Welcome to Issue 47 of the FSC Policy Update – a fortnightly member briefing on the main legislative and regulatory changes across the financial services industry. Parliament has entered its final sitting period of the year, with a continued focus on the Government’s Royal Commission reforms and the ‘Your Future, Your Super’ reforms. Parliament has re-opened to external visitors, and the FSC is pleased to have been able to return to Canberra for in-person meetings with the Government, Opposition and public service.
This issue of the FSC Policy Update goes into more detail on these issues, as well as an update on the Design and Distribution Obligations (DDO) and issues across Life Insurance, Superannuation and Funds Management.
Blake Briggs, FSC Deputy CEO
.
.
Click on the topic of interest below to read more
.
Design and Distribution Obligations (DDO) update
Draft Your Future, Your Super legislation released
ASIC report on occupational classifications for insurance in superannuation
ASIC releases draft information sheet for insurance claims handling
Cancellation of insurance policies for non-payment of premiums (Life)
Treasury Technical Amendments Bill
Government Responds to Review of the Tax Practitioners Board
Australian Sustainable Finance Roadmap
.
PARLIAMENT, LEGISLATION AND REGULATION
.
Design and Distribution Obligations (DDO) update
.
The release of the final Regulatory Guide (RG) on the DDO regime is due for release this week, commencing 7 December. ASIC provided FSC members with a number of insights about the likely content of the final RG which the FSC shared with the relevant Working Groups.
The FSC has contacted potential vendors seeking proposals for a DDO messaging solution to facilitate the secure and verifiable transmission of the information required under the DDO.
The FSC met with the Government and relevant Government departments to update them on the work of the industry and FSC in preparing for the start of the DDO regime, including the guidance on Target Market Determinations (TMDs), and the proposed DDO messaging solution. The FSC noted that the delay in the release of the final ASIC RG is causing a delay in the DDO implementation for many FSC members.
The FSC noted the substantial reporting burden under the DDO regime, particularly the requirement for distributors (including financial advisers and investment platforms) to make reports on every product they have distributed after the start of the DDO regime. The FSC noted the messaging solution could alleviate some of this burden.
.
.
ASIC has released Consultation Paper (CP) 355 on guidance about consumer remediation. The primary purpose of the CP is to update the existing RG 256, client review and remediation conducted by advice licensees. The CP proposes the RG will be extended to cover all financial services licensees, credit licensees and superannuation trustees.
Responses to the CP are due by 26 February 2021, and the FSC’s response to the CP will be developed through the Remediation Working Group. A meeting of this working group is being scheduled for Thursday 10 December.
.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
.
SUPERANNUATION
.
Draft Your Future, Your Super legislation released
On 26 November, the Government released the exposure draft Your Future, Your Super legislation for consultation.
This includes the measures announced in the Federal Budget, including draft legislation relating to:
- ‘Underperformance’ – to enact the performance benchmarking process and the consequences for underperformance;
- ‘Single Default Account’ – to implement the default once (aka stapling) changes; and
- ‘Best Financial Interests Duty’ – to create the new duty on trustees to act in the best financial interests of members.
Submissions close on 24 December. The FSC’s Your Future, Your Super Working Group will lead the FSC’s response to the draft legislation.
.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
.
ASIC report on occupational classifications for insurance in superannuation
.
ASIC recently released a report following its review of occupational classification practices in insurance in superannuation.
Whilst not open to further consultation the review’s findings may factor in future examination of the value and role of group insurance arrangements in superannuation.
ASIC’s review concluded:
- significant variation in the sophistication of trustees’ assumptions and in the factors they took into consideration when designing their default category
- poor disclosure by some funds, including about the relative cost of premiums in different categories and, in the case of 15 trustees, the use of a generic labels (such as ‘standard’ or ‘general’) for the most expensive category, and
- the process for members to update their occupational category was generally not readily apparent or accessible.
The report was directed at super trustees, and aimed at improving practices in the sector.
The FSC is keeping a close, watching brief and will engage members on group insurance as this becomes a focus for policy makers.
.
LIFE INSURANCE
.
ASIC releases draft information sheet for insurance claims handling
.
ASIC has released a draft information sheet providing RG on obligations under the incoming claims handling regime for insurance contracts and details, on scope and application process for applying for an Australian financial services (AFS) license.
ASIC has also released a draft version of C12 Proof: Claims Handling and Settling Service Statement. Applicants seeking an AFS licence authorisation for claims handling and settling services will be required to supply this statement as part of their application.
ASIC will issue the final information sheet and proof document, incorporating any changes to the legislation during passage of the Bill, ahead of the commencement of the reforms.
Further detail can be found by clicking the link to ASIC’s media release here.
.
Please contact Aidan Nguyen for more information.
.
Cancellation of insurance policies for non-payment of premiums (Life)
.
AFCA has recently released a Draft Approach to Cancellation of Insurance Policies for non-payment of premiums to life insurers. The draft approach sets out AFCA’s determination to maintain its view that s 210 (5) of the Life Insurance Act 1995 is the preferred approach as opposed s 59 of the Insurance Contracts Act 1984). The draft approach document includes example cancellation letters and circumstances to assist both insurers and consumers understand the AFCA approach.
AFCA has invited feedback from the FSC and its members on the draft approach document, particularly in relation to circumstances which may not be covered in the examples required or issues for clarification.
The FSC will look to consider this issue further through its AFCA Working Group.
.
Please contact Nick Kirwan or This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
.
Treasury Technical Amendments Bill
.
The Treasury Laws Amendment (2020 Measures No. 6) Bill 2020 was introduced to Parliament on 2 December 2020. The legislation implements three minor amendments to the Life Insurance Act 1995 as follows:
- Section 200(2)(b) of the Life Insurance Act 1995 is amended to remove the requirement of physical endorsement of the assignment of a life insurance policy and to enable endorsement by electronic means.
- Sections 211(1)(b) and 212(1)(b) of the Life Insurance Act 1995 are amended to increase the threshold for payments without probate from $50,000 to $100,000, given the effect of inflation since the limit was set.
- Section 213(7) of the Life Insurance Act 1995 is amended to increase the prescribed amount from $25,000 to $50,000, again recognising the effect of inflation since this limit was set.
The legislation and EM are available through the following link: here.
.
Please contact Aidan Nguyen for more information.
.
ADVICE
.
Government Responds to Review of the Tax Practitioners Board
.
The Federal Government has released its response to the Review of the Tax Practitioners Board. Implementation of the Government’s Response with regard to tax (financial) advisers will be subject to public consultation in the future.
The Government supports the regulation of tax (financial) advisers being incorporated into the FASEA regime as the single disciplinary body is introduced (Refer to Government Response to Recommendation 7.1, Page 20). A copy the Government’s Response is available here.
.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
.
TAX
.
- The Retirement Income Review made many observations about the tax treatment of superannuation, including:
- The superannuation tax concessions are skewed towards those who make higher contributions, with large balances receiving large concessions.
- The earnings tax exemption in retirement is not a cost effective way to achieve retirement adequacy.
- The cost of the super tax concessions is growing, and the concessions provide little incentive for additional saving.
- The FSC has noted the costing of the superannuation tax concessions depends critically on the comparator. The Review compares the concessions against the tax treatment of bank accounts, which are arguably overtaxed. If the comparator were instead the family home, then superannuation would be overtaxed.
- The FSC made a submission to Treasury on a number of technical amendments in the Treasury portfolio, including removing the tax deduction for superannuation funds making payments of income protection (IP) insurance benefits; amending the superannuation non-arm’s length income rule; and increasing the scope for differentiated investment fees in MySuper lifecycle products.
- Legislation to implement these changes was introduced to Parliament as part of Treasury Laws Amendment (2020 Measures No. 6) Bill 2020, and member views on the Bill have been sought.
- The Government has requested stakeholders to provide submissions for the 2021–22 Budget by 29 January 2021.
- The FSC provided reviewed a final draft submission by the Australian Custodial Services Association (ACSA) into foreign income tax credits, foreign capital gains, and the issues raised by the Burton court case for fund managers.
- The ATO provided the FSC with draft guidance on the income tax treatment of the redirection of conflicted remuneration. The draft guidance was provided to the Tax Expert Group for comment.
- The ATO has informed the FSC that there have been delays in finalising its guidance on the tax issues relating to remediation.
- The Government announced that its immediate expensing measure would be available to Australian subsidiaries of large global businesses, if the Australian subsidiary made substantial investments in recent years.
- The Organisation for Economic Co-operation and Development (OECD) released its latest review of harmful tax practices, leaving its assessment of Australia’s Offshore Banking Unit (OBU) regime unchanged, with the status “in the process of being amended” and comment “potentially harmful features will be addressed”.
.
GST update
- A meeting of the FSC GST Expert Group was held, and discussed issues including the fee cap under Protecting Your Super; the redirection of conflicted remuneration; remediation issues; the ATO’s GST reviews; RG97; and the FSC’s interest in holding a workshop with the ATO on these issues.
.
Insurance Duty
- FSC members are considering a process for making submissions to State Governments about regarding refund of premiums and overpayments of stamp duty as a result of remediation.
.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
.
INVESTMENTS
.
Australian Sustainable Finance Roadmap
.
The Australian Sustainable Finance Roadmap was released by Responsible Investment Association Australasia (RIAA) last week. Among its recommendations is the development of an industry led stress-testing framework that includes processes, frameworks, data and tools sufficient for an organisation to stress test their business. The report suggests that this should build on the Climate Measurement Standard Initiative’s current work to develop physical climate risk stress tests. The report can be viewed here. This report’s recommendations will be considered by the FSC’s ESG Working Group as part of its ongoing work on climate change.
.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
.
Revised Guidance Note 38 – Improving Gender Balance in Investment Management Teams (Guidance Note 38)
.
The Diversity Working Group has developed an additional section in Guidance Note 38, entitled FSC Women in Investment Management Charter (WIM Charter) which encompasses a framework for funds management firms to implement a flexible gender balance target aimed at increasing the representation of women in investment management functions.
For firms that would like to adopt a gender balance target, the WIM Charter introduces accountability and transparency mechanisms to enable the organisation to achieve their desired, self-nominated, gender diversity target within investment management teams. The Guidance Note seeks to establish best practice and, distinct from FSC Standards, is voluntary for members to adopt.
The FSC is pleased to advise that the revised Guidance Note has been approved and is now available on the FSC website here: FSC Guidance Notes - FSC // Financial Services Council.
.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
.