Welcome to Issue 75 of the FSC Policy Update. This article outlines legislative and regulatory developments in the superannuation, investments, financial advice, tax, technology and innovation sectors, plus more. Learn about what’s impacting the financial services industry below.
Click on the topic of interest below to read more.
The Financial Accountability Regime Bill 2023 and the Financial Accountability Regime (Consequential Amendments) Bill 2023 (FAR) were passed into law in mid-September.
APRA and ASIC released a package of documents on 3 October 2023, which is mainly focused on ADIs but is also of relevance to superannuation and insurance.
The package contains three documents:
- An ADI Information paper to provide guidance for ADIs transitioning from BEAR to FAR;
- ADI accountability statement guidance and template (supporting the ADI information paper) – APRA and ASIC have indicated they will publish the list of primary areas of focus for superannuation shortly, but superannuation entities may still find this guidance document useful; and
- The Joint Administration Agreement, which sets out the framework within which the regulators will work together to administer the FAR – this will be relevant for superannuation entities as well.
APRA and ASIC intend to publish the Regulator Rules and Transitional Rules for ADIs and the Key Functions Descriptions shortly that were released for consultation on 20 July 2023. Included with this release will be reporting form instructions to assist ADIs in providing the required information to APRA and ASIC.
The regulators have also indicated that they plan to engage with superannuation entities in meetings to be scheduled in October, where they will share plans and timeline for engaging and supporting superannuation entities and provide the opportunity for questions and comments.
Industry is still awaiting final Minister Rules, which are currently in draft form with Treasury. Once these are passed, then ASIC and APRA will be able to publish final Regulator Rules (to apply to ADIs).
Please contact Ashley Davies for more information.
The FSC has finalised subject to final internal approval version 2 of our template Target Market Determination (TMD) for Superannuation Wraps, Master Trusts, IDPS and Managed Accounts. The template responded to comments from ASIC, including in ASIC Report 762 Design and Distribution Obligations: Investment Products, and several rounds of feedback ASIC provided to the FSC on the template.
The FSC and members also recently completed work on:
- preparing an agreed form of funds management distribution condition menu; and
- developing standard questions for customers entering fund products.
Currently, the FSC and members are working on the revised DDO due diligence questionnaire to address recent ASIC commentary including Report 762.
Finally, the FSC wrote to ASIC in October to request a meeting to discuss member concerns regarding the use of investor questionnaires.
Please contact Ashley Davies for more information.
APRA announced plans to retire Superannuation Circular III.A.4: Sole Purpose Test which gives guidance on the application of the legislated Sole Purpose Test. APRA noted they do not intend to issue new or updated guidance, as it does not feel it is best placed to give legislative guidance.
The FSC will consult on the impacts of this, including if this may create any gaps in understanding or coverage.
APRA has released a discussion paper on proposed changes to prudential standard SPS515: Strategic and Transfer Planning, along with a draft standard and associated draft guidance. SPS515 seeks to ensure RSE licensees have robust business operations and are held to account to ensure their strategies and decisions deliver outcomes that are in the best financial interests of members, consistent with community expectations.
The FSC has been anticipating the release of this discussion paper following its submission to the transfer planning in superannuation: proposed enhancements consultation. That consultation proposed changes to transfer planning requirements, including requiring members to have a plan in place for any potential successor funds transfers (SFT) that may need to be undertaken in the future. That consultation foreshadowed future changes to SPS515 which are now being consulted on.
In its submission, the FSC pushed back on the need for all RSEs to create detailed transfer plans for SFTs that may have little chance of eventuating. It is pleasing to see APRA has agreed with the FSC’s approach of instead having threshold triggers that would necessitate the pre-planning of an SFT instead.
The proposed changes to SPS515 also incorporate recent concerns expressed by APRA in relation to superannuation funds implementation of the retirement income covenant.
In addition, the proposed changes to SPS515 include:
- changes to strategic objective requirements so that outcomes for beneficiaries be specific;
- requirement that the business plan be informed by an annual review of the RSE licensee’s retirement income strategy and a view of the RSE licensee’s expected level of financial resources;
- requiring RSE licensees to demonstrate a ‘prudent’ approach to setting fees and costs; and
- requiring the licensing to set triggers that identify the need to commence action to improve member outcomes or commence preparation for a successor fund transfer.
Comments on the discussion paper, proposed standard and associated guidance are open until 21 December 2023. The FSC is working with members to craft a response to the discussion paper.
APRA has released a consultation on the publishing and confidentiality of data collected under SRS332 (expenses), SRS 550 (asset allocation), SRS 605 (RSE structure), and SRS 606 (RSE Profile).
APRA proposes to determine most, but not all, of the data collected in these forms as non-confidential, meaning it will be published. Data that APRA determines to be non-confidential may, when published, identify individual entities but will not breach the privacy of individual fund members.
The FSC will work with members to draft a response.
The FSC has provided comment in relation to exposure draft legislation to introduce a new tax on individuals whose total superannuation balances over $3m.
In its submission the FSC highlighted a number of areas where additional consideration is needed to improve the administrative efficiency of the regime and provide increased certainty for individual taxpayers.
The FSC recently participated in a roundtable for the Aged Care Taskforce. The meeting conducted on Friday, 13 October was chaired by Taskforce members Lloyd Williams (National Secretary Health Services Union, and former Deputy Chair of HESTA) and Janine Walker (Director, Australian Retirement Trust).
The FSC noted during the meeting that polling conducted by the FSC indicated that superannuation consumers feel that their superannuation savings should not be taxed or used as a funding source for government expenditure, including in relation to aged care.
The FSC is currently preparing a short response to the taskforce.
In March 2023 the FSC shared the legal concerns that had been raised if the Objective was added into existing superannuation law, in particular the risk that that the Objective could impact the existing trustee obligations such as the best financial interest duty or sole purpose test provided for in the SIS Act. Further we opined that standalone legislation will also provide a single reference point for all future changes to superannuation, tax or social security policy.
We congratulate the Government and Treasury on their careful consideration of these concerns and thoroughly support the adopted approach of enshrining the Objective into the Superannuation (Objective) Bill 2023.
The proposed “Context on the broader benefits of the superannuation system” chapter of the Explanatory Material, in particular item 1.27, provides a strong statement on the benefits of group insurance arrangements in superannuation. These statements should be clarified given recent commentary by the Government over concerns that service standards in group insurance need to be improved and may require regulatory reform.
The FSC acknowledges that a ‘set and forget’ approach to current arrangements for group insurance arrangements in superannuation may not be sustainable. For example, ASIC’s Default insurance in superannuation: Member value for money, Report 675, identifies that identical members can get very different default insurance. The Productivity Commission and Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry also both also envisaged a review into group insurance over coming years that have not yet been implemented.
The FSC supports measures that ensure consumers are confident that system wide settings for group insurance arrangements continue to deliver consistently good outcomes and align with the broader objective of superannuation.
We note that if the Government chooses to proceed with a future review of group insurance settings in superannuation the implementation of this draft legislation will ensure that review would benefit from the guidance of an objective of superannuation.
The FSC is preparing materials to support a push to broaden the current product modernisation regime.
Treasury has released its consultation paper on payday superannuation entitled Securing Australians’ Superannuation Budget 2023-24.
The consultation paper is wide-ranging and covers topics including the definition of payday superannuation, the compliance mechanism through the superannuation guarantee charge, as well as how to encourage better use of stapling.
One of the main questions explored in the paper is the definition of payday superannuation, whether compliance should mean superannuation is paid by the employer on the day an employee’s wages are paid, or if it is payday plus a certain number of days by which time the money must be received by the superannuation fund.
The FSC is working with members to craft a response to the discussion paper.
The FSC has provided its submission to Treasury on the review into the regulatory framework for Managed Investment Schemes (MIS).
The FSC believes that large changes are not needed to the MIS regulatory regime. The current regime has worked well through several difficult economic periods, with major collapses in managed investment schemes being very rare. ASIC has effective tools in the DDO and PIP to ensure that complex investment products that may harm consumers are appropriately distributed and can be subject to a stop order of ASIC considers the risk of harm to consumers is high.
Key focus areas in the FSC submission include:
- Calling for a review of the AFSL and scheme registration process to allow for better risk-based surveillance, rather than greater product suitability powers for the regulator.
- Supporting changes to the net asset test and sophisticated investor test limbs of the wholesale investor test. Supporting consent requirements for all wholesale investors in line with the Quality of Advice Review.
- Supporting maintaining flexibility for Responsible Entity governance arrangements.
- Supporting the current definition of liquid assets and current redemption provisions which allow appropriate flexibility.
- Reducing regulatory cost in several areas including breach reporting and scheme registration.
The FSC has commissioned PWC to assist with research on the wholesale investor test. This research is being undertaken to provide a good empirical evidence base to assist the review. It will provide a cost benefit analysis on how different options for the wholesale investor test will affect consumers and industry.
Climate Related Financial Disclosures
The industry awaits draft legislation to implement the climate-related financial disclosure regime. The Australian Accounting Standards Board is also expected to consult on the detailed disclosure requirements in Q4 2023 or Q1 2024.
The FSC is seeking clarity around the level of disclosure required at an individual MIS/product level and group level, scope 3 reporting and the applicability of the regime for platforms.
Under the current Treasury proposal:
- The regime will be phased in three groups based on revenue, gross assets or employees (2024-25, 2026-27, 2027-28). 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.
- Treasury is proposing disclosure of scope 3 emissions but wants to allow for estimates.
- The requirement that forward looking statements require reasonable grounds will remain. Treasury are proposing a modified liability regime for three years, where misleading and deceptive conduct provisions for scope 3 and forward-looking statements will be limited to regulator only actions.
Sustainable Finance Agenda Treasury Consultation
We are expecting the release of a Treasury paper on the sustainable finance agenda. The consultation paper is expected to cover a framework for green bonds, the role of government in implementing a sustainable finance taxonomy, considerations for an ESG labelling regime, and the role of government in providing data to help with climate-related disclosures.
The ETF Working Group continues to consider a number of issues such as the move to T+1 settlement in the United States, the closure of the MFund service, proposed ASX fund flow disclosure requirements, FATCA and periodic statements.
The Federal Government released and consulted on exposure draft legislation which seeks to provide Australian financial service licensing exemptions to foreign financial services providers.
Following consideration of feedback including the FSC’s submission, we understand the Government plans to introduce a revised bill to Parliament in mid-November. The proposed legislation amends the Corporations Act to provide an exemption from the requirement to hold an Australian financial services license for:
- persons that provide financial services from outside Australia to professional investors (the professional investor exemption)
- persons regulated by comparable regulators that provide financial services to wholesale clients (the comparable regulator exemption); and
- persons making a market for derivatives that are able to be traded on specified licensed financial markets (the market maker exemption).
An exemption is also proposed from the fit and proper person test for persons regulated by comparable regulators when applying for an Australian financial services licence for the provision of financial services to wholesale clients (the fit and proper person test exemption).
For more information, please contact Ashley Davies.
Draft legislation implementing Stream One Quality of Advice Review reforms to reduce red tape is expected before the end of this year. This was confirmed by the Assistant Treasurer, Stephen Jones, when speaking at an adviser breakfast hosted by the FSC in Wollongong last month.
The breakfast was one of a number of events the FSC has partnered with the Financial Advice Association of Australia, in addition to events in Brisbane and Perth.
Stream One of the Government’s Delivering Better Financial Outcomes package includes reforms such as:
- Reform of the Best Interests Duty and removal of the safe harbour
- Replacing the Statement of Advice with an ‘Advice Record’
- Consolidating ongoing fee renewal and consent requirements into a Standard Form
- Flexibility to as to the provision of Financial Services Guides
- Standardised consents for determining a wholesale investor
- Tightened exemptions to the ban on conflicted remuneration.
Streams 2 and 3 include reforms to strengthen the role of superannuation funds and non-relevant providers in meeting the advice needs of consumers.
APRA is consulting the repeal of a 2001 circular (APRA Superannuation Circular No. III.A.4) outlining activities that fall within or outside of the sole purpose test. The FSC has called for greater certainty around what activity in relation to financial advice is permissible under the test and the Quality of Advice Review has made similar recommendations to improve the legal certainty of certain activity falling within the ambit of the test. The Advice Regulatory Affairs Working Group will be inputting into the FSC’s submission on this aspect of the consultation.
The Minister for Financial Services has issued the Corporations (Relevant Providers Degrees, Qualifications and Courses Standard) Amendment (2023 Measures No. 3) Determination 2023 which amends the 2021 Determination.
In summary, the Determination has been updated to permit more degrees and courses to support a financial adviser being licensed and to ultimately meet the education requirements across several tertiary providers.
These can be summarised as follows:
- Bachelor of Advanced Business (Honours) (Financial Planning and Taxation (Extended) major).
- Bachelor of Business (Financial Planning and Taxation (Extended) major).
- Any Masters’ degree with a major in Financial Planning, where the relevant provider has completed the same specified units of study.
Royal Melbourne Institute of Technology
- Graduate Diploma in Financial Planning, where the relevant provider has completed the same specified units of study.
New South Wales Technical and Further Education Commission (TAFE NSW)
- Bachelor’s degrees in financial planning undertaken after 2019, not just between 2012-2018 as is the case currently.
Earlier this year the Government announced plans to explore an Australian Digital Identification product. This so called ‘Digital ID’ was not intended to be a new form of identification but rather an ID verification service with interoperability between federal identity sources (Passports, Medicare numbers) and state drivers licenses.
The Federal Government currently has a Digital ID product, MyGov ID based on their identity sources. This new system would allow for driver’s licenses to be included for verification, bolstering the veracity of that ID system.
In addition, it will allow private operators to access the verification system. This provides consumers with a choice of verified identification. BankID, a product of NAB and the Commonwealth Bank, and AusPost ID are two such services.
The benefit of a verification service is that it means that relying parties, such as FSC members, do not need to collect copies or credentials of customer identification documents providing greater data security for consumers.
In September, the Department of Finance consulted on exposure draft legislation relating to the rules and legislative framework for the verification service.
In order to access Digital ID, FSC members will have to subscribe to the service. This makes them a ‘relying party’ under the proposed rules framework. The exposure draft outlined the proposed accreditation needs to become a relying party.
The FSC submitted a response that outlined the importance of working across government to provide certainty for organisations that rely on Digital ID for customer verification, including for AML/CTF reasons, so that Digital ID fully satisfies those requirements and there will be no on flowing action if the Digital ID proves to be fraudulent.
The FSC is still awaiting the release of the National Cybersecurity Strategy, which is expected in the coming months.
At the recent AFR Cybersecurity Forum, Home Affairs Minister Claire O’Neil gave a quick overview of how the Strategy was shaping up including outlining the six pillars that will underpin it:
- Strong citizens and strong business: building individual protection and resilience from cyber threats.
- Safe products: improving the cybersecurity of ‘off the shelf’ products that are connected to the cloud and internet services like smart home devices.
- World-class threat sharing and threat blocking: exchanging intelligence between government and business in real-time.
- Protecting critical infrastructure
- Building sovereign capability: improving government systems and growing cyber security skills within the Australian community.
- Resilient regions: protecting pacific neighbours and increasing the regions cybersecurity preparedness and resilience.
Following its consultation to map digital token usage in Australia, the Government has recently released a consultation on the regulation of digital and crypto assets.
The proposal paper recommends making crypto exchanges and digital asset platforms subject to existing Australian financial services laws and requiring platform operators to obtain an Australian Financial Services Licence.
The proposal also outlines minimum standards for holding tokens, standards for custody software, and standards when transacting in tokens.
Treasury has released exposure draft amendments to the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share – Integrity and Transparency) Bill 2023 for consultation until 30 October 2023.
These amendments will make changes to the proposed new debt deduction creation rules, treatment of trusts under the third party debt test, new provisions relating to the calculation of tax EBITDA by Attribution Managed Investment Trusts and the ability for eligible unit trusts to transfer excess tax EBITDA amounts to other eligible trusts as part of lending arrangements.
Following the consultation period, it is expected that the Government will introduce these amendments as the Bill is considered by the Senate.
Further information on the consultation can be found on the Treasury website.
Following consultation by the ATO, the A New Tax System (Goods and Services Tax) (Correcting GST Errors) Determination 2023 has been registered.
Replacing the previous legislative instrument, significant changes include increases to the debt error value limits, the potential for errors to be corrected while subject to compliance activity, and clarifying its application to errors relating to periods from 1 July 2012.
The Government released its response to the Privacy Act Review Report on Thursday 29 September 2023.
While the response is still relatively high level, it does break down the proposals in the Privacy Act Report into those it “agrees” with, “agrees with in principle”, or merely “notes”.
Exposure draft legislation is not imminent. The response has indicated that next steps will include:
- development of legislative proposals which are ‘agreed’, with further targeted consultation to follow.
- engagement with entities on proposals which are ‘agreed in-principle’ to explore whether and how they could be implemented “so as to proportionately balance privacy safeguards with potential other consequences and additional regulatory burden”.
- development of a detailed impact analysis, to determine potential compliance costs for regulated entities and other potential economic costs or benefits (including for consumers), and
- progressing further advice to Government in 2024, including outcomes of further consultation and legislative proposals.
The FSC was an advocate of further targeted, coordinated consultation and the preparation of an impact analysis to assess economic costs and benefits and will be touch with members in due course to collaborate on these further consultations.
The FSC has also stressed the importance of ensuring that appropriate transition periods are built into the process, and we are pleased to note that the response acknowledges that entities covered by the Privacy Act will require sufficient time to be in a position to comply with new requirements when reforms commence, noting that “Consideration will be given to appropriate transition periods as part of the development of legislation as well as appropriate guidance and other supports which could be developed to help entities understand their compliance requirements.”
ASIC registered ASIC Corporations and Credit (Amendment) Instrument 2023/589 (LI 2023/589) on 19 October for commencement the next day. The following is a brief overview of changes we made to the draft instrument following targeted consultation:
- ASIC have extended the relief to include contraventions of subsection 12DB(1) of the Australian Securities and Investments Commission Act 2001 that otherwise meet conditions in LI 2023/589.
- ASIC have provided that a single reportable situation exists notwithstanding that particular conduct may be a contravention of two or more of subsection 12DA(1) or 12DB(1) of the ASIC Act, or subsection 1041H(1) of the Corporations Act 2001
- ASIC have extended the condition that only one person is, or is likely to be, impacted by the breach so that, if a breach relates to a product that is, or that is proposed to be, held by more than one person, the breach may impact those persons and continue to qualify for the relief if the other conditions in the final instrument are met.
ASIC will be updating Regulatory Guide 78 Breach reporting by AFS licensees and credit licensees (RG 78) and associated guidance to reflect LI 2023/589.
This instrument has made a change to the position previously adopted by Class Order [CO 13/763] which the Instrument has replaced. Broadly, in respect of electronic access to information, the instrument requires an opt-out option to be provided not only where the client has received reasonable notice of electronic access, but also even where the client has already agreed to electronic access. This “opt out” applies to new and existing investors.
Members have expressed concerns with new position, and the FSC has been advocating for a return to the previous class order relief position. The FSC has had several discussions with ASIC and is awaiting further feedback from ASIC who have agreed to further consider and escalate the matter.
The Attorney General announced in May a consultation on proposed reforms of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime. The FSC worked with members and prepared a submission on the consultation, outlining concerns with the practicalities and costs of implementation. It is expected that a further consultation round will be announced before draft legislation is published.
The FSC has also separately been reviewing its suite of AML/CTF forms and discussing changes and updates with members.
The FSC is discussing with members the upcoming ASIC changes to simplify the derivative reporting rules which commence from 21 October 2024 (DTR changes).
ASIC’s reports leading to the DTR changes acknowledge that reporting entities are facing difficulties and uncertainties in implementing the current reporting rules. The DTR changes are the result of ASIC seeking to simplify the rules and harmonise them with similar global regimes in an effort to reduce these difficulties, uncertainties and instances of varying industry practice. While the rules only come into effect from 21 October 2024, until the implementation date, the difficulties, uncertainties and variances will continue, and members will need some time to prepare for implementation.
The new FSC IMA has been approved and is shortly to be posted on the FSC website.
The FSC template constitution for retail CCIVs has been approved. and is shortly to be posted on the FSC website.
For more information, please contact Ashley Davies.