Welcome to Issue 73 of the FSC Policy Update. This article outlines legislative and regulatory developments in the technology and innovation, investments, financial advice and superannuation sectors, plus more. Learn about what’s impacting the financial services industry below.
Click on the topic of interest below to read more.
Legislation to establish the Compensation Scheme of Last Resort (CSLR) passed Parliament, with the legislation receiving royal assent on 3 July.
The CSLR Levy Regulations creating the levy framework required to fund the CSLR and supporting the Financial Services Compensation Scheme of Last Resort Levy Act 2023 have also been made and are available below:
The final regulations to amend the performance test are expected to be made in early August.
While Government and regulators have confirmed the final regulations will reflect the high-level outcomes announced by the Assistant Treasurer in June, the unresolved status of the final regulations is contributing to additional uncertainty and lack of clarity around how APRA will apply the performance test, particularly around the scope of products captured by the Trustee-Directed Product (TDP) definition and how APRA will combine investment experience and fee arrangements across each pathway.
In the meantime, FSC is facilitating engagement between FSC superannuation members and APRA to get greater clarity on how APRA intends to apply the performance test based on data reported to it as part of the superannuation data transformation project.
The FSC enforceable standard for handling group life insurance claims in superannuation has from the start of July commenced operation on a mandatory basis for all FSC superannuation members to improve the service standards in superannuation system and to complement protections in the new Life Insurance Code of Practice.
The new standard replaced existing voluntary guidance and sets out the minimum level of service consumers should expect to receive from their superannuation fund when making a claim on their life insurance.
The Standard includes consumer-focused commitments for trustees to help their members navigate through the claims process, including:
- To assist a member in making a claim by helping them to complete the form with any supporting information, carrying out an initial eligibility assessment and providing the member with a summary of the claims process.
- To ensure that life insurers only ask for the evidence that they reasonably need to assess a claim and, if asked by a member, to explain to the member the relevance of any information request.
- To ensure the claims assessment process is as timely, transparent and straightforward as possible by proactively overseeing the conduct of the life insurer and any service providers involved, and keeping the member regularly updated on the progress of their claim until a decision has been made.
- To abide by standard timeframes when pursuing a claim on behalf of a member, and in situations where exceptional circumstances apply to ensure that the trustee continues to provide regular updates to the member until a claim decision is made.
- To carry out a review of a life insurer’s decision not to pay a claim to determine whether it agrees with the life insurer’s decision and to advocate on the member’s behalf if it believes the claim has a reasonable prospect of success.
- To ensure that accepted claims are paid promptly to the member once the trustee confirms that the member has met the relevant requirements for the claim proceeds to be released from their superannuation account.
- To provide the member with details of the complaint process if the trustee informs the member they are not eligible to make a claim, the claims assessment falls into exceptional circumstances or if the claim is declined.
Compliance with FSC's Standards is compulsory for FSC full members. By adhering to FSC's Standards, member companies are required to operate with integrity, transparency and in the interests of customers.
A copy of the new FSC Standard 28 Claims Handling Standard for Superannuation Funds can be accessed here.
Please contact Aidan Nguyen for more information.
APRA and ASIC have published joint findings from a thematic review of industry’s implementation of the retirement income covenant, covering three key areas:
- Understanding members' needs: All trustees have gaps in the critical information to develop an effective retirement income strategy, but only four out of 16 trustees had a plan to address these gaps.
- Designing fit-for-purpose assistance: Trustees have taken positive steps to improve assistance through a range of measures. However, some trustees are not using metrics to track how their members are using the assistance measures and their effectiveness to determine whether any changes are needed.
- Overseeing strategy implementation: Many trustees have not embedded their retirement income initiatives as concrete actions in their overall business plan. Additionally, most trustees lacked quantitative metrics to assess the retirement outcomes resulting from their initiatives.
APRA and ASIC will continue to engage with Registerable Superannuation Entity (RSE) licensees and other stakeholders to understand how industry and other relevant providers are improving practices to better assist members with the retirement phase of superannuation.
APRA will also consult on changes to the prudential framework later this year, which will look to embed retirement strategy requirements as part of an enhancements to Prudential Standard SPS 515 Strategic Planning and Member Outcomes.
Please contact Aidan Nguyen for more information.
In May, the Government announced its intention to require employers to pay superannuation contributions on the same day as wages. Payday Superannuation will come into effect from 1 July 2026.
The FSC attended two two-day workshops hosted by the ATO to determine the key barriers to implementing the payday superannuation measure. The workshops were attended by superannuation fund peak bodies, clearing houses, payroll providers, accountants, bookkeepers, and tax agents, as well as the Treasury and the ATO.
The first workshop discussed the process of payment from employer to the employee’s superannuation account. The key issue discussed was how to make the processing of the payment easier, by providing correct and verifiable data. The second workshop discussed employer compliance and if the superannuation guarantee charge needed to be amended to ensure that superannuation was paid correctly.
Overall, the ATO emphasis is on ensuring employers have the correct details so that payments are processed quickly and efficiently.
The ATO will hold a formal consultation with plans for the measures to be costed and ready in time for the 2024 Budget.
Learn more about Payday Superannuation here:
Treasury has released the second consultation paper on the proposed climate-related financial disclosure regime. Treasury is seeking views on its proposed positions relating to entities that should be covered by the regime, the phasing of the implementation, high-level requirements for reporting content, and the reporting framework and assurance.
Broadly, Treasury are proposing:
- Scope of entities captured by the regime will align with entities required under Chapter 2M of the Corporations Act 2001 to lodge financial reports.
- Phased implementation will occur in three groups (2024-25, 2026-27, 2027-28) beginning with larger companies that fulfill two of the following criteria: consolidated revenue over $500 million, consolidated gross assets of $1 billion or more or over 500 employees. Final coverage will cover entities with two of the following criteria: consolidated revenue of $50 million or more, consolidated gross assets of $25 million or more, or 100 employees or more.
- Reporting will include principles of financial materiality and require disclosure of governance, strategy, risks and opportunities, transition plans (including any offsets and targets) and at least two possible climate scenarios including the goal set out in the Climate Change Act 2022 of keeping warming well below 2°C above pre-industrial levels.
- Scope one and two emissions will be required from the beginning of an entities’ reporting period. Material scope three emissions will be required from the entities’ second reporting year onward. In the immediate term, allowance will be given for scope three to be estimates.
- Disclosures will be required to be published in the annual report and for listed entities in the Operating Financial Review (OFR).
- Assurance requirements will be phased in and include limited assurance for scope one, two and three emissions, scenario analysis and transition plans to begin with.
- Regarding liability, the requirement for reasonable grounds for forward-looking statements will remain. Limited relief will be provided for a period of three years where the application of misleading and deceptive conduct provisions to scope three emissions and forward-looking statements will be limited to regulator-only actions, protecting against private litigants.
The FSC’s submission emphasises the following points:
- Greater clarity sought for how disclosure requirements are phased for corporate entities, Registered Entities (REs) and each distinct Managed Investment Scheme (MIS).
- Questioning the adequacy of the proposed timing for commencement and phasing, given that phase one is due to commence in July 2024 and the Australian Accounting Standards Board (AASB) standards won’t be finalised until Q2 2024.
- The legislation or standards should make clear that scope three disclosures should reflect information that is accessible at the time of disclosure.
- The legislation or standards should provide clarity on what constitutes scope three disclosures for fund managers and other sectors.
- The regime should allow for international subsidiaries to rely on group reports.
- Greater clarity sought on the applicability of the regime for platforms.
Next steps following this consultation:
- An exposure draft for legislation needed to give effect to the new requirements will also be consulted on in the second half of this year. Amendments to be implemented from 1 July 2024.
- The AASB will consult on the detailed disclosure standards in the second half of 2023. Alignment will be sought with the International Sustainability Standards Board (ISSB) standards. The AASB will look to release the disclosure standards in Q2 2024, subject to the passage of legislation.
Final submissions are due on Friday 21 July.
The Financial Stability Board (FSB) and the International Organisation of Securities Commissions (IOSCO) are undertaking separate consultations on Liquidity Management Tools (LMTs) to address the risk of investor dilution and the first-mover advantage that arises from structural liquidity mismatch in open-ended funds. LMTs include anti-dilution pricing, limiting the among of liquidity available for redemptions, in-kind redemptions and side pockets. The relevant consultation papers can be found here and here.
The FSC will prepare a submission to IOSCO, as IOSCO’s guidance will inform Australian regulators. Final submissions are due on September 4. If you wish to participate in the FSC Working Group or have any concerns about the proposals, please let Chaneg Torres know.
The Exchange Traded Product (ETF) Working Group is focusing on a number of policy issues at present including reaching out to the Australian Securities Exchange (ASX) to discuss implications arising from the United States of America moving to a settlement cycle of T+1 in May 2024, which will impact ETFs that invest in United States securities.
Separately, the ASX has reached out to the Business Committee to seek stakeholder feedback and views on Australia moving to T+1. Further consideration of T+1 for the Australian market is likely to involve wider consultation and engagement before any decision is made.
The ETF Working Group will continue to engage on this issue and consider implications.
The ASX has issued a consultation paper on the proposal to wind down and close the ASX mFund service, seeking feedback in two key areas;
- Industry preferences for dealing in managed funds via ASX; and
- A proposed process for winding down and closing mFund if appropriate.
The FSC is developing a submission with members via the ASX Consultation Sub-Group, with submissions due on 18 August.
The FSC is working with members to prepare a letter to Treasury to express growing concern with the continuing uncertainty surrounding the future of the regime governing the provision of financial services by Foreign Financial Service Providers (FFSPs) in Australia.
The FSC will note it is increasingly important that government provides certainty to the market by clarifying its intentions for FFSPs. Members will recall the FFSP bill introduced by the previous government lapsed when Parliament was prorogued in April 2022, well over a year ago.
Problematically, the current ASIC Class Order relief is scheduled to expire on 31 March 2024, in just eight months’ time, and industry has been given no indication about the regulation that will apply to FFSPs after 31 March 2024. It is very important that the Class Order relief is extended by ASIC and that government clarify the way forward.
For more information, please contact Ashley Davies.
The FSC has participated in two Treasury roundtables in June and July to support the implementation of recommendations of the Quality of Advice Review. Treasury has been moving proactively to consult on the implementation of the Review’s recommendations with specific reference to the following Stream One and Stream Two changes:
- Recommendation 5 – Statutory Best Interests Duty.
- Recommendation 8 – simplification of fee consent obligations for ongoing fee arrangement.
- Recommendation 9 – replacement of the Statement of Advice.
- Recommendation 7 – legal certainty around the deduction of advice fees from superannuation.
- Recommendation 6 – amendment of collective charging arrangement to support. superannuation funds to provide retirement advice and information to their members.
The FSC will be engaging further with policy development driven by its Working Group and Board Committee processes.
The Treasury Laws Amendment (2023 Measures No. 3) Bill 2023 has been introduced to Parliament to exempt advisers who practiced in the industry for 10 years, who have a clean record from meeting the education requirements.
When passed the new law will mean:
- Existing financial advisers must complete an approved qualification (no more than eight prescribed units) by 1 January 2026 to meet the qualifications standard.
- They must also pass the exam and comply with continuing professional development requirements.
- New entrants to the financial advice profession must complete an approved qualification, including meeting all the conditions prescribed for that approved qualification, as determined by the Minister in the Approved Qualifications Determination.
- Financial advisers who are also registered tax agents must meet the additional education requirements to be a qualified tax relevant provider.
Members will be kept updated on the progress of the legislation through the house.
In the first update to the approved courses determination since 2021, the Minister has again used his powers under the Corporations Act two add further degrees.
As such, the Minister for Financial Services has issued the Corporations (Relevant Providers Degrees, Qualifications and Courses Standard) Amendment (2023 Measures No. 2) Determination 2023 (“the Determination”). Paragraph 921B(6)(a) of the Corporations Act provides that the Minister may by legislative instrument, approve bachelor or higher degrees, or equivalent qualifications, for relevant providers.
The Determination updates the 2021 Determination by:
- Adding two new double degrees approved by the Minister – Both are double degrees offered by Southern Cross University that contain the Bachelor of Business and Enterprise, which was already an approved degree at table item 40B in Schedule 1 to the Determination. Both new degrees have the same conditions for commencement date and required units, so are included as one item in the table in the Determination. They include a condition that the relevant provider commenced the program on or after 1 March 2024, as the degrees are not available before then.
- Updating required unit names and codes in the conditions applied to approved degrees – New unit names and codes as alternatives to previously listed unit names and codes for units offered by Western Sydney University, the Queensland University of Technology, Royal Melbourne Institute of Technology, University of the Sunshine Coast, Kaplan Higher Education Pty Limited, and University of Southern Queensland. Listing the new names and codes as alternatives to the previous names and codes ensures that a provider can complete the required units under either name or code to meet the conditions for the degree or course identification for the bridging unit.
APRA has released an interim report into its tripartite review of Regulated Entity’s (REs) compliance with Prudential Standard CPS 234 Information Security.
The interim report covers approximately 24 per cent of APRA’s regulated entities, with a further 50 per cent currently under review and the final 26 per cent to commence by the end of the year.
The review identified key control gaps in the following areas:
- Incomplete identification and classification for critical and sensitive information assets.
- Limited assessment of third-party information security capability.
- Inadequate definition and execution of control testing programs.
- Incident response plans not regularly reviewed or tested.
- Limited internal audit review of information security controls.
- Inconsistent reporting of material incidents and control weaknesses to APRA in a timely manner.
APRA will use the results of the tripartite audit to determine if changes are required to CPS 234.
APRA has released the finalised Prudential Standard CPS 230 Operational Risk Management.
CPS 230 is a new prudential standard on operational risk management which requires APRA regulated entities to identify critical operations, set tolerance levels for those critical operations being down, and create business continuity plans in the event of an outage.
The original draft standard had a start date of 1 January 2024, however, APRA has moved the commencement date to 1 July 2025, allowing APRA-regulated entities an extra 18 months to prepare for compliance.
APRA has also released draft CPG 230 and will be consulting on this until October. The FSC will make a submission in conjunction with the Scams, Fraud, and Cybersecurity Working Group, the Superannuation Technical Working Group, and the Superannuation Board Committee.
The National Anti-Scam Centre (NASC) commenced operations on 1 July.
The NASC, which runs out of the ACCC, is the cornerstone of the Government’s anti-scam agenda. Within the NASC, fusion cells will be set up to combat various types of scams. The first of these fusion cells to be stood up will look at investment scams.
Investment scams have a significant effect on FSC Member organisation’s customers. The FSC has been working with the ACCC to determine how it and its members can feed into the work of the fusion cell and the wider work of the NASC.
On Wednesday 2 August the FSC will be joined by financial services regulators, as well as the ACCC and ATO, to provide members with a briefing about key scam mitigation work happening across the industry.
Hear from Richard Fleming, ACCC, about the implementation of the National Anti-Scam Centre (NASC), as well as David McGuinness, ASIC, Alison Bliss, APRA and Alastair Ramsay, ATO on work being conducted to help minimise scams that affect superannuation and wealth management customers.
Date: Wednesday 2 August
Time: 9:00am - 10:00am
Venue: Webinar (Via Webex)
Cost: Free and Member Only
FSC members can register here: https://fscevents.webex.com/weblink/register/r147149ece9797f1313c157711d25a83f
The FSC hosted a workshop with members to explain the changes that were made to the FSC’s template Target Market Determination (TMD) for funds management. Slides from the workshop and a recording of the workshop have been provided to attendees.
The new FSC Investment Management Agreement (IMA) has been settled by the FSC IMA Working Group, which has met extensively over the last 12 months. The document is now going through final FSC approval processes.
This new FSC IMA is drafted for use by a responsible entity of a managed investment scheme appointing an investment manager to manage and invest the portfolio and is drafted to be relatively 'balanced' as between the responsible entity and the manager (unlike the Association of Superannuation Funds of Australia (ASFA) IMA, which is drafted for use by a superannuation trustee appointing an investment manager and is drafted in favour of the superannuation trustee).
The FSC has adopted a balanced approach in preparing this revised template, hence including wording which reflects the position parties would generally be expected to arrive at after some time spent on legal and commercial negotiations, thus seeking to reduce time and legal costs in negotiating the document. For example, starting with a set of representations, warranties and indemnities which are less likely to be the subject of extensive negotiation because they treat all parties in a commercially reasonable manner.
Interim Report C was tabled in Parliament in June and is available on the Australian Law Reform Commission (ALRC) website: Financial Services Legislation: Interim Report C (ALRC Report 140) | ALRC.
The FSC has been working with members to prepare a submission.
Interim Report C focuses on how legislation is structured and framed (how legislation is designed — how information is presented and organised to communicate the substance of the law). It is designed to elicit feedback from stakeholders on law reform ideas for the simplification of corporations and financial services legislation, with a focus on restructuring and reframing Chapter 7 of the Corporations Act and the Corporations Regulations. The ALRC’s analysis in respect of the structure and framing of Chapter 7 of the Corporations Act notes three key problems:
- Chapter 7 lacks coherence and does not have an intuitive flow.
- Chapter 7 fails to prioritise key messages.
- The structure and framing of Chapter 7 make it difficult for users to find relevant law.
The key proposals are (in high-level summary):
- Restructure and reframe provisions of general application relating to consumer protection.
- Clarify the law regarding unconscionable conduct.
- Proscriptions concerning false or misleading representations and misleading or deceptive conduct in the Corporations Act and the Australian Securities and Investments Commission Act to be replaced by a consolidated single proscription.
- Restructure and reframe provisions relating to disclosure for financial products and financial services, and disclosure documents to be worded and presented ‘in a way that promotes understanding of the information’.
- Restructure and reframe provisions relating to financial advice, provisions of general application relating to financial services providers as well as provisions of general application relating to administrative or procedural matters concerning financial services licensees.
- Corporations Act to include a Financial Services Law comprising restructured and reframed provisions relating to the regulation of financial products and financial services, such Financial Services Law to be enacted as Sch 1 to the Corporations Act.
- Government should establish a specifically resourced taskforce (or taskforces) dedicated to implementing reforms to financial services legislation.
- Require that the Financial Services Law and delegated legislation made under it be periodically reviewed by an independent reviewer.
- Infringement notice provisions in corporations and financial services legislation should be identifiable on the face of the provision.
Submissions, together with further consultations, workshops, and seminars, will form part of the evidence base for the Final Report due to the Attorney-General on 30 November 2023 (Report C is the final interim report before delivery of the Final Report).
- The Government introduced legislation to Parliament making changes to interest limitation (or thin capitalisation) rules, and requiring larger businesses to disclose subsidiaries.
- In a welcome development, the legislation no longer removed the ability for Australian businesses to take deduct interest relating to offshore equity investment. This change was in alignment with FSC’s submissions.
- The Government at the same time announced the deferral of measures that would require multinationals to disclose tax information through public Country-by-country reporting (CbCR), and a narrowing of the public CbCR proposals. Both changes were in alignment with the FSC’s submissions.
- The FSC made a submission to a Senate Inquiry into this legislation – the FSC’s submission also responded to the Government’s revised proposals relating to public CbCR.
- The FSC is meeting with the Australian Custodial Services Association (ACSA) and the ATO to develop draft ATO guidance about how managed funds should deal with foreign capital gains after the Burton decision.
- The FSC is developing further policy proposals to respond to the removal of the Offshore Banking Unit (OBU) regime, including promoting the FSC’s existing tax policy priorities, developing a variant of ‘patent box’ proposals, and examining how to target other proposals more directly at funds management.
- The ATO released a draft determination on the interaction of superannuation non-arms’ length income and the CGT provisions, and a draft amendment to the ATO’s Practical Compliance Guide on central management and control.
- The ATO released a draft instrument on correcting GST errors. The FSC is drafting a submission that would raise issues including thresholds being based on ‘GST turnover’ which does not deal correctly with financial services.
- The French tax authority has released new guidelines on trust reporting requirements. Members have been asked to consider how this might affect Australian Managed Investment Trusts (MITs).
- Members have been asked to consider if the potential closure of the ASX mFunds service (see investments section for details) could have any tax implications.