Welcome to Issue 51 of the FSC Policy Update. The Government released the draft regulations for the ‘Your Future, Your Super’ package, completing the picture on the most significant overhaul of the superannuation since the Stronger Super reforms.
The FSC has welcomed the segmentation of benchmarks for assessing fund performance, a focus of our advocacy, but has serious concerns with the methodology for assessing administration fees. Implementing a fair and equitable methodology will be the focus of our feedback on the draft regulations, prior to the parliamentary debate on the Bill.
The FSC has also led the public debate on reforming the regulatory framework for financial advice, to make advice more accessible and affordable for consumers, with the release of our Green Paper. The proposals in the Green Paper are open for consultation until 1 July, and we would welcome feedback from the industry.
This issue also examines a number of developments in life insurance, not least the news at the FSC Life Summit that the Quality of Financial Advice Review will be expanded to include the Life Insurance Framework (LIF) Review.
The FSC is also pleased to announce two new staff, Legal Policy Manager, Ashley Davies, who will work with our Life Insurance members on the Life Code, and issues arising through our Legal Compliance Expert Group, and Team Assistant, Kristy Lawrence, who will provide support to the policy team and members across the scope of our member engagement.
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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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ASIC’s review of life insurers’ responses to consumers in financial hardship
ANZIIF launch life insurance industry Professional Standards Framework
ASIC urges insurance claims handling firms to lodge license applications
Government announces Quality of Financial Advice Review to include LIF Review
Action plan to boost Australia’s services exports
Design and Distribution Obligations (DDO) update
Your Future, Your Super – draft regulations and Senate Committee report released
Draft Portfolio Holdings Disclosure regulations released
APRA Data Transformation FAQ published
FSC Green Paper on financial advice launched: We want your views
Single disciplinary body Exposure Draft Legislation released
FSC Women in Investment Management Charter
Your Future, Your Super and Benchmarking
APRA Climate Change Risk Guidance
LIFE INSURANCE
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ASIC’s review of life insurers’ responses to consumers in financial hardship
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ASIC has published a letter addressed to the directors of life insurance companies, which sets out ASIC’s expectations following their recent work in reviewing and monitoring how life insurers have been responding to consumers experiencing financial hardship during the COVID-19 pandemic.
The letter, which includes reference to the two FSC Life Insurance Industry Initiatives, contains positive feedback on insurers’ responsiveness to consumer needs during the pandemic.
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ANZIIF launch life insurance industry Professional Standards Framework
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The FSC was pleased to see Minister Jane Hume announce the launch of the Life Insurance Professional Standards (LIPS) Project at the recent FSC Life Insurance Summit. The LIPS project is being coordinated by the Australian New Zealand Institute of Insurance and Finance (ANZIIF) – the professional association and education provider for the insurance and finance industry.
The project implements a consistent ‘Foundation Requirement’, consisting of four Certificate IV competencies covering ethics, sustainability, products and services, and law and regulation, for claims and underwriting people by June 2022.
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Please contact Nick Kirwan for more information.
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ASIC urges insurance claims handling firms to lodge license applications
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ASIC has issued a media release to call on insurance claims handling firms to lodge license applications (new and varied) as soon as possible, and by no later than 7 May. The FSC understands ASIC has proposed this timeline to minimise the risk that applications submitted close to the legislative deadline to access transitional arrangements are rejected on the basis that they are incomplete.
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Please contact Aidan Nguyen for more information.
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The FSC has been working hard to review the plain English draft of Code 2.0 ahead of public consultation, this includes undertaking targeted consultation with key stakeholders such as consumer groups and regulators. With certain provisions in the next Code to become enforceable, the Working Group has started to think about what those might look like – an important question when breaches of enforceable code provisions can now attract civil penalties.
The FSC intends to release the next draft of Code 2 for public consultation next month.
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Please contact Jamie 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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Government announces Quality of Financial Advice Review to include LIF Review
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Financial Services Minister, Senator the Hon Jane Hume, opened the FSC’s Life Insurance Summit noting the ‘Quality of Financial Advice review’ (Recommendation 2.3 of the Financial Services Royal Commission) will be expanded to include the Life Insurance Framework review (LIF review).
The Review will be conducted by Treasury who will consider the quality and affordability of all forms of financial advice and is expected to run until the end of 2022. The Government intends to respond to the review in 2023. Once ASIC’s data collection phase under the LIF review is completed, this information will be provided to Treasury for further analysis in the context of the Quality of Financial Advice Review. The Minister has noted that underinsurance and maintaining access to affordable, quality advice will be at the forefront of the Government’s mind as the review takes place and demonstrated awareness of the complexity of issues in life insurance advice remuneration.
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Action plan to boost Australia’s services exports
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The Government released an action plan to boost Australia’s services exports, which made a number of commitments of importance to FSC. The Government committed to:
- Completing the Corporate Collective Investment Vehicle (CCIV).
- Work to encourage the use of the Asia Region Funds Passport (ARFP).
- Strengthen analysis of trade and investment impacts in regulatory proposals.
- Monitor international tax developments to ensure Australia remains well placed and competitive to attract foreign investment.
The FSC hosted a meeting of members with Treasury to discuss these recommendations and indicate their importance. The FSC argued the CCIV regime was almost complete from a non-tax perspective, but a number of tax components of the CCIV regime made it unworkable. The FSC also provided insights into the reasons – both tax and non-tax – why the ARFP take-up to date is minimal.
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Design and Distribution Obligations (DDO) update
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The FSC is finalising its Target Market Determination (TMD) templates for:
- Life insurance (death, TPD, trauma and income protection insurance).
- Funds management, including Exchange Traded Products (ETPs).
- Superannuation master trusts.
These templates will soon be sent to ASIC for comment (ASIC has indicated that it is not formally ‘approving’ these templates).
Development also continues on:
- Industry data standards for TMDs, complaints, and dealings outside target market. The draft standards have been circulated to DDO working groups and the Technology and Innovation Expert Group for comment. Several implementations of the data standards are available for the whole industry to use as open source products.
- A TMD template for Separately Managed Accounts (SMAs) and Individually Managed Accounts (IMAs).
The FSC is meeting with Treasury and ASIC to discuss a number of issues where the DDO regime does not work as intended (e.g. for unaligned advisers), or where the regime imposes unnecessarily burdensome compliance costs (e.g. the requirement for nil complaint reports to be made).
FSC members will be shortly meeting with stockbrokers to have further discussions about how DDO applies to ETPs and how the FSC’s TMD template for funds management can work for ETPs.
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The FSC met with Treasury to discuss the FSC submission on ASIC’s consultation Paper 335 on consumer remediation. In response to requests from ASIC and Treasury, the FSC has been compiling information from members on the usefulness of the low value threshold for remediation and the impact that lost money has on remediation.
The ATO released guidance on the PAYG withholding and reporting obligations relating to remediation payments (see tax section below).
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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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Your Future, Your Super – draft regulations and Senate Committee report released
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On 28 April, the Government released the draft Your Future, Your Super regulations for consultation. The FSC’s media release in response to the release can be found here.
The regulations set out detail around the operation of the measures in the Bill.
The most significant concession from Government was the further segmentation of the benchmarks for unlisted assets, consistent with FSC advocacy and a focus for funds management members. The Government has, however, maintained a hardline against the concerns of the superannuation sector, with little movement on the consequences of benchmarking for trustees and the inclusion of administration fees in the benchmarking assessment.
In addition to regulations directly relating the Your Future, Your Super reforms, the package also includes regulations covering:
- Portfolio Holdings Disclosure (see below);
- information required to be provided by funds ahead of Annual Member Meetings; and
- employer inducements.
The FSC’s Your Future, Your Super Working Group is meeting to inform the FSC’s submission in response to the regulations.
On 29 April, the Senate Economics Committee report on the Treasury Laws Amendment (Your Future, Your Super) Bill 2021 was released. The report outlines a broad range of stakeholder comments on the Bill, with the Government members recommending passage of the Bill and a dissenting Labor report recommending the bill not be passed in its current form.
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Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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Draft Portfolio Holdings Disclosure regulations released
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The Your Future, Your Super package of draft regulations included the long-awaited Portfolio Holdings Disclosure regulations. Submissions on the draft regulations are due by 25 May.
Two options for disclosure are up for consultation. In both options, assets directly held and held in associated entities are reported. Under the legislation, funds must report on assets held directly, by associated entities and on the holdings of the first non-associated entity.
Option 1: Uniform information disclosed across asset classes
Information prescribed would be uniform across all asset classes: name/kind of asset, security identifier of the asset, the number of assets held, the value of the asset and the weighing of that asset in the context of the total portfolio.
Will require public disclosure of data which superannuation funds will be responsible for compiling.
Option 2: Tailored information disclosed for particular asset classes (reflected in the exposure draft regulations)
This option would be the same as option 1 above, however the information required to would be more granular and tailored for the particular asset class. Disclosure for most investment assets will be similar to option 1, but funds will have to disclose more tailored information in relation to derivative assets. Under this option, funds may face additional compliance cost.
The Government is seeking quantified costs for each option to determine the cost variation between option 1 and option 2.
The FSC’s Portfolio Holdings Disclosure Working Group is developing a response to the draft regulations.
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Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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APRA Data Transformation FAQ published
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APRA has released the first tranche of FAQs relating to the new superannuation data standards commending this year.
The FSC’s APRA Data Transformation Working Group has convened to work through issues relating to implementation of the new data standards.
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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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FSC Green Paper on financial advice launched: We want your views
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Leading the debate on the reducing the cost of advice, and making it more affordable and accessible, the FSC released the Green Paper on financial advice last month. The paper, Affordable and Accessible advice: FSC Green Paper on financial advice outlines for public discussion bold proposals to reduce the cost and complexity of financial advice which include:
- Simplifying the definitions of advice into categories of personal advice and general information and separating product from advice;
- Removing the safe harbour steps so that the Code of Ethics is the single tool to meet the Best Interests Duty;
- Abolition of the Statement of Advice and in its place enable a scaleable Letter of Advice that empowers consumers and is responsive to their needs
Read the Green Paper here.
The FSC is welcoming submissions from the public until 1 July 2021. Submissions or feedback should be emailed to This email address is being protected from spambots. You need JavaScript enabled to view it.. As the economy comes back from COVID-19, this is the opportunity to shape the advice industry that comes back with it.
Learn more from Zach Castles here.
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Single disciplinary body Exposure Draft Legislation released
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Treasury has released for consultation Exposure Draft legislation for implementing the single disciplinary regime for financial advice per Financial Services Royal Commission Recommendation 2.10. The Exposure Draft, the Explanatory Memorandum and other information on the proposed legislation are available here. The Advice Licensing and Compliance Working Group will develop the FSC’s submission on the legislation that will be submitted by 14 May.
The FSC has been engaging with industry bodies across the advice sector on this matter. The FSC seeks a simplified and workable regime to support the profession that does not further add to the cost and unnecessary regulation of financial advice.
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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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FSC Women in Investment Management Charter
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The Diversity Working Group is finalising the process in which members can formally adopt the FSC Women in Investment Management Charter, which is contained in section 13 of Guidance Note 38 Improving Gender Balance in Investment Management Teams (available here).
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Your Future, Your Super and Benchmarking
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Please see the update under the Superannuation section above which provides news on the Your Future, Your Super exposure draft regulations – which are currently open for consultation. The respective Fund Management Board Committee (FMBC) and Superannuation Board Committee (SBC) Your Future, Your Super Working Groups will work together to help develop the FSC submission in relation to the benchmarking provisions of the regulations.
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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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APRA Climate Change Risk Guidance
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APRA has released its draft guidance (Prudential Practice Guide CPG 229 Climate Change Financial Risks) for banks, insurers and superannuation trustees on managing the financial risks. This also has relevance for fund managers.
The guide has been designed to provide greater clarity for industry of regulatory expectations and examples of best industry practice. The guide covers APRA's view on sound practice in governance, risk management, scenario analysis and disclosure. The FSC will be providing a submission to the consultation on the draft. Feedback is due to APRA by 31 July.
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The FSC ESG Working Group is currently considering options for funds management sector specific research that can be undertaken to help members address climate change risk. This is a policy area of particular salience, given the Federal Government is poised to commit to a net zero target by 2050. The aim is to avoid the duplication of much work already out there on climate risk. The FSC is seeking to scope out the sort of work that can be done that will be helpful for members.
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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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The FSC made a joint submission with the Australian Custodial Services Association (ACSA) and the Association of Superannuation Funds of Australia (ASFA) on the ATO’s proposals relating to the use of third party data.
The FSC provided comments to the ATO on draft guidance for the Attribution managed investment trust member annual (AMMA) statement and standard distribution statement (SDS) forms, in particular stating that FSC members were not proposing to insert detailed footnotes about income relating to affordable housing
The FSC provided the Government with some proposals to alleviate the burden on interest withholding tax, given the impending closure of the Offshore Banking Unit regime. The FSC particularly argued withholding tax should be removed from foreign exchange hedging gains and bond sale gains.
The FSC Tax Experts Group (TEG) was provided with a paper from Treasury on the tax issues relating to the ending of LIBOR (London Interbank Offer Rate). The TEG will consider if further discussions with ATO or Treasury are needed on this issue.
The ATO has agreed to a meeting with FSC members on 20 May 2021, to discuss a range of relevant tax issues including the third party data governance issues (see above); ATO justified trust reviews; the Burton case, FITOs and foreign capital gains; and the tax issues with remediation.
The ATO has released web based guidance on PAYG withholding and reporting obligations relating to remediation payments. The document indicates that reporting may be required for interest paid on certain types of remediation, but the ATO has indicated this reporting will not be required for the 2021 income year.
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GST
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The FSC met with the ATO to discuss a range of GST issues, including:
- The GST issues with the ending of grandfathered conflicted remuneration
- The GST treatment of the superannuation low balance fee cap (under Protecting Your Super).
- The GST issues with remediation
- The ATO’s GST strategy
The FSC provided members of the GST expert group with a copy of an ATO publication on the GST data tests for banks, which may be relevant for other financial services businesses.
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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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FSC Standard 2: Equity Trusts – Quotation of Dividend Imputation Credits has now become Guidance Note 39: Equity Trusts – Quotation of Dividend Imputation Credits
Standard 2 relates to the correct quotation of dividend imputation credits by collective investment vehicles that receive dividends and imputation credits. The FSC Board has approved the repeal of mandatory Standard 2 and the creation of a new voluntary Guidance Note, effective from 16 March.
There were only minor changes to this revised document relating to the calculation of distributed income. Refer to the FSC website for more information.
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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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