Welcome to Issue 34 of the FSC Policy Update – a fortnightly member briefing on the main legislative and regulatory changes across the financial services industry.
The past fortnight has been busy, with Parliament resuming amidst tentative signs of activity returning across the Australian economy.
Whilst Parliament recently failed to pass much-needed changes to the transition schedule for FASEA’s education requirements we are optimistic the major parties have reached an agreement to ensure they become law in June.
I was particularly proud of our life insurance team and members this past week who announced an initiative to ensure that if people lose their job, or are stood down or have reduced working hours as a result of COVID-19, this will not affect their TPD cover.
In the political arena, the Government also completed its review of remuneration structures related to Listed Investment Companies (LICs) and Listed Investment Trusts (LITs) and the FSC supported the Government’s final approach on this issue, noting it will help promote quality financial advice.
This issue of the FSC Policy Update covers much more, including the delay in the retirement income covenant and the ongoing disconnection of SuperMatch.
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)
Retirement Income Covenant deferred
Protecting Your Super (PYS) and SFTs
Regulations made for Improving Flexibility for Older Australians measures
COVID Total and Permanent Disability (TPD) Claims Initiative
FSC response to ASIC’s letter to life insurers
FSC Life Insurance Summit 2020 moves online
FASEA transition extension expected to pass in the Senate
Financial adviser exam results information
Operational Due Diligence (ODD)
Litigation funders to be regulated under the Corporations Act (Act)
ASIC: consumer remediation guidance to be extended to all financial services licensees
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PARLIAMENT, LEGISLATION AND REGULATION
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The FSC is re-establishing a remediation working group, which will develop an FSC response to ASIC’s planned review of its existing guidance on remediation, contained in RG 256 which was issued in September 2016.
As advised in the previous FSC Policy Update, 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 remediation working group will also consider any other policy issues relating to remediation.
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Design and Distribution Obligations (DDO)
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On 22 May, ASIC made a legislative instrument to implement the deferral of the Design and Distribution Obligations (DDO). The DDO obligations will now commence operation on 5 October 2021.
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SUPERANNUATION
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Retirement Income Covenant deferred
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On 22 May, the Government announced the deferral of the Retirement Income Covenant, which was previously scheduled to commence on 1 July 2020, to allow further consultation and legislative drafting.
The Covenant would create an additional obligation for trustees to specifically consider the retirement needs of their members and develop an appropriate retirement income strategy.
A new commencement date has not been announced.
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On 20 May, APRA and the ATO emailed superannuation trustees to advise that the SuperMatch service has been disconnected to all funds, following concerns about potential fraudulent online account creation.
The ATO has since convened two meetings of the Superannuation Administration Group to discuss the issue and a potential pathway forward.
The FSC is working with the ATO and other industry stakeholders to ensure that an appropriate solution can be developed to mitigate the risk identified by the ATO.
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Protecting Your Super (PYS) and SFTs
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APRA has updated its Protecting Your Super FAQ to note that the Government intends to amend the legislation to allow elections made under the PYS and Putting Members Interests First (PMIF) measures to be carried over when an SFT occurs.
This addresses concerns about the implications for PYS member elections in fund mergers. As the law is not currently drafted to allow elections to carry over, members would need to make a new election to prevent their accounts being captured by the PYS/PMIF rules.
No timeline has been provided for legislative change required to formally implement this and other unlegislated changes to PYS (including to resolve issues with whole-of-life products and to allow aggregation of interests in a single account).
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ASIC have updated their COVID-19 FAQ for trustees to include information on three additional issues:
- Exit statement requirements if the member has a zero account balance after accessing the early release scheme;
- ASIC’s expectations regarding direct communications to members with a zero or low balance after accessing the early release scheme;
- ASIC’s expectations about website/public communications about the impact of COVID-19 on insurance.
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Regulations made for Improving Flexibility for Older Australians measures
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The Government has made regulations to allow people aged 65 and 66 to make voluntary contributions to superannuation without having to meet the work test; and increase the cut-off age for spouse contributions from 70 years to 75 years, which aligns with the cut-off age that applies for other voluntary contributions.
These changes were announced in the 2019-20 Budget, along with a change to increase the age limit for accessing the bring forward non-concessional contributions cap, which will be made by legislation currently before Parliament.
The FSC made a submission supporting the draft legislation and regulations that would implement these changes. The measures all commence from 1 July 2020.
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LIFE INSURANCE
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COVID Total and Permanent Disability (TPD) Claims Initiative
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The FSC has announced an initiative on behalf of participating life insurance member companies to ensure that if people lose their job, are stood down or have reduced working hours due to COVID-19, this will not affect their total and permanent disability (TPD) cover. As explained below, life insurers will confirm their participation by making a statement on their website. In order to take advantage of the initiative, the person -
- Must have been working in their normal capacity on 11 March 2020*,
- Have had reduced working hours or lost their job due to COVID-19 since 11 March 2020,
- Become disabled as a result of an illness or injury between 11 March 2020 and 27 September 2020 inclusive,
- Have maintained TPD cover at the time you become totally and permanently disabled, and
- Lodge a completed claim form on or before 1 January 2021.
*When the World Health Organisation declared coronavirus to be a global pandemic.
If a person meets these criteria, on an ex gratia basis, participating life insurers will assess the claim using the applicable disability definition based on working arrangements as at 11 March 2020.
For more information visit the FSC website.
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FSC response to ASIC’s letter to life insurers
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The FSC has responded to ASIC’s letter to directors of life insurance companies in relation to expectations of life insurers’ responses to COVID-19. The FSC response makes clear that life insurance industry’s approach to responding to COVID-19 is in broad alignment with ASIC’s expectations. It makes specific mention of the COVID-19 industry initiatives and clarifies the industry’s positioning in relation to ASIC’s expectations around financial hardship.
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Please contact Aidan Nguyen if you would like to receive a copy of this letter.
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FSC Life Insurance Summit 2020 moves online
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The FSC will hold this year's Life Insurance Summit as a week-long webinar event with 10 morning sessions occurring across Monday 27 July to Friday 31 July.
- See the latest program here. More speakers are to be announced over the coming weeks.
- The link to register is available here.
- Additional information on the webinar event is available here.
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ADVICE
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FASEA transition extension expected to pass in the Senate
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The Treasury Laws Amendment (2019 Measures No 3) Bill, implementing changes to existing requirements for financial advisers announced by the Federal Government in August last year is expected to pass in the Senate this week.
As a result, financial advisers registered prior to January last year will need complete the FASEA exam by January 2022 and meet FASEA's qualification requirements by 1 January 2026.
View more information on the Government’s changes here.
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Financial adviser exam results information
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Information and data on the April sitting of FASEA exams is available here.
The pass rate for exams in the April sitting was 79 per cent - down from the average pass rate of 86 per cent.
These figures should be viewed in the context of COVID-19 and the impact this is having. Advisers had to sit the April exam remotely, and fewer numbers of advisers enrolled for that sitting. Despite this, it is expected 50 per cent of advisers registered on the Financial Advisers Register will have sat the exam by August, with 30 per cent having already sat the exam.
October exams will be held from 8 - 13 October with registration to be opened on 6 July. November exams will be held from 5 - 10 November with registration dates to be advised
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TAX
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- The FSC is finalising a submission on the ATO’s proposed response to the Burton case, which relates to the Foreign Income Tax Offsets (FITOs). The draft submission argues the ATO’s view does not reflect current industry practice, would result in overtaxation of some foreign capital gains and would be difficult for fund managers to implement.
- The FSC is developing a submission to the Board of Taxation in relation to its review of capital gains tax (CGT) rollover relief provisions. This will largely reflect existing FSC concerns with CGT rollover issues.
- FSC members have raised concerns that managed funds may lose their ‘widely held’ status due to substantial redemptions. The ATO is currently examining this issue and the FSC has requested their early feedback on how this issue will be addressed for managed funds.
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- The FSC succeeded in persuading Revenue NSW to make relevant amendments to the Commissioner’s Practice Note on stamp duty issues relating to premium relief provided by insurers due to COVID-19. Revenue NSW issued a revised CPN reflecting the FSC’s requested changes.
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INVESTMENTS
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The FSC ESG Working Group (ESG WG) has been meeting with the Responsible Investment Association Australasia (RIAA) to work on a Due Diligence Questionnaire (DDQ) for the purpose of Modern Slavery reporting.
Members were asked to trial the DDQ in their respective businesses and record any feedback which was consolidated and reviewed by the ESG WG, with proposed changes to the DDQ shared with the RIAA Modern Slavery Working Group. Overall, there were minimal changes made from both the FSC and RIAA to the latest draft DDQ. The DDQ has also been shared with the Australian Institute of Superannuation Trustees (AIST), the Association of Superannuation Funds of Australia (ASFA) and the Australian Council of Superannuation Investors (ACSI), with feedback from these associations also incorporated in the DDQ.
Next steps for the FSC
- RIAA and the FSC have agreed to half yearly meetings to continue the evolution of the DDQ.
- The FSC ESG WG will be meeting in the middle of this year to consider whether to endorse the DDQ as an official FSC document and potentially make it a Guidance Note. Further consultation will be undertaken, if the FSC chooses to officially endorse the DDQ.
If you want to join the ESG WG or would like to view the DDQ please contact Vincent So on This email address is being protected from spambots. You need JavaScript enabled to view it..
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Operational Due Diligence (ODD)
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The FSC has provided feedback to AIST’s updated Draft Operational Due Diligence (ODD) Guidance Note. AIST accepted most of the changes requested by the FSC.
AIST will be publishing its updated ODD Guidance Note in June 2020.
The next step is for the FSC ODD Working Group (ODD WG) to reconvene and review whether changes are required to FSC Guidance Note 37: Template Operational Due Diligence Questionnaire.
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LEGAL
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Litigation funders to be regulated under the Corporations Act (Act)
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On 22 May 2020, the Commonwealth Treasurer announced that litigation funders will be subject to greater regulatory oversight under the Act. Litigation funders will be required to hold an Australian Financial Services Licence (AFSL) and comply with the managed investment scheme regime.
The changes will take effect in three months from the date of the announcement. As AFSL holders, the obligations of litigation funders will include, obligations to:
- act honestly, efficiently and fairly;
- maintain an appropriate level of competence to provide financial services; and
- have adequate organisational resources to provide the financial services covered by the licence.
According to the Treasurer, the changes will require litigation funders to be more transparent about their operations, and complement the Parliamentary Joint Committee on Corporations and Financial Services inquiry into litigation funding and the regulation of the class action industry (which is due to report by 7 December 2020).
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ASIC: consumer remediation guidance to be extended to all financial services licensees
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On 13 May 2020, ASIC made the following announcement:
ASIC will shortly commence a public review of its current remediation guidance (set out in Regulatory Guide 256). The purpose of this review is to ensure that ASIC’s guidance applies effectively across the entire financial services sector, and to clarify ASIC’s expectations about how firms should be conducting consumer-centric remediations. It will also seek to improve transparency about consumer remediation outcomes.
The FSC will be making a submission on any proposed revisions to RG 256 through its Remediation Working Group. (See first article above).
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