Welcome to Issue 36 of the FSC Policy Update – a fortnightly member briefing on the main legislative and regulatory changes across the financial services industry.
In this issue, the team analyses the ASIC Competition in Funds Management Review, the APRA Pandemic Data Collection project and the LCCC’s 2018-19 report on the life insurance industry’s compliance with the Life Insurance Code of Practice (the Code).
The FSC is pleased that in the past fortnight the Parliament passed the Treasury Bill that contained extensions to FASEA’s education timelines.
On the other hand, Parliament failed to pass the ‘Your Super, Your Choice’ Bill, which extends choice of fund to employees covered by enterprise agreements, notwithstanding cross-bench Senators aligning with the Government to reject proposed Labor amendments to the Bill. The Bill was unfortunately caught up in an unrelated procedural dispute that prevented the Government from passing any contested legislation.
This edition of the Policy Update covers off consultation with ASIC on the Design and Distribution Obligations (DDO), new data collection by APRA for superannuation funds during the COVID-19 pandemic and FSC support for measures to cut red tape.
To share any feedback with the FSC about these, please email the team.
Blake Briggs, FSC Deputy CEO.
Click on the topic of interest below to read more.
Design and Distribution Obligations (DDO)
Regulatory Guide on Product Intervention Powers
ASIC FAQ guidance on changes to minimum drawdown
Superannuation changes pass Parliament
Superannuation Transaction Network (STN) tests resilience to cyber attacks
FSC’s joint advocacy secures an additional three months for the CPD year
FASEA exam standard passed into law
Changes to the Foreign Investment Framework
ASIC Competition in Funds Management Review
ASIC FAQ for Managed Investments Schemes: COVID-19 information
2020 Annual Compliance Attestation Mail Out
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PARLIAMENT, LEGISLATION AND REGULATION
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Design and Distribution Obligations (DDO)
The FSC met with ASIC to discuss issues relating to the DDO regime. ASIC is working towards finalising the DDO Regulatory Guide (RG) and indicated that the tentative release date for this is late August.
ASIC also:
- Confirmed that the RG would be final and there would not be a second round of consultation on the RG.
- May wish to have further discussions with FSC members about how the DDO regime works for Exchange Traded Products.
- Indicated they were interested in receiving the FSC’s template Target Market Determinations (TMDs) before the RG is finalised, and they would use these templates to assist with the finalisation of the RG.
- Indicated ASIC is open to having a roundtable with FSC members about the template TMDs once the RG is finalised – this would be an opportunity for ASIC to provide feedback on the templates.
- Reiterated an earlier request that FSC members provide ASIC with any examples of how members consider the DDO regime might operate for a product or class of products.
ASIC also indicated it would consider how to respond to the FSC’s requests for various modifications and exemptions from the DDO regime. The FSC requested that ASIC indicate whether they accepted the FSC’s proposed modifications, and why.
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ASIC released its final regulatory guide on the product intervention powers. The FSC provided a document to the DDO working group showing the changes from the draft to the final RG. In broad terms, many of the changes were stylistic, with a few changes to reflect the Cigno Pty Ltd case and only a small number of more substantive changes.
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Please contact Michael Potter or Vincent So for more information.
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SUPERANNUATION
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APRA has finalised requirements for a new data collection in relation to COVID-19 issues, and released the data templates on 24 June along with a letter to trustees.
The final request includes several changes made as a result of industry consultation.
A webinar on the new collection will be held in July, with funds due to provide their first data on 31 July.
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Please contact Jane Macnamara for more information.
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ASIC FAQ guidance on changes to minimum drawdown
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ASIC has updated its FAQs in relation to COVID-19 to include a new FAQ regarding how trustees should communicate with members about the Government’s changes to the superannuation minimum drawdown rates (FAQ 1F).
This follows media coverage relating to concerns about the potential for members to have their payments reduced without their knowledge.
ASIC has also made updates to FAQ 2D to include references to the interim corporate plan and revised timetable of work.
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Please contact Jane Macnamara for more information.
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Superannuation changes pass Parliament
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The Treasury Laws Amendment (2019 Measures No 3) Bill recently passed by Parliament contained two tax-related superannuation changes:
- A change to the taxation treatment of the rollover of death benefits. Members have raised concerns that the legislation does not work as intended. The ATO has addressed some of these concerns in correspondence with the FSC which has been shared with relevant working groups. The FSC has written to the ATO requesting this information be provided in the form of public guidance so that all superannuation trustees can rely on the information.
- A change to the calculation of the debit to transfer balance accounts when a member commutes a market linked pension. The changes are retrospective to 1 July 2017 and may require super funds to amend reporting to the ATO about previous commutations. The ATO has issued public guidance indicating that it will issue guidance to superannuation trustees about the changes in August 2020 and will not take compliance action against funds that do not review their previous reporting before that time.
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Please contact Michael Potter for more information.
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Superannuation Transaction Network (STN) tests resilience to cyber attacks
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The Gateway Network Governance Body (GNGB), along with Deloitte and the superannuation gateway operators, completed the 2020 Cyber Incident Response test on June 25. Gateway operators and stakeholders responded to simulated threats based upon real-world scenarios that could impact the STN or individual gateway operators.
Given the recent nationwide focus on data security, the GNGB is focused on ensuring collaboration across the superannuation system to ensure the system remains resilient to cyber threats.
The FSC is a co-sponsor member of the GNGB, which was established to manage and maintain the integrity of the STN. GNGB convenes a security committee which has looked at security issues since its inception in February 2019 and invites superannuation industry providers to contribute to the conversation.
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Read the full media release on the GNGB website.
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LIFE INSURANCE
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Please contact Jamie Kennedy or Aidan Nguyen for more information.
Please contact Nick Kirwan or Aidan Nguyen for more information.
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A considerable amount of work has been undertaken by the Life Code Working Group which has completed the work of going through the feedback received during the consultation process. This was a significant piece of work. The next stage will be to release to stakeholders our public positions so that the redrafting and plain English rewrite can commence.
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Please contact Jamie Kennedy for more information.
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ADVICE
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FSC’s joint advocacy secures an additional three months for the CPD year
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FASEA is allowing an additional three months in which advisers can meet FASEA’s minimum requirements to undertake 40 hours of continuing professional development (CPD).
How will it work?
- FASEA will create this relief by legislative instrument.
- It will cover any adviser impacted during the official Coronavirus pandemic period: 18 March 2020 or after X
- Eligible advisers will have three months added to their CPD year – many of these are the current financial year but there are exceptions and the relief will apply in either respect.
- This means the existing requirement to complete 40 hours CPD will be allowed over 15 months rather than 12 for this year. E.g. An adviser who attends a CPD event in July can claim it in the three-month window, or in the second 12-month period from when their previous CPD year ends – it cannot be claimed in both years.
- FASEA is encouraging advisers to utilise effective solutions being offered by Licensee CPD programs that contain online learning as part of a led or conducted CPD program. Video conferencing and/or webinar technology options are equally considered appropriate alternatives to face to face offerings.
The FSC signed a letter calling for this change along with other industry associations. It is one example of how these organisations are working together to relieve the advice system of unnecessary pressure and cost and support Australia’s economic recovery so advisers and product providers can meet the needs of consumers.
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FASEA exam standard passed into law
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The passage of an extension of time for financial advisers to comply with new education standards and professional requirements was passed by the Senate last week with bipartisan support.
The FSC has advocated for their passage given the welcome certainty this brings for thousands of Australians working in the financial advice industry. The Australian Financial Review last week cited estimates from Adviser Ratings showing that had the standards not passed up to 16,000 financial advisers could have been forced to cease trading, leaving 1.5 million clients without access to advice and $900 billion in investor funds "in limbo".
Financial advisers registered prior to January 2019 can now complete the FASEA exam by January 2022 and have until 2026 to meet substantially higher qualification requirements.
Read our Media Release welcoming the announcement here.
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Insights from FASEA as to Exam progress to date and sittings scheduled for the remainder of 2020 are available at this link. For all FASEA standards please see here.
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Please contact Zach Castles for more information.
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TAX
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- The Treasury Laws Amendment (2019 Measures No 3) Bill recently passed by Parliament contained two tax-related superannuation changes – see details in superannuation section here.
- The FSC made a submission to the Board of Taxation about product modernisation (or rationalisation). The submission closely reflected previous submissions the FSC has made on this issue. The submission was to a review the Board is conducting into CGT rollover relief and was in response to a request made of the FSC to provide more detail about the product rationalisation issue and the FSC’s proposals. The FSC will consider making a second submission to the Board on other CGT rollover issues.
- The FSC provided a paper to the ATO and Treasury on the issues with the recently enacted changes to the taxation of death benefit rollovers. The FSC has been informed by the ATO that superannuation funds do not have to calculate an untaxed element when paying a death benefit rollover; however, the FSC requested the ATO make this interpretation public.
- Andrew Mills, former second commissioner at the ATO, met with the FSC Tax Expert Group (TEG) to discuss tax issues relating to fund managers, including the difficulties fund managers are having with tax issues, particularly the ATO’s approach to the Burton case (which relates to foreign capital gains), and reporting requirements particularly through the Annual Investment Income Report (AIIR). Andrew has agreed to continue meeting with the FSC on these and other issues.
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Please contact Michael Potter for more information.
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INVESTMENTS
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Changes to the Foreign Investment Framework
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The Government recently announced it would make substantial changes to the foreign investment framework. The main change is to introduce a new national security test that will require more scrutiny of investments that are sensitive to national security. See the issues paper available from this link.
Of relevance to fund managers, the Government proposes to introduce “investor specific exemption certificates” (see page 11 of the issues paper) that will allow investors to make eligible acquisitions without case-by-case screening.
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Please contact Vincent So for more information.
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ASIC Competition in Funds Management Review
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ASIC has asked Deloitte Access Economics to undertake a review of competition in the fund's management industry (Review). As part of the review, Deloitte is surveying fund managers and other stakeholders to understand competition in the sector.
Following the FSC’s recommendation that the survey timeframe is extended in the current COVID-19 environment, survey responders have until 31 July 2020 to complete the survey. At Deloitte’s request, the FSC has forwarded this survey to relevant members for completion.
The FSC understands that an interim report on the findings is likely to be provided to ASIC late in August 2020.
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ASIC FAQ for Managed Investments Schemes: COVID-19 information
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ASIC has posted some FAQs on its website which focuses on lodgement of documents for Managed Investment Schemes (MIS) and financial reports for MIS and responsible entities in response to COVID-19.
A link to the FAQs is available here.
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Please contact Bianca Richardson for more information.
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LEGAL
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On 15 June the Assistant Minister to the Prime Minister and Cabinet, issued a release: Cutting red tape by Modernising Business Communications and Improving Occupational Mobility.
There are two priority areas for the Government’s Deregulation Taskforce – modernising business communications and improving occupational mobility. The Assistant Minister said that this will assist COVID-19 economic recovery by cutting red tape.
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Modernising Business Communications
The release notes that Commonwealth and State laws have not kept pace with the way Australians engage with digital communications and add compliance costs. An example is the various requirements mandating that businesses use certain methods of communicating or storing information - preventing them from using electronic delivery or adopting new technologies such as blockchain applications. The release also notes that the Electronic Transactions Act 1999 (Cth.) (ETA) facilitates commerce by removing impediments to using electronic communications to satisfy legal obligations. However, in the 20 years since its introduction digital communication has increased but the number of exemptions, currently 147, have largely remained unaltered.
Each of the States and Territories has similar legislation to the ETA with various exemptions.
The Taskforce will examine other legislation which can be made technology-neutral.
The next step is for the Deregulation Taskforce to consult with stakeholders on these issues, including consultation with State and Territory Governments to explore complementary reforms. The FSC will be involved in these consultations and will draw on recent COVID-19 related experiences such as the temporary amendment to the Corporations Act 2001, to expressly permit “virtual “member meetings, subject to satisfaction of certain conditions.
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Improving Occupational Mobility
This aspect of the Taskforce’s work will explore greater mutual recognition of qualifications and improved information flows between jurisdictions.
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Please contact Paul Callaghan for more information.
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2020 Annual Compliance Attestation Mail Out
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As usual, at this time of year, we will be sending the Annual Compliance Attestation package of documents to all full FSC Members. In summary, this bundle of documents includes requests to full Members for the year ended 30 June:
- to return completed attestation documents in relation to ongoing compliance with FSC Standards by 30 September; and
- if a member wishes to apply for an exemption from the requirements of any FSC Standard (other than Standard One), to do so by 21 August.
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Please contact Paul Callaghan or David McGlynn for more information.