Welcome to Issue 33 of the FSC Policy Update – a fortnightly member briefing on the main legislative and regulatory changes across the financial services industry.
The Government’s announcements of six-month deferrals to the incoming Royal Commission measures and the Design and Distribution Obligation (DDO) regime due to the COVID-19 disruption, were both welcome. Also welcome was the passing of the Government’s new law enabling permanent Capital Gains Tax (CGT) rollover relief for superannuation fund mergers.
In this issue, the FSC team also discusses the new Advice 2020 Industry Design Working Group, APRA’s publication of early release data for superannuation and provide an update on the Compensation Scheme of Last Resort (CSLR).
To share any relevant feedback with the FSC about this issue, please email the team.
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)
Review of ASIC Guidance on remediation (RG 256)
APRA publishes fund-level early release data
Capital Gains Tax (CGT) rollover relief for merging superannuation funds
Flexibility for older Australians
FSC-KPMG Disability Insurance (DI) Experience Analysis Events
Deferral of FSC Standard 26: Consent for Accessing Health Information
FSC Life Insurance Summit 2020 Webinar Event
Advice 2020 Industry Design Working Group
Tax Practitioners Board updates to COVID-19 relief
Compensation Scheme of Last Resort (CSLR) update
Direction to limit number of trades executed each day revoked
AML-CTF Rule updated to support flexible KYC processes during COVID-19
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PARLIAMENT, LEGISLATION AND REGULATION
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Parliament sat on Tuesday 12 May to Thursday 14 May, and passed legislation permanently removing the tax impediments to merging superannuation funds and changing the tax settings for managed funds (see superannuation and tax sections below).
The Senate was scheduled to consider the extension to FASEA compliance on Thursday, but unfortunately disagreement over amendments to the bill prevented consideration of this Bill within in the time available. The FSC is optimistic this issue will be listed for a future sitting period and fully support its passage.
A revised Parliamentary sitting schedule for 2020 was released, see here.
The next scheduled sitting period for Parliament is Wednesday 10 June to Friday 12 June, and the Federal Budget has been scheduled for 6 October 2020.
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The Government has announced a six month deferral to all Royal Commission measures that are not yet law. This means legislation that was due to be introduced to into Parliament by 30 June 2020 will now be introduced by December 2020. Similarly, those measures originally scheduled for introduction by December 2020 will now be introduced by 30 June 2021.
In addition, the Government stated that if exposure draft legislation has been released for Royal Commission measures, then the start date as contained in the exposure draft will be deferred by an additional six months.
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The ATO responded in detail to the FSC’s requests for deferrals and waivers due to COVID-19, providing welcome assistance to many FSC members. With this response, all relevant regulators have now responded to the FSC’s requests for deferrals or waivers due to COVID-19.
For more details see the tax section below.
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Design and Distribution Obligations (DDO)
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FSC members have been working together on a range of DDO issues, and individual firms have also been investing significant resources in implementing the DDO regime.
FSC member firms were indicating there were major difficulties in meeting the original DDO deadline of 5 April 2021 deadline, particularly with the disruption caused by COVID-19.
The FSC has been engaging with Ministers, Treasury, ASIC and other key stakeholders to raise concerns about the ability of FSC members to make the required system and process changes during COVID-19. Therefore, the FSC welcomed the news on 8 May 2020 that ASIC will defer the implementation date of DDO by six months to 5 October 2021.
Despite this extension of time, FSC working groups are still meeting to develop target market determination templates, standard definitions, and other template documents for the industry.
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Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. and This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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Review of ASIC Guidance on remediation (RG 256)
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ASIC has publicly indicated that it is reviewing its existing guidance on remediation, contained in RG 256 which was issued in September 2016 (the announcement of this review was in an ASIC press release on Consumer Credit Insurance). ASIC is planning to have a public review of this guidance.
The existing guidance in RG 256 largely relates to advice licensees only, and the aim is for the revised guidance to apply to all financial services businesses. The updated guidance is also likely to reflect the additional industry and ASIC experience of remediation since RG 256 was issued. The public review of RG 256 is likely to occur in late June or early July, but this is dependent on ASIC internal processes. ASIC has indicated it will keep the FSC informed about this review.
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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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SUPERANNUATION
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APRA publishes fund-level early release data
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APRA has commenced publication of fund-level data relating to the COVID-19 Early Release Scheme. The first report covers the period from 20 April to 3 May 2020. APRA intends to publish the data on a weekly basis.
APRA’s industry-level and fund-level data can be found here.
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Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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Capital Gains Tax (CGT) rollover relief for merging superannuation funds
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On 14 May, legislation to provide permanent CGT rollover relief for merging superannuation funds was passed by both houses of Parliament.
The relief was previously due to expire on 1 July 2020, and the FSC had expressed concern that legislation may not be passed before this date.
The FSC published a media release welcoming the passage of the legislation.
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Flexibility for older Australians
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On 13 May, the Treasury Laws Amendment (More Flexible Superannuation) Bill 2020 was introduced to the House of Representatives. The Bill will allow individuals aged 65 and 66 to make use of the non-concessional contribution bring forward rule, and is scheduled to begin from 1 July 2020.
The Bill is part of a package of measures announced in last year’s Federal Budget, which also includes regulatory changes to:
- Allow people aged 65 and 66 to make both voluntary concessional and non-concessional contributions without meeting the work test; and
- Allow those aged 70 to 74 to receive spouse contributions.
Treasury consulted on this package earlier this year. The FSC’s submission can be found here.
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LIFE INSURANCE
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FSC-KPMG Disability Insurance (DI) Experience Analysis Events
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With the imminent release of the latest DI Experience Analysis, amongst the most detailed and timely analysis available of its kind internationally, the FSC has gathered an expert panel from KPMG to present the insights across two targeted webinar sessions with its life insurance and reinsurance members.
Full FSC life insurance members are invited to attend the following two sessions:
- Session 1 - Key Findings: Thursday 21 May from 11:30am – 12:30pm
- Session 2 – Deep Dive: Friday 22 May from 11:30am – 1:00pm
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Please contact Aidan Nguyen for more information on how to register and attend.
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Deferral of FSC Standard 26: Consent for Accessing Health Information
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The Standards Oversight and Disciplinary Committee (SODC) and FSC Board agreed to defer the 1 July 2020 effective start date of Standard 26. The Standard is delayed from now until six months after COVID-19 has been resolved. The non-force majeure/COVID-19 resolution period is to be a date, determined by the SODC, when the Force Majeure Event has passed or by 1 January 2021, whichever is the latter.
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Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. or Aidan Nguyen for more information.
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Significant work has been undertaken to consider the detailed feedback provided during the initial round of consultation. This is now in the process of being finalised. The FSC will look to bring forward the process of the plain English rewrite so work can commence on those sections of the Code which have been agreed and allow additional time to work through the remaining feedback.
Following discussions with Treasury, it is not anticipated that there will be changes to the model of determining the enforceable code provisions that were proposed in the exposure draft legislation. The FSC will continue to work with ASIC to understand how they will apply this in their regulatory guide.
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Please contact Jamie Kennedy for more information.
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FSC Life Insurance Summit 2020 Webinar Event
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The FSC will hold this year's Life Insurance Summit as a week-long webinar event from Monday 27 July to Friday 31 July, 2020.
Over 20 industry leaders will speak across 10 morning sessions over the week.
See here for more details.
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ADVICE
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Advice 2020 Industry Design Working Group
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This Working Group will shortly convene for the first time. It will be tasked with identifying specific unnecessary costs, blockages and duplication that can be cleared from the advice system to ensure consumers can access affordable advice while supporting Australia’s economic recovery.
Members should not hesitate to submit ideas or indicate if they would like to be involved.
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Tax Practitioners Board updates to COVID-19 relief
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The Tax Practitioner’s Board has updated its FAQ and information on the relief it will be providing tax practitioners (and consequentially, tax (financial) advisers):
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Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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TAX
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- The FSC issued a media release welcoming the passage of legislation to make permanent the Capital Gains Tax (CGT) rollover relief for merging superannuation funds. However, the FSC also expressed concern that the same legislation contained a broadening of the definition of Significant Global Entity (SGE) to include investment funds. This will increase tax compliance costs and will put Australia’s managed funds at a further tax disadvantage.
- Other relevant tax legislation currently before Parliament includes:
- The Treasury Laws Amendment (2019 Measures No. 3) Bill 2019 which purports to address the tax on rollover of death benefits and the commutation of certain marked linked income streams. The FSC has raised concerns that these parts of the legislation do not operate as intended.
- The Treasury Laws Amendment (2020 Measures No. 2) Bill 2020 which contains a range of measures including technical amendments to the hybrid mismatch rules for tax.
- Treasury Laws Amendment (More Flexible Superannuation) Bill 2020 – see superannuation section above.
- The ATO responded to the FSC’s requests for deferrals and waivers due to COVID-19, providing welcome assistance to many FSC members. The response was provided to interested tax experts and was discussed in detail with the ATO (see next item).
- The FSC met with the ATO to discuss several key tax issues for fund managers in the light of COVID-19. The discussion focussed on:
- The impact of the Federal Court decision Burton v Commissioner of Taxation [2019] FCAFC 141 on fund managers. While the ATO considers the Burton decision does not change its existing views, FSC members argued that it is not consistent with ATO guidance and industry practice.
- The FSC indicated we are preparing a submission on the ATO’s Decision Impact Statement on the Burton decision.
- FSC members have considered in detail the impact of this decision and how to raise concerns about its impact.
- The process for developing and finalising the questions sent to managed funds under the ATO’s Streamlined Assurance Reviews (SARs). In response to this discussion, the ATO indicated it would provide the FSC with proposed SAR questions before they were sent to funds.
- The potential for managed funds to fail the ‘widely held’ test due to significant redemptions because of COVID-19. The ATO is considering this issue and will contact the FSC shortly with its views and potential response(s).
- Issues relating to early closing of distributions and the need to move to electronic documents rather than hard copy documents.
- The impact of the Federal Court decision Burton v Commissioner of Taxation [2019] FCAFC 141 on fund managers. While the ATO considers the Burton decision does not change its existing views, FSC members argued that it is not consistent with ATO guidance and industry practice.
- FSC tax experts are considering the priority tax issues for the process of recovery from COVID-19.
- The OECD has requested fund managers, including those in Australia, to provide examples of problems with obtaining treaty benefits due to COVID-19 – including requirements for hard copies that are unreasonable now.
- The FSC is considering suggested topics for review by the Inspector-General of Taxation, including the taxation administration for managed investments, such as the treatment of mistakes that would require thousands of taxpayers to amend their income tax returns resulting in a very small amount of tax payable.
GST
- The FSC GST Expert Group is considering the GST issues with remediation and the GST issues with the fee cap under Protecting Your Super.
- The FSC met with the ATO to provide an overview of these two GST issues.
State Taxes
- The FSC provided comments on a draft Revenue NSW practice note about stamp duty issues relating to the various actions insurers were taking in response to COVID-19. Revenue NSW has now released final the practice note.
- There has been significant press about State Governments the abolition of stamp duty and other inefficient taxes, a change that the FSC would naturally welcome. Some of this media relates to the NSW Review of Federal Financial Relations – the FSC made a submission to this review arguing that insurance duties should be abolished as well as payroll tax on payments from advice licensees to financial advisers.
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INVESTMENTS
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Compensation Scheme of Last Resort (CSLR) update
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As a result of the significant impact of COVID-19, the Government has announced a 6-month deferral to the implementation of the Royal Commission recommendations.
The FSC had a meeting with Treasury last week to further understanding the details regarding the deferral. In relation to the CSLR, which was originally due to be established by December 2020, we understand the deferral would mean the CSLR is expected to be established by July 2021.
A number of key policy decisions, such as whether the scheme is broad or narrow, are outstanding. Given the disruption caused by COVID-19 and competing priorities the FSC understands that further progress on this recommendation may take some time and members will be notified once further information is available.
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Direction to limit number of trades executed each day revoked
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ASIC has revoked the direction issued to equity market participants to limit the number of trades executed each day. This was put in place in mid March, following the equity market exceeding the number of trades that could be reliably processed on a single day on 13 March 2020. Since then a number of enhancements have been made by market operators and clearing and settlement facilities, as well as positive action taken by these participants to reduce the number of executed trades and there has been a stabilisation in trading activity.
ASIC has outlined its expectations for all market participants to act appropriately to ensure Australia’s equity markets remain resilient. ASIC expects:
- “all equity market participants to take reasonable steps to ensure the number of trades matched from their orders:
- are capable of being handled by their internal processing and risk management systems, and if applicable, their clearing and settlement operations; and
- support the fair and orderly operation of Australian equity markets.”
ASIC will be closely monitoring the behaviour of participants and take further action where necessary. Further information is available here.
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LEGAL
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Corporations (Coronavirus Economic Response) Determination (No 1) 2020 (Determination No 1): Execution by companies under Section 127 and virtual company meetings
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On 5 May, the Commonwealth Treasurer made a determination permitting directors and secretaries of companies to sign agreements under section 127 of the Corporations Act (Act) on separate paper or electronic copies (i.e. by way of counterparts).
Section 127 of the Act permits companies to execute documents by two directors or a director and a company secretary.
Determination No 1 is a response to the COVID-19 pandemic. It applies on a temporary basis until 6 November 2020. It also enables online shareholder meetings to be held.
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Electronic execution of documents
Determination No 1 makes it clear that there may be electronic execution of counterpart documents for Section 127 purposes, on a temporary basis.
Determination No 1 may be relied on only if the full document is signed. It is insufficient merely to sign a counterpart of the execution page only.
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Online member meetings
Companies are able under Determination No 1 to convene and hold member meetings online rather than “physically”. The changes remain effective until 6 November 2020. Under these changes:
- Notices of meeting can be provided via email and must include details as to how to attend and participate in the meeting virtually;
- A quorum can be achieved with shareholders attending online; and
- Meetings can be held online.
It remains the case that members must be given an opportunity to participate, speak and put questions to the Board. There is a mechanical issue of “virtual voting”. Members must vote by poll and not by show of hands.
ASIC previously has advised of no-action with respect to meeting procedures for virtual AGMs.
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AML-CTF Rule updated to support flexible KYC processes during COVID-19
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AUSTRAC has amended a Rule and developed supporting guidance to provide businesses with flexibility to rely on alternative proof of identity processes where:
- Information based on an original or certified copy of a document cannot be verified because of measures to prevent the spread of COVID-19;
- A customer is unable to provide the identity documents usually required for identification because of measures to prevent the spread of COVID-19, including customers in self-isolation or where businesses may have shut down temporarily.
AUSTRAC has provided examples on its website (refer to above link) as to how businesses should apply the Rule to their customer identification obligations.
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