Welcome to Issue 44 of the FSC Policy Update – a fortnightly member briefing on the main legislative and regulatory changes across the financial services industry.
The 2020 Budget released on the evening of 6 October packed a punch, with superannuation reforms announced that will have significant downstream implications for life insurers, fund managers and financial advisers. The FSC is closely engaging with the Government on these reforms and looking to ensure the ‘Your Future, Your Super’ package does not result in poor consumer outcomes.
The Government is also steadily progressing the implementation of the Royal Commission’s recommendations. We anticipate introduction of a tranche of legislation into Parliament before the end of the year; in addition to Treasury consultation on the final tranche that is scheduled for introduction before 30 June 2021.
This issue of our Policy Update covers the successful launch of our Future of Advice Report and the upcoming inaugural FSC Investment Summit, which we encourage all funds management members to register for!
Blake Briggs, FSC Deputy CEO
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Click on the topic of interest below to read more
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Inaugural FSC Investment Summit – with Larry Fink, Chairman and CEO, BlackRock
Operational Due Diligence Guidance Note 37
F3 – Future Females in Finance
Future of Advice report launched, Green Paper now under development
Consultation: FASEA’s Draft Financial Planners and Advisers Guide
Design and Distribution Obligations (DDO) update
ATO interim report on early release applications
Future of Advice Infocus: Life Insurance Briefing – Thursday 16 November
Updated life insurance claims and disputed statistics
Federal Budget implications for Fintech and Regtech
Draft Legislation: Virtual Meetings, Electronic and Split Execution (and more)
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INVESTMENTS
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Inaugural FSC Investment Summit – with Larry Fink, Chairman and CEO, BlackRock
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We are proud to announce that Larry Fink, Chairman and CEO, BlackRock will be joining us on Monday 9 November at our inaugural Investment Summit.
Mr Fink will appear at 9.00am on Monday 9 November in a pre-recorded 'In Conversation' interview with FSC CEO, Sally Loane.
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The event will welcome a cross-section of experts, including Dr Raphael Arndt, CEO, Future Fund and John Galloway, Head of Investment Stewardship, Vanguard (US), discussing investment-focused issues.
The event, partnered by APIR, will deliver discussions on regulation, superannuation, ESG investing, as well as the future of work, the Summit will cover a broad range of technical and industry-relevant topics that will highlight opportunities and challenges for the funds management sector.
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EVENT DETAILS
Date: Monday 9 & Tuesday 10 November
Time: 9.00am - 11.45am each day
Member Rate: $200 + GST per person
Non-Member Rate: $275 + GST per person
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Operational Due Diligence (ODD) Guidance Note 37
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The FSC has updated the FSC ODD Guidance Note 37. The Guidance Note provides a questionnaire-styled standardised template for use by fund managers when undertaking due diligence investigations. The updated Guidance Note commences 1 November and includes several changes to align with the updated Australian Institute of Superannuation Trustees (AIST) Guidance Note which was issued in May 2020. Revised FSC Guidance Note 37 is now available on the FSC website.
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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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F3 – Future Females in Finance
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Camilla Love, founder of F3 – Future Females in Finance recently joined us as a guest speaker at the launch event of the FSC’s new Guidance Note on Improving Gender Balance in Investment Management teams (GN 38).
An important part of increasing gender balance in investment management teams also involves increasing awareness of funds management as a career path amongst women.
F3 is a program which encourages young women to embark upon a career in financial services.
Funds management firms interested in encouraging the next generation of women to enter the industry can get involved with the F3 program as a corporate partner (for example by offering structured online work experience placement to university students).
For more information, including how to get involved, see more at the F3 website.
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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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Future of Advice report launched, Green Paper now under development
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The FSC has launched the Future of Advice report, which is a comprehensive look at Australia’s advice industry, exploring its need, model and value. The Rice Warner report sets out clear economic and social benefits of financial advice, and includes ground-breaking proposals for simplifying financial advice and reducing unnecessary costs with new, streamlined definitions of advice, less documentation, limited tax deductibility and other proposals.
While these are not final FSC policy positions, the FSC will issue a Green Paper on financial advice with policy asks of its own in 2021 and engage with a wide range of stakeholders and lead a much-needed policy debate on securing affordable and accessible advice.
The report and accompanying media release can be found here.
More about the event can be found here.
Members with feedback and suggestions for inclusion in the Green Paper should contact Zach Castles This email address is being protected from spambots. You need JavaScript enabled to view it..
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Consultation: FASEA’s Draft Financial Planners and Advisers Guide
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The FSC is submitting to FASEA’s consultation on its Draft Financial Planners and Advisers Guide, which is available here. The submission is being developed by the Adviser Competency Working Group. The deadline for submissions is 2 November.
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ASIC will launch its consultation on scaled advice on 2 November. The FSC will develop its submission to this consultation thorough the working group and board committee process.
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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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PARLIAMENT, LEGISLATION AND REGULATION
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Design and Distribution Obligations (DDO) update
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The FSC met with financial planning associations, and then with ASIC and the financial planning associations, to discuss issues financial planners have with the DDO regime. Issues covered included:
- The benefit of industry working together on standardising their approach to the DDO, particularly the Target Market Determinations (TMDs) required under the DDO regime.
- The concerns raised by financial planners that some issuers may place onerous requirements on planners. The FSC noted that our TMD guidance contemplates limited requirements being placed on advisers.
- Planners also noted that some issuers may not give planners adequate notice of what is in TMDs. The FSC noted that our TMD guidance should help alleviate this problem.
More detailed feedback on the discussions is being provided to FSC DDO working groups.
The technology solutions working group is finalising a Request for Tender (RFP) for a messaging solution for the information flows that are mandated by the DDO regime. The RFP will be taken to FSC Board Committees and Board for consideration in coming weeks.
The initial draft of TMD guidance documents developed by FSC members are now largely completed for funds management, superannuation master trusts, superannuation wraps and life insurance. The guidance is being shared with financial planners for comment; the drafts will be revised based on these comments and also when ASIC releases its final regulatory guidance on the DDO regime.
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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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ATO interim report on early release applications
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The ATO has released an interim report on applications received under the COVID-19 early release scheme, which includes high level data about applications received during the first tranche of the program (20 April - 30 June 2020).
The report contains applicant-level data in relation to the 2.54 million applications received by the ATO in this period, including demographic data.
Preliminary FSC analysis of this new data indicates that:
- People in their 20s and 30s were a greater share of applicants than their share of the labour force. However, the share of unemployed that are in their 20s is around the same as the share of applicants in their 20s.
- People under 20, and 60 and over, make up a smaller share of applicants than they do of either the labour force or the unemployed.
- People in Queensland and South Australia make up a much greater share of applicants than they do of the labour force, while Western Australia and Victoria make up a much smaller share of applicants.
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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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Future of Advice Infocus: Life Insurance Briefing – Thursday 12 November
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Financial advice: what will radical changes to the industry’s largest distribution model mean for life insurance?
Be part of an in-depth briefing for our life insurance members, hosted by the FSC’s Zach Castles, Policy Manager (Advice) and Michael Rice and Richard Dunn of Rice Warner, on the recently released Future of Financial Advice report. This interactive session is a great opportunity to participate in a focused discussion on how the advice debate relates to life insurance.
Changing market needs means the way advice is delivered must be reformed to ensure it is affordable and accessible. But how must this be considered with a new generation of income protection products currently on train for next year? Expect the discussion to delve deep into some of the implications for product design and distribution.
Date: Thursday 12 November
Time: 9.30am - 10.30am
Register and find out more here.
Please contact Ieesha Maybury-Picatoste for more information.
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Updated life insurance claims and disputed statistics
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APRA has released the latest six-monthly update of its Life Insurance Claims and Disputes Statistics publication, covering a rolling 12-month period from 1 July 2019 to 30 June 2020. ASIC’s MoneySmart Life insurance claims comparison tool has been updated with the latest data.
The FSC and KPMG have also released more detailed cause of claims data on this dataset for the corresponding period. This analysis can be accessed through Tableau Server. If you have any questions regarding the investigation or having difficulties accessing the results, please contact the functional mailbox (This email address is being protected from spambots. You need JavaScript enabled to view it.).
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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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A huge effort has been put in to consolidate the feedback received on the Life Code consultation. The FSC will shortly release a report outlining the industry’s position on a broad range of issues that will be addressed in the next iteration of the Life Code. As further development of the Code continues, the FSC will engage with key stakeholders, including ASIC and consumer groups, to ensure that concerns have been appropriately addressed.
As part of the next iteration of the Life Code, a plain English specialist will be engaged to assist with the drafting.
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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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TECHNOLOGY
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Federal Budget implications for Fintech and Regtech
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Below provides a headline summary on the spending commitments for fintech in the Federal Budget handed down by the Treasurer this month:
- $28.5 million to expand the Consumer Data Right
- $9.6 million to expand the Fintech Bridge program
- $11.4 million for Australian Regtech companies to ease regulatory burdens
- Creation of a new regulatory class for payments companies
- $22.2 million to help small businesses adopt digital technology
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TAX
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- The FSC is preparing a submission to the ATO raising concerns about the onerous process being imposed on managed funds wishing to claim back tax under the Swiss tax treaty.
- The FSC is developing comments on a proposed submission being developed by the custodians about the treatment of Foreign Income Tax Offsets (FITOs) relating to foreign capital gains after the Burton case
- FSC members are considering joining with other global fund management associations in requesting the United Kingdom (UK) Government provide a de minimis exemption from capital gains tax on small holdings in UK Real Estate Investment Trusts.
- The OECD released updated proposals for tax rules to deal with a digitalising economy. Investment funds are excluded from both Pillar 1 and (in some cases) Pillar 2 of the proposals. The FSC Tax Experts Group is considering the proposals.
- The Tax Expert Group is considering the Government proposals to implement permanent reforms to virtual meetings and electronic document execution, including examining how this affects issues relating to tax residency.
- FSC members are discussing the issues with the Budget measures relating to loss carryback and immediate expensing – particularly these measures being unavailable to Australian subsidiaries of large global entities, even if the Australian subsidiary is well below the relevant turnover threshold. The FSC has given in-principle support to any work the Business Council of Australia and the Corporate Taxpayers Association is doing on this issue.
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Insurance Duty
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- FSC members are considering issues relating to refunds of insurance duty relating to remediation payments, and the Queensland response to requests for duty relief relating to COVID-19 related hardship assistance.
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GST
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- In response to an FSC submission about the GST treatment of the fee cap under Protecting Your Super, the ATO sent the FSC a series of questions on this issue which are being considered by the GST Expert Group.
- The ATO has released a GST Governance, Data Testing and Transaction Testing Guide.
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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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Draft Legislation: Virtual Meetings, Electronic and Split Execution (and more)
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Members will recall that given the impact of COVID-19 on business operations, the Commonwealth Treasurer made and extended temporary relief measures to facilitate electronic and split execution, as well as virtual meetings. On 19 October, the Treasury released exposure draft legislation (ED) proposing to make the changes permanent. In addition to entrenching the existing relief provisions allowing virtual meetings and electronic execution, the ED contains add enhancements to better ensure and enable corporate accountability and transparency.
The current position is that the Electronic Transactions Act (Cth.) 1999, which facilitates the use of technology and electronic transactions, does not apply to the Corporations Act 2001 (Corporations Act).
Accordingly, strictly speaking, in relation to documents executed by a company (including those executed in accordance with Section 127 of the Corporations Act), the parties should physically sign the same document. Further, there have been issues raised, even with the Corporations Act temporary modifications, whether electronic execution and remote witnessing was possible in the case of Deeds. In New South Wales at least, the general law requirement prevails. This requires a Deed to be executed in writing on vellum, parchment or paper.
In relation to meetings, the COVID-19 pandemic, heightened the difficulty of holding physical meetings in light of restrictions on movement and gatherings of people.
The Treasurer exercised temporary powers under the Corporations Act to modify these restrictions, allowing meetings to be held and documents signed electronically.
Business has long been calling for changes to accommodate the digital age and the ability to hold meetings electronically.
The reforms make permanent the temporary relief, which allows companies to hold meetings virtually, send meeting-related materials electronically and validly execute documents electronically. Treasury says that:
In response to stakeholder feedback, the reforms propose additional enhancements to ensure corporate accountability and transparency. Overall, the permanent reforms will provide companies flexibility when engaging with their shareholders, reduce costs and drive efficiencies.
On 15 June 2020, the Government also announced that Modernising Business Communications will be a priority area for its Deregulation Taskforce. As part of this work, the Government will separately consult on how other Commonwealth legislation may be made technology neutral.
Public consultation on the exposure draft legislation and explanatory material will close on 30 October 2020.
The proposed changes are consistent with interim recommendations made by the Senate Select Committee on Financial Technology and Regulatory Technology.
Summary of changes
- The ED proposes to allow the use of electronic means of alternative technologies to execute company documents and documents relating to meetings hold company meetings;
- This will extend to meetings of whether directors, shareholders (including Annual General Meetings) or members of a registered scheme;
- Entities may provide notices of meeting (and other related attendee documents) record, keep and provide minutes electronically;
- At least from the viewpoint of execution of Deeds, to which a company is a party, this may be done electronically.
The proposal concerning minutes were not previously addressed by the temporary COVID-19 relief measures.
In relation to Deeds the Explanatory Draft Materials at paragraph 2.71 addresses the Deeds issue-
The temporary measures do not expressly state that the relief applies to execution of deeds by companies, creating some uncertainty.
To address this, the permanent reforms will make clear that companies will be able to create and sign deeds electronically. In addition the permanent reforms will allow the use of technology to execute documents with a common seal electronically, including by allowing witnesses to validly witness the fixing of a company seal electronically.
If passed, the legislation will take effect It is proposed that the bill will take effect immediately after Royal Assent.
Consultation remains open until 30 October. The FSC will be lodging a submission on the ED and will be supportive of other submissions which, in principle, support the proposals.
The relevant material can be accessed through this link.
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