Life Industry Initiatives are coming to an end
REP 675 Default insurance in superannuation: Member value for money
Annual renewal and opt in legislation in Parliament
Green Paper on financial advice
Treasury consults on Technology Neutrality of Treasury Laws
FSC Modern Slavery Guidance Note
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PARLIAMENT, LEGISLATION AND REGULATION
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Design and Distribution Obligations (DDO) update
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The FSC is developing data standards for the transmission of data between product issuers and distributors, including standards for Target Market Determinations (TMDs), complaints, sales outside of target market and significant dealings.
Learn more about the FSC's template TMDs work here:
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In December, ASIC released its final Regulatory Guide (RG) on the DDO regime. The main DDO working group and DDO subgroups have met to consider the RG and continue development of the FSC’s DDO templates for TMDs in light of the RG.
The DDO Life Insurance Working Group met with ASIC to discuss the RG and the FSC’s draft TMD templates for life products. Feedback on the meeting has been provided to members of the DDO working group, and the group will work to incorporate ASIC’s feedback into the TMD.
The FSC templates for wraps, superannuation master trusts and funds management are being amended in light of the final RG. The FSC will shortly organise meetings of the relevant DDO groups with ASIC to discuss these templates and other relevant DDO issues.
The FSC is hosting a member only briefing on the DDO regime, focusing on ASIC’s final RG, on Tuesday 16 February from 11am to 12pm. The presenters are industry experts Harry New and Vince Battaglia from Hall and Willcox. Register here.
The FSC also sought proposals from vendors for a technology solution that would enable the secure transmission of information between product issuers and distributors. In February 2021, the FSC Board considered the potential for the FSC to develop a solution on behalf of members and decided not to proceed with the proposal.
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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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In December and January the FSC held meetings of the Consumer Remediation Working Group to discuss ASIC’s consultation paper on consumer remediation (CP 335).
A submission on the CP is being developed through the Working Group.
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The FSC made a Pre-Budget submission to the Government restating a number of FSC policy requests, including arguing for
- the Government to meet its long-standing commitment to a product rationalisation scheme.
- Address complexities with the superannuation transfer balance cap.
- Provide clarity about the development of the Corporate Collective Investment Vehicle (CCIV).
- Provide target measures to help Australians rebuild superannuation balances.
- Explore the tax deductibility of all financial advice at a capped amount.
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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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Australian Law Reform Commission’s (ALRC) Review of the Legislative Framework for Corporations and Financial Services Regulation
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Resulting from the Government’s response to the Financial Services Royal Commission, the ALRC has been asked to inquire into the potential simplification of laws that regulate financial services in Australia. The review will not recommend specific policy change despite the possible impacts of its recommendations on policy and is technical in nature. The FSC has been engaging the ALRC as it seeks to achieve a more navigable and workable framework for compliance with the law within existing policy settings.
The Terms of Reference sets out the scope of the Inquiry in more detail.
- A first interim report focusing on the appropriate use of definitions in corporations and financial services legislation is due by 30 November 2021;
- A second interim report focusing on regulatory design and the hierarchy of primary law provisions, regulations, class orders, and standards, is due by 30 September 2022;
- A third interim report focusing on potential reframing or restructuring of Chapter 7 of the Corporations Act is due by 25 August 2023;
- A consolidated final report is due by 30 November 2023.
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SUPERANNUATION
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Your Future, Your Super reforms
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In December 2020, the FSC made a submission to Treasury in response to the draft Your Future, Your Super legislation.
The draft package included measures announced in the Federal Budget, including draft legislation relating to:
- ‘Underperformance’ – to enact the performance benchmarking process (but not any details of the benchmark, which we understand will be part of the regulations) and the consequences for underperformance;
- ‘Single Default Account’ – to implement the default once (aka stapling) changes; and
- ‘Best Financial Interests Duty’ – to create the new duty on trustees to act in the best financial interests of members.
It is anticipated the finalised legislation will be introduced into parliament later this month.
Draft regulations are also expected to be released for consultation shortly, and the FSC’s Your Future, Your Super Working Group will convene to provide feedback once they are released.
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SPS 250 Insurance in Superannuation
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Following initial consultation in early 2020, APRA has released an updated draft SPS 250 Insurance in Superannuation for consultation. A draft SPG 250 has also been provided.
The new draft contains some significant edits including updated timing from the previous version. APRA anticipates the new Standard will commence on 1 January 2022.
Submissions on the draft documents are due by 5 March.
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ASIC letter to trustees regarding AFSL changes
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On 20 January, ASIC wrote to superannuation trustees in relation to changes to the licensing regime that have come into effect as part of the Royal Commission response.
These changes mean that, from 1 January 2021, superannuation trustees who are existing Australian financial services licensees authorised to deal in superannuation and who are also RSE licensees regulated by APRA are taken by law to be authorised to provide a superannuation trustee service.
ASIC is automatically updating license documentation to reflect the changes, and aims to have information updated for all trustees by 30 June 2021.
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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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GNGB tests Business Continuity Plan (BCP)
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Late last year, GNGB conducted a successful test of the Superannuation Transaction Network (STN) BCP test exercise.
Participants included Participants included all Gateway Operators together with the ATO. A report on the exercise can be found on the GNGB website.
The event demonstrated a thorough understanding of the plan by all participants, and confirmed that the process to switch to back up solutions is highly robust.
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LIFE INSURANCE
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COVID Life Industry Initiatives are coming to an end
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The Commitment to Frontline Health Workers industry initiative has now come to an end, having been in place until the end of 2020. This commitment, on behalf of participating FSC life insurance member companies, is to ensure that frontline healthcare workers are not prevented from obtaining life insurance cover purely through exposure, or potential exposure to coronavirus.
The COVID TPD Claims Initiative will continue to apply for claims lodged by 31 March 2021 if the person has become disabled as a result of illness or injury between 11 March 2020 and 1 January 2021 inclusive. This initiative is to ensure that if people lose their job, are stood down or have reduced working hours due to COVID-19 this will not affect their total and permanent disability (TPD) cover if they make a claim.
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Please contact Nick Kirwan for more information.
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REP 675 Default insurance in superannuation: Member value for money
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ASIC has released a report on metrics for measuring the value for money that members receive from default insurance offered through superannuation. ASIC has recommended that superannuation trustees reflect on their findings to improve how they measure member outcomes.
This report forms part of ASIC’s broader work on insurance in superannuation.
The link to the full report is available here.
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The draft Life Code 2.0 has been provided to the plain English drafters and we are eagerly awaiting the first draft. The FSC intends to undertake public consultation later this year before submitting the Code for ASIC approval. Further work is being undertaken to understand how the Code will interact with the legislation to make certain provisions of the Code enforceable by ASIC.
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Please contact Jamie This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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Now in its 12th year, the Life Insurance Summit will be delivered on 21 April as a hybrid event – with in person and virtual ticket options available.
The Summit’s overarching theme of ‘Securing the industry’s future’ will influence the conversations of the day, with speakers including; Senator the Hon Jane Hume, Minister for Superannuation, Financial Services and the Digital Economy; Damien Mu, CEO & Director, AIA; Suzanne Johnson, General Manager - Life Insurance, Insurance Division, APRA and Megan Beer, CEO, Resolution Life Australasia & AMP Life, exploring a range of timely topics across a mix of panel discussions, in conversations and keynote addresses.
Register here.
Plus, the Life Insurance Industry Awards will be held on the evening of the Summit at the annual dinner. Get your nominations in now! See more here.
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ADVICE
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Annual renewal and opt in legislation in Parliament
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Legislation implementing recommendations 2.1, 2.2, 3.2 and 3.3 of the Financial Services Royal Commission is before Parliament. The FSC is engaging regularly with Canberra on this issue and the legislation is expected to pass soon. It will provide the statutory footing on which ASIC can prescribe the formats for advice fee consents and independence disclosure.
The Super and Advice Working Group has carriage of this specific issue. Members with questions should contact This email address is being protected from spambots. You need JavaScript enabled to view it. (Policy Manager, Advice) or This email address is being protected from spambots. You need JavaScript enabled to view it. (Senior Policy Manager, Superannuation).
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FSC submits to ASIC’s review of personal advice & reference checking and information sharing protocol
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The following advice-related FSC submissions have been lodged in the past month:
- Our submission on ASIC’s Consultation Paper 332: Promoting access to affordable advice for consumers is available here. The submission builds on solutions to free up access to scaled advice the FSC provided to ASIC in October 2020 seeking that the Review of the Quality of Advice consider the applicability of the safe harbour steps to scaled advice, comprehensive updates to regulatory guidance, and a framework for standardising industry data and holistic education materials for providers to support best practice. See more here.
- The FSC has also submitted on ASIC Consultation Paper 333: Implementing the Royal Commission recommendations: Reference checking and information sharing. It is available here. The FSC advocates the finalise protocol more closely resembles the Australian Banking Association’s protocol that has been in force since March 2017 in the interest of ensuring consistent standards pertaining to the recruitment of authorised representatives and minimise cost and disruption.
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ASIC will conduct round tables as submissions to these consultations are collated. The FSC intends to participate in these and will keep members updated on their outputs.
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Green Paper on financial advice
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The Advice Licensing and Compliance Working Group and Industry Design Working Group have been contributing to the development of Green Paper on financial advice that will be launched in March. Responding to the proposals of Rice Warner’s Future of Advice report, the Green Paper will set out options for reducing cost and red tape and simplifying financial advice. Feedback from stakeholders across the value chain and broader public will be welcome.
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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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TECHNOLOGY
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Treasury consults on Technology Neutrality of Treasury Laws
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Treasury has released a consultation paper: Modernising Business Communications: Improving the Technology Neutrality of Treasury Portfolio Laws. The FSC is developing a draft submission and would welcome feedback from members on how it should contribute.
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TAX
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- The ATO released a discussion paper about reliance on third party data by entities including fund managers. The FSC is developing a submission on the discussion paper.
- The FSC discussed the issues with legislation currently before Parliament to remove the tax deductibility for superannuation funds paying income protection benefits. The FSC is meeting with the ATO to request the ATO provide public guidance indicating that the receipt of income protection benefits by superannuation funds is not assessable income. This ATO guidance would ensure the change is tax neutral for funds.
- The FSC and the Australian Custodial Services Association (ACSA) wrote a letter to the ATO requesting the ATO investigate problems that fund managers were facing in claiming reclaims of Swiss tax, as permitted in the relevant tax treaty.
- The Board of Taxation has released a consultation paper on Capital Gains Tax (CGT) rollovers, which contemplated permitting Attribution Managed Investment Trusts (AMITs) to access a general rollover regime. An FSC submission on the consultation paper is currently being developed by members.
- The ATO released final guidance on the tax treatment of redirected conflicted remuneration for individuals. The FSC provided comments on a draft of the guidance.
- The ATO indicated that it was not planning on releasing public guidance on issues relating to remediation, despite previous indications that they might provide this guidance. The guidance originally under consideration included guidance on amounts ‘in the nature interest’ and the reporting requirements relating to the payment of remediation.
- The ATO indicated they were still expecting reporting on these payments, and the FSC has requested the ATO provide further information about these requirements.
- FSC members discussed a data request by the ATO from some life insurers about premiums and benefits on income protection insurance.
- The latest OECD review of harmful tax practices left the assessment of Australia’s Offshore Banking Unit (OBU) regime unchanged, with the status being “In the process of being amended” and the comment “Potentially harmful features will be addressed”.
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GST update
- The ATO has agreed to have a workshop with FSC members on GST issues of relevance, including the fee caps to low balance super accounts (Protecting your super fee cap); GST consequences of the end to grandfathered conflicted remuneration; Justified Trust update for GST and GST issues relating to ASIC’s regulatory guide RG 97.
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INVESTMENTS
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Parliamentary Joint Committee on Intelligence and Security: Security Legislation Amendment (Critical Infrastructure) Bill 2020
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The new Bill allows for the introduction via regulation of a ‘positive security obligation’. The obligation, when switched on, places duties on owners of ‘critical infrastructure assets’ to adopt and maintain an all-hazards critical infrastructure risk management program, mandatorily report serious cyber security incidents to the Australian Signals Directorate, and where required, to provide ownership and operational information to the Register of Critical Infrastructure Assets. The FSC is providing a cross portfolio submission that reiterates the importance of not duplicating existing risk management regulatory frameworks, particularly with APRA and ASIC.
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Department of Home Affairs consultation on the Complying Investment Framework for the Business Innovation and Investment Program
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The Department of Home Affairs is currently consulting on the settings of the Complying Investment Framework (CIF), particularly whether the current CIF settings remain appropriate or should be changed. The consultation paper canvasses alternative CIF settings for feedback. The FSC is currently seeking member feedback.
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FSC Modern Slavery Guidance Note
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The FSC’s Modern Slavery Working Group is continuing its development of a Guidance Note to support fund managers receiving due diligence questionnaires from stakeholders reporting under the Act. The Guidance Note will also aim to help funds who might want to report in their role as suppliers of financial services.
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Continuing with the Diversity Working Group’s focus on increasing gender balance in investment management teams, the Working Group has developed a diversity survey to understand how fund management member organisations are approaching diversity and gender diversity in investment teams. The survey has been issued to fund manager members and responses are requested by 19 March 2021.
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