Welcome to Issue 32 of the FSC Policy Update – a fortnightly member briefing on the main legislative and regulatory changes across the financial services industry.
Today is the start of the massive $130 billion JobKeeper wage subsidy scheme, with more than 500,000 businesses signed up. Week three of early access to superannuation begins today, with more than one million Australians in financial distress having already applied for their money. On the other side of the coin in the COVID-19 crisis, more than four million Australians have downloaded the COVIDSafe app to help stop the spread of the virus. Last Friday night in NSW people were able to see two more friends outside their families. Last Friday a Newgate survey found we’re getting fed up with lockdowns, and PM Morrison declared Australia was “not too far away” from easing restrictions.
In this issue the FSC team analyses latest policy issues, including several COVID-19 related matters, such as JobKeeper for financial service businesses, Operational Due Diligence and a new Life Insurance Industry Statement.
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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Design and Distribution Obligations (DDO)
JobKeeper issues for financial service businesses
Early access to superannuation
GNGB seeking Security Committee advisor
Life Insurance Industry Statement
ASIC Letter on life insurance expectations
Regulatory relief and waiver for financial advice
Regulatory relief and waiver for Investments
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PARLIAMENT, LEGISLATION AND REGULATION
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Design and Distribution Obligations (DDO)
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The FSC has been engaging regulators, several Government Ministers and the Opposition to discuss DDO requirements and the 5 April 2021 implementation date.
Timing
ASIC has been discussing the implementation of the DDO regime with Treasury. ASIC is sympathetic to the pressure that industry is operating under due to COVID-19 and is aware that requests have been made by industry participants for a delay to the DDO regime.
ASIC is looking to release the final Regulatory Guide (RG) this year and is targeting the middle of this year. ASIC fully understood the views of many, including the FSC, that the finalisation of the RG is critical to prepare for DDO implementation and that industry requires a finalised RG to create their Target Market Determinations (TMDs) on time. ASIC confirmed that it has been working intensively on the RG, despite the COVID-19 restrictions.
ASIC understands that industry would like to know whether any delay will or will not happen as soon as practical.
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JobKeeper issues for financial service businesses
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On Friday 24 April, the Treasurer announced a number of important changes to the JobKeeper policy, including a change to address the issues with service companies that provide employees to other related businesses. This addresses one of the key issues raised by financial service businesses with the JobKeeper policy.
The announcement however did not address the other important issue for financial services businesses, which is the turnover test excludes input taxed supplies. This issue means the turnover test works completely incorrectly for many businesses in financial services – inappropriately both excluding some businesses and including others.
The FSC met with Treasury to discuss how the JobKeeper turnover test does not work correctly for financial services. Treasury indicated they were aware of this issue and that eligibility for JobKeeper may not work correctly for many financial service businesses. They also informed the FSC that no change to the policy to address this issue is being envisaged – there are many businesses or industries where there are issues with how JobKeeper works and the Government is not planning on making changes relating to these issues.
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The Federal Parliament is expected to resume sittings for both the House and the Senate from the 12 to 14 May. The legislative program for this is still being finalised but it is expected that COVID-19 related legislation. The FSC will keep members updated on developments and any changes to the legislative programme as these are finalised.
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SUPERANNUATION
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Early access to superannuation
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The COVID-19 early release scheme commenced on Monday 20 April.
The ATO continues to update its Design and Implementation FAQ in relation to the scheme.
APRA has also finalised reporting requirements for funds. Funds are required to report weekly to APRA, with aggregate data expected to be published in early May and fund-level data to be published at a later date.
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GNGB seeking Security Committee advisor
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The Gateway Network Governance Body (GNGB) is seeking an experienced security professional to act as an independent advisor to the Security Committee, a sub-committee of the Board.
The role of the GNGB Board Security Committee is to assist and advise the Board on information and cyber security matters that may affect the Superannuation Transaction Network (STN).
Expressions of Interest for this voluntary position are open until 29 May. More information can be found on the GNGB website.
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LIFE INSURANCE
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Life Insurance Industry Statement
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The FSC has published a life insurance industry statement outlining life insurers’ commitment to six core principles to guide their individual response to support their customers during the COVID-19 crisis.
The link to the FSC’s COVID-19 webpage containing this industry statement is available here.
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Please contact Aidan Nguyen for more information.
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ASIC Letter on Life Insurance Expectations
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ASIC has recently issued letters to directors of general and life insurance companies in relation to expectations of the response to COVID-19. The life insurance letter covers expectations across five key themes:
- Insurers’ Code commitments;
- Flexibility in dealing with consumers;
- Handling claims and complaints;
- Communication to consumers about coverage; and
- Data on COVID-19 pandemic claims.
The letter is publicly available on ASIC’s website here. The FSC is working with life insurance members to respond formally to ASIC’s letter.
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The Australian Financial Complaints Authority (AFCA) fact sheet on income protection benefits in superannuation
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AFCA has recently released a new fact sheet about income protection benefits in superannuation to answer consumers' frequently asked questions. This fact sheet provides helpful information, such as clarifying that an income protection benefit is not the same as an unemployment benefit. It also clearly sets out that the maximum is capped and that benefits will be reduced by other income like payments.
The fact sheet is publicly available on AFCA’s website here.
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Work on the Life Code is progressing with the working groups close to finalising all responses to the initial round of consultation. Following this, the FSC will produce a list of recommended changes which will form the basis for the redrafting and plain English rewriting to commence.
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Please contact Jamie Kennedy for more information.
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ADVICE
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Regulatory relief and waiver for financial advice
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A raft of relief and waiver has been granted by regulators for financial advice in the past few weeks. Links to COVID-19-related information and relief on each of their websites is available at the links below:
- ASIC: Information about relief relating to financial advice can be accessed here as well as a comprehensive FAQ here.
- FASEA: Guidance on continuing professional development (CPD) compliance available here.
- Australian Tax Office (ATO): Announced additional COVID-19 relief detailed here.
- Tax Practitioners Board (TPB): Information about the TPB’s relief can be accessed here and covers tax financial advisers.
- Australian Financial Complaints Authority (AFCA): Announced relief regarding complaints by way of extra time, you can read about this more detail here. AFCA has also announced modifications to dispute resolution you can read about in more information here.
- AUSTRAC: A list of COVID-19 updates from AUSTRAC is available here.
How is it working?
The complex requirements of the vast legislative and regulatory net that captures financial advice can add additional pressure on the capacity of advice businesses to serve consumers at a critical time. The FSC is constantly seeking feedback from members on how announced relief is working on the ground and the issues advice businesses are facing.
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TAX
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- Morningstar released a chapter of its Global Investor Experience Study relating to Regulation and Taxation. The study found Australia’s tax and regulatory settings for managed funds were equal last in the 20 surveyed countries. Australia’s tax and regulatory settings were inferior to 20 other markets including the United Kingdom, much of Europe, Hong Kong, Singapore, Thailand, Taiwan and Korea.
- The FSC issued a media release noting that Australia’s managed funds are world leading despite inferior tax and regulation, as our managed funds are global leaders in low levels of fees.
- The FSC is meeting with the ATO to discuss the FSC’s requests for regulatory relief as a result of COVID-19. The meeting is on Wednesday 13 May. An invitation to the meeting has been sent to members of the Tax Expert Group.
- FSC members are considering an ATO decision impact statement on the Federal Court decision Burton v Commissioner of Taxation [2019] FCAFC 141. Members have raised concerns that the decision is not implementable, will have significant adverse impacts on managed funds, produces inappropriate results, and does not consider important issues. A submission on the statement is being prepared by FSC members.
- The FSC has requested the ATO to involve the FSC in two consultations relating to remediation:
- Consultation on whether to provide guidance for payers of remediation.
- A potential fact sheet explaining to individuals how remediation payments into superannuation affects the contributions caps.
- The FSC co-signed a letter to the Organisation of Economic Cooperation and Development (OECD) asking tax authorities (including the ATO) to provide flexibility relating to benefits under tax treaties that prevent double taxation. The proposals include allowing electronic documents and signatures where hardcopy documents are normally required, providing flexibility over identification requirements, and extending deadlines for applications.
- The letter was provided to FSC members' tax experts and is being publicly released by FSC and other co-signatories.
- FSC tax experts have been provided with possible topics for the Inspector-General of Taxation to consider and will respond with appropriate comments.
- The FSC has sought feedback from members about whether the ATO has been delaying and deferring its work program, consistent with the approach of APRA and ASIC, or has been making onerous demands of FSC members.
- The FSC is in the process of organising meetings with the ATO and Treasury to discuss our requests for delays and deferrals in tax-related issues due to the impact of COVID-19.
- The FSC is considering making a submission to a Parliamentary Inquiry into the corporate bond market. The inquiry will examine whether there are any impediments in the tax system to the issue of corporate bonds compared to other forms of debt financing for business.
- The Board of Tax has announced that submissions to its review of CGT rollover relief provisions will now close on 31 May. The FSC will make a submission to this review covering issues including gaps in the existing rollover relief for merging superannuation funds, and the lack of a comprehensive product rationalisation scheme.
- FSC members have considered whether the expanded provisions allowing early release of superannuation will affect whether Australian superannuation funds can be classified as Qualified Foreign Pension Funds under United States revenue law (which provides certain tax benefits to these type of funds). The FSC will keep this issue under review.
GST
- The GST Expert Group is considering draft papers on
(a) the GST issues with the Protecting Your Super fee cap; and
(b) the GST issues with remediation. Comments on the papers are being sought with a view to providing the papers to the ATO.
- The FSC is also meeting with the ATO to provide an overview of this work.
Stamp Duty
- The FSC met with the team conducting a review of the South Australian Stamp Duties Act 1923 and provided feedback as agreed with the Insurance Duty Expert Group.
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INVESTMENTS
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Over the last fortnight the FSC’s Operational Due Diligence Working Group (ODD WG) has met with the Australian Institute of Superannuation Trustees (AIST) to discuss the proposed updated version of AIST’s ODD Guidance Note. The ODD WG has been in close contact assisting AIST with its update to the AIST ODD Guidance Note. AIST plan to release the latest version in late May 2020.
Post release, the next step is for the ODD WG to reconvene and review what changes are required to the FSC Guidance Note 37: Template Operational Due Diligence Questionnaire, in areas where there is an alignment of views.
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Regulatory relief and waiver for Investments
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The FSC has requested regulatory relief and waiver on several non-time critical pieces of work. ASIC recent announcement of a temporary change of focus and priorities in the current COVID-19 environment has been welcome. From a funds management perspective this includes:
- Deferring platform fees consultation paper on RG 97.
- Deferring managed discretionary accounts policy review consultation.
- Recurrent managed funds data project – deferring industry engagement for this project until further notice.
Further information is available here.
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LEGAL
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One of the issues bedevilling industry during the COVID-19 pandemic is that of wet signatures; that is, how to achieve legal efficacy when there are evident difficulties in obtaining hard copy documents and signatures.
This is a vexed and troublesome area. However, some recent developments at both State and Commonwealth levels, may provide some relief.
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Commonwealth:
Corporations Act (Act) and Corporations Regulations (Regulations)
The Coronavirus Economic Response Package Omnibus Act 2020 became effective on 25 March. Many of the changes relate to assistance for individuals, households and small to medium sized businesses; however, there are also amendments to the Act to assist corporations affected by COVID-19.
A temporary mechanism is available under Part 9.11 of the Act to provide regulatory relief to classes of persons who, for one of the reasons listed below, are unable to meet their obligations under the Act or the Regulations. The Treasurer may provide this relief either by way of an exemption from specified obligations of the Act or Regulations or a modification of these obligations.
Classes of persons have not expressly been identified. Thus, the Treasurer has flexibility in providing relief to various persons who are subject to the Corporations Act. The Treasurer has suggested that the power could be used to grant relief where the regulatory requirements would interfere with the ability of companies to manage their businesses through the impacts of the coronavirus.
This power to grant relief is available from 25 March 2020 for a maximum of 6 months. It is available where the Treasurer is satisfied that:
(a) it would not be reasonable to expect the persons in the class to comply with the provisions; or
(b) the exemption or modification is necessary or appropriate, in circumstances relating to COVID-19, to facilitate continuation of business or to mitigate the economic impact of the coronavirus.
We understand from discussions with Treasury, that the Treasurer is considering various execution- related and other issues which have been brought to his attention. This matter is being given priority.
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Other Legislation
Under Schedule 5 to the Coronavirus Economic Response Package Omnibus (Measures No 2) Act 2020 (Cth) gives responsible ministers the power by legislative instrument to make a determination:
(a) varying;
(b) providing for the non-applicability of; or
(c) substituting a new provision for, provisions of an Act or legislative instrument requiring or permitting matters such as signatures, witnessing of signatures, verification of the identity of witnesses and the attestation of documents.
A determination is limited to being in response to circumstances relating to COVID 19. It can have retrospective effect but will have no operation after 31 December.
We understand that the Commonwealth is considering the use of these powers. ASIC also is looking at use of its modification powers in this context.
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New South Wales
On 25 March, the COVID-19 Legislation Amendment (Emergency Measures) Act 2020 (NSW) amended the New South Wales Electronic Transactions Act to permit regulations to be made to facilitate the provision of altered arrangements for the signing, witnessing and attesting of documents under an Act.
Under its emergency powers, the New South Wales Government issued a regulation concerning remote witnessing: Electronic Transactions Amendment (COVID-19 Witnessing of Documents) Regulation 2020 (Regulation).
Broadly speaking, the Regulation permits the remote witnessing of documents. It is to be noted that the earlier consultation draft of the Regulation also addressed electronic execution of deeds and electronic attestation of electronic documents. These were not included in the final version.
The Government indicated:
We are continuing to consider reform options for electronic signature and execution of documents that are currently required to be prepared in hard copy.
We understand the New South Wales Government is undertaking further consultation on this topic.
The Regulation provides that:
(a) documents that require a witness may be witnessed by audio visual link – subject to satisfaction of some requirements as to how this may be done;
(b) tasks in relation to witnessing a document may be performed by audio visual link;
(c) written oaths, declarations or affidavits required for a purpose specified in section 26 of the Oaths Act 1900 may be taken or made before an Australian legal practitioner; and
(d) a statutory declaration may be made before a person before whom a statutory declaration under the Statutory Declarations Act 1959 (Cth.) may be made.
The Regulation expires on 26 September, unless this date is changed by further regulation or a resolution of Parliament. See more here.
We understand other States and the Territories have or will be following suit.
Unfortunately, it remains unclear whether documents signed electronically, including Deeds, can be witnessed and witnesses can sign electronically. There are differing views. Legislative certainty is required.
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Institute of Internal Auditors-Australia (IIA-Australia): Release of Exposure Draft for Internal Audit Guidance for the Financial Services Sector
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The IIA-Australia has released an Exposure Draft Internal Audit Better Practice Guide for Financial Services: Principles and Recommendations, recommending guidance for the industry following recommendations from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
IIA-Australia is seeking comments by 31 May.
A copy may be obtained from IIA-Australia by going to this link or by contacting the FSC.
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