Welcome to Issue 37 of the FSC Policy Update – a fortnightly member briefing on the main legislative and regulatory changes across the financial services industry.
Parliament has entered the long winter recess and will not sit again until the first week of August. In the meantime, the Government is preparing its ‘Economic Update’ that will be handed down on 23 July. The update will focus on how the Government proposes to transition away from the high level of economic stimulus required by the COVID-19 pandemic.
The Government is also using this time to finalise the next tranche of Royal Commission legislation, scheduled for introduction to Parliament in the August sitting period.
This policy update covers other important work at the FSC, including progress on the Design and Distribution Obligation (DDO) regime and APRA’s updated superannuation heat maps.
This Thursday's 'In Conversation' member-only free superannuation webinar event (9.00am - 10.00am) with Senator Andrew Bragg and Michael Rice is not-to-be-missed. Register here.
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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)
FSC - KPMG DI Experience Analysis Event
FSC response to ABC news coverage on TPD claims and the COVID-19 commitment
Revised start date for tax & superannuation measures
NSW Review of Federal Financial Relations
Global Investment Performance Standards (GIPS) explanations
GIPS Application to Alternative Strategies webinar event
Royal Commission Referral: APRA Licence Conditions Imposed on Superannuation Trustees
Commonwealth Penalty Unit Increase
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PARLIAMENT, LEGISLATION AND REGULATION
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Design and Distribution Obligations (DDO)
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The FSC has organised a workshop to discuss the DDO treatment of retirement products, including Account Based Pensions (ABPs), Group Self Annuitisation (GSA) products, term annuities and lifetime annuities.
The workshop will be held on Thursday 30 July from 2.00pm - 4.00pm (online only). If members wish to attend this meeting and have not received an invitation, please email This email address is being protected from spambots. You need JavaScript enabled to view it..
FSC members that issue Exchange Trade Products (ETPs) met to discuss how the DDO obligations operate for secondary market trading of ETPs; and then jointly met with the ASX, Chi-X and stockbrokers to discuss this issue. The meetings were organised to encourage a common view among participants of the specific DDO issues facing ETPs, particularly how the distribution obligations apply to secondary market trading of ETPs, and potential solutions to issues. The participants agreed to continue discussions on these issues.
The FSC provided ASIC with the latest draft of the template Target Market Determination (TMD) for funds management. ASIC will take the draft into consideration as it finalises the Regulatory Guide (RG) on the DDO obligations. ASIC have indicated that they are open to having a discussion with FSC members about the template once the final RG is released.
The FSC is proposing to add legal text to template TMDs to clarify the templates are the copyright of FSC (on behalf of FSC members). This is in preparation for the FSC providing the templates to other industry associations, with a view to the FSC licensing the use of the templates by non-members. This will facilitate the wider adoption of the templates by the financial services industry, while ensuring FSC retains (on behalf of members) control of the templates.
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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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On 30 June, APRA released an updated version of its MySuper Product Heatmap. The update includes new fee data as at 29 May 2020. Other information in the Heatmap remains the same and has not been updated.
APRA intends to publish a full update of the Heatmap later this year.
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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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LIFE INSURANCE
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FSC - KPMG Disability Income (DI) Experience Analysis Event
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The FSC and KPMG will be presenting an insights session on the graduation of the new DI Industry Standard Table. The table comprises extensive data collection and analysis, based on more than 45,000 claims from a five-year period, which makes it the most up to date Disability Income table in the world. By way of comparison, the United States Society of Actuaries 2012 Individual Disability Experience Committee (IDEC) table is based on 1990 - 2007 experience and the UK “IP06” table is based on 2003 - 2010 data.
Full life insurance members are invited to attend the following session scheduled tomorrow Tuesday 14 July from 3.00pm – 4.00pm. Register here.
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Please contact Aidan Nguyen for more information.
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FSC response to ABC News coverage on TPD claims and the COVID-19 commitment
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In response to recent ABC News media coverage which claims “people who have to apply under an activities of daily living test have a 60 per cent claim denial rate, that is versus a 12 per cent claim denial rate under the standard test”, the FSC has undertaken action to correct the record by providing the journalist with the latest and accurate FSC/KPMG 2019 data.
Nick Kirwan provided ABC News with an interview, additionally the FSC has issued the following response on social media on Twitter and LinkedIn.
Access to the online article is available here and the radio story 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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Following a meeting between subscribers and the Life Code Compliance Committee (LCCC), the process for the 2019-2020 Annual Data Collection Programme will soon commence. The LCCC will look to further align the data collection requirements with the APRA specifications, easing the burden of providing data on subscribers.
The LCCC will soon commence its first Own Motion Inquiry (OMI) where it will look to gather information on whether subscribers have reviewed medical definitions for on-sale products within the last 3 years.
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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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ADVICE
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FASEA consults on Legislative Instrument (LI) regarding three-month Continuing Professional Development (CPD) relief
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The draft LI enacting three month CPD relief for financial advice was released for consultation at the end of June.
The FSC, in consultation with members, provided feedback by the deadline of 1 July. A copy of the draft legislative instrument is available here. Members will be kept updated on relevant developments relating to the implementation of the LI.
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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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Revised start date for tax & superannuation measures
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The Government announced that the start date for various tax and superannuation measures would be deferred, as per the below table.
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Revised start date |
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Increasing the maximum number of allowable members in self-managed superannuation funds and small APRA funds from four to six. |
Start date revised from 1 July 2019 to Royal Assent of the enabling legislation. |
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Removing the capital gains discount at the trust level for Managed Investment Trusts and Attribution (MITs). |
Start date revised from 1 July 2020 to the income years commencing on or after three months after the date of Royal Assent of the enabling legislation. |
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Ten Year Enterprise Tax Plan — targeted amendments to Division 7A (private benefits to shareholders). |
Start date revised from 1 July 2020 to income years commencing on or after the date of Royal Assent of the enabling legislation. |
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Reducing red tape for superannuation funds (exempt current pension income changes). |
Start date revised from 1 July 2020 to 1 July 2021. |
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The Assistant Treasurer, the Hon Michael Sukkar MP said, “These revisions are a result of the reprioritisation of Government resources and the shortened Parliamentary sitting period in 2020 due to the COVID-19 crisis” and “The Government is committed to legislating to implement each of these measures and will continue to progress them for delivery as soon as possible.”
Notably, the above indicates the Government remains committed to removing the Capital Gains Tax (CGT) discount for Managed Investment Trusts and Attribution (MITs) and Attribution Managed Investment Trusts (AMITs); a measure which the FSC continues to oppose.
See the media release here.
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Managed fund distribution of Foreign Income Tax Offsets (FITOs) as a result of Burton v Commissioner decision
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The FSC understands that there are a variety of views about whether managed funds should implement the Burton v Commissioner decision by reducing FITO distributions at the trust level:
- Several major tax advisers are recommending that managed funds should reduce FITO distributions.
- At least one custodian has argued that the Australian Taxation Office (ATO) has a view that MITs/AMITs should not reduce their FITO distributions. The ATO has informed the FSC that, in fact, the ATO has not yet formed a view on this issue.
- One fund administrator is using a template that says FITO distributions have not been reduced.
- Another superannuation association has suggested in a submission to the ATO that managed funds are not reducing FITO distributions to superannuation funds.
The differences in view indicate that there is a need for the ATO to clarify its view, the FSC has put this case to the ATO.
There is also a more widely held view that, if a managed fund does not apply a FITO reduction at the trust level, then the fund must provide sufficient information to the investor to apply any FITO reduction.
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NSW Review of Federal Financial Relations
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The NSW Government released the draft report of the review of Federal Financial Relations, chaired by David Thodey. The draft report makes recommendations including the following:
- Replace all specific taxes on insurance policies with broad-based taxes
- A national approach to payroll tax reform
- Replace property stamp duty with a broad-based land tax
- Sharing of revenue from personal income tax
- State Treasurers to assess and agree on options for lifting and/or expanding the base of the GST, with protections for low-income householders (no recommendations are made specifically about GST on financial services).
The FSC issued a press release welcoming the report’s condemnation of duties on insurance as being inefficient, inequitable, unfair, potentially causing serious human and social consequences, and leading to a national crisis of underinsurance. The FSC also welcomed the Review’s statement that “the Review concurs with the numerous previous inquiries, pressing with urgency that all specific insurance taxes should be abolished”. See more here.
In relation to payroll tax, the Review did not address the specific issue raised by the FSC, which is about the application of payroll tax to payments from advice licensees to advisers/advice businesses. However, the Review advocates for a broad payroll tax reform which could address this issue.
The draft report is available here.
Submissions on the draft report are due by 31 July. The FSC will consider making a submission on the draft.
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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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INVESTMENTS
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Global Investment Performance Standards (GIPS) explanations
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The CFA Institute has provided a number of additional new explanations of the GIPS Standards for Firms which are available here.
The Asset Manager Code toolkit is expected to be available soon on the relevant website.
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GIPS Application to Alternative Strategies webinar event
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A GIPS application to alternative strategies briefing, hosted by the Standards Board for Alternative Investments, is being held on 21 July 2020 at 1:00pm (Sydney/Melbourne local time).
Speakers include Kate Misic, Head of Alternative Investments, Telstra Super Pty Ltd, who spoke at the FSC GIPS briefing last year. Kate will be joined by a number of CFA experts from the United States. Other speakers includes:
- Daryl Bradford, SVP, Director, Performance & Attribution, Acadian Asset Management
- Kenneth Robinson, Director, Global Industry Standards, CFA Institute
- Thomas Deinet, Executive Director, SBAI (Moderator)
The panel discussion will focus on:
- Investor/manager perspective on standardised performance reporting
- Key issues that can arise in performance representation
- Application to alternative strategies
- Available resources
If you would like to register and attend the event, please click on the following link for webinar registration.
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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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LEGAL
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Royal Commission Referral: APRA Licence Conditions Imposed on Superannuation Trustees
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On 2 July, APRA imposed a new licence condition on two major superannuation trustees. The condition requires each trustee to record how it considers members’ best interests and members’ priority covenants when making decisions that materially affect their interests. These conditions were imposed following referral to APRA by the Financial Services Royal Commission in February 2019.
In both cases, the condition results from the trustee’s delay in transferring members to MySuper products. This led to concerns as to the adequacy of internal processes for demonstrating how members’ best interests were considered and prioritised.
In relation to one of the trustees, APRA also issued directions, requiring it to:
- obtain independent expert verification of the analysis and methodology that will be used to determine the remediation of members affected by the delay in transferring to MySuper products;
- notify affected members of the remediation plan; and
- make a public statement in respect of the plan.
APRA noted in relation to this entity that Commissioner Hayne also referred the payment of tax surpluses by the trustee to an associated entity for APRA to consider. APRA has said that it
will be considering this issue further as part of a broader thematic review into trustee reserving practices in the superannuation industry, before deciding what further action may be necessary.
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Commonwealth Penalty Unit Increase
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The amount of a penalty unit under section 4AA of the Crimes Act 1914 (Cth) from 1 July 2020, will increase from $210 to $222 due to indexation. The Crimes Act provides that the amount of a penalty unit will increase due to indexation every three years. This increased amount applies to offences committed under Commonwealth legislation, such as the Corporations Act 2001 (Cth), on or after 1 July 2020.
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ASIC: No action position to allow right-of-use lease assets to count in satisfying Australian Financial Services (AFS) licensee requirements
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On 7 July, ASIC issued a Media Release and detailed information on this topic.
In summary, following changes to the accounting standards for leases, lessees must recognise lease liabilities and a right-of-use asset for all leases. Although lease liabilities are considered for the purposes of an AFS licensee’s financial resource requirements, the right-of-use assets are now generally treated as intangible assets and do not count towards meeting those requirements. This has the unfortunate outcome that as a result of this change, some AFS licensees face difficulty in complying with their financial resource requirements. ASIC accordingly has issued a temporary no-action position for AFS licensees in relation to potential breaches of the financial resource requirements that arise from these recent changes to the accounting treatment of lease assets. The ASIC no-action position applies until further notice.
In issuing the temporary no-action position, ASIC:
- will allow licensees to use right-of-use lease assets to count towards their financial resource requirements; and
- will not take regulatory action against licensees in relation to past breaches of financial resource requirements, when the breach arises from right-of-use lease assets not being able to be counted towards meeting those requirements.
ASIC has said that it plans to consult on proposals to change the financial resource requirements to enable an AFS licensee to include a right-of-use lease asset when calculating whether it meets its financial resource requirements.
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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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