Welcome to Issue 52 of the FSC Policy Update. Parliament is in the middle of an extended period of sitting over May and June before a long winter recess that runs from the end of June until early August.
The Government’s ‘Your Future, Your Super’ Bill has been listed for debate in the House of Representatives since the May Budget, but has not yet been brought on for debate. As had been widely reported, a range of concerns have been raised by the cross-bench in both the House and the Senate, which may delay passage. The FSC is making it clear that, in addition to some design issues, the 1 July commencement date is not achievable and will need to be adjusted.
The FSC is also heavily involved in new Treasury work coming out of the 2021 Budget, including the measures covered in more detail below:
- Product modernisation for life insurance and funds management products;
- The finalisation of the Corporate Collective Investment Vehicle (CCIV) regime; and
- The implementation of the Foreign Financial Services Provider (FFSP) changes.
The work on these initiatives is complex and it will take time for Treasury to provide the industry with clarity. Ongoing industry support, however, will be crucial in bringing these measures to fruition.
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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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The Federal Government’s Budget announcement on Product Modernisation
Design and Distribution Obligations (DDO) update
Deferral of the policy contract term measure on Individual Disability Income Insurance (IDII)
Update to FSC Standard 26 on standardised consent for accessing customers’ health information
Green Paper on Financial advice launched – submissions close 1 July
Work commences on industry standard consent and disclosure form
Digital advice and the Consumer Data Right
FSC Submission on the Single Disciplinary Body for financial advisers
Foreign Financial Services Provider Regime
Greater Transparency of Proxy Advice: Treasury Consultation Paper
PARLIAMENT, LEGISLATION AND REGULATION
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The Federal Government’s Budget announcement on Product Modernisation
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The 2021-22 Federal Budget announced the establishment of a technical industry working group to develop a streamlined mechanism to facilitate the transfer of policyholders from closed life insurance products and managed investment scheme products to new products. This process will be run through Government Treasury.
Initial thinking is for the streamlined mechanism to cover three tests:
- No disadvantage test, to policyholders/ members at a group level;
- Legacy product test, to ensure that only genuine legacy products are eligible; and
- Taxation relief test, to ensure no tax disadvantage to consumers. This test will also consider interaction with social security benefits.
Treasury, in collaboration with a technical industry working group, will be developing a detailed proposal for a streamlined mechanism to facilitate the transfer of policyholders from closed life insurance products and managed investment scheme products to new products by the end of 2021. The FSC intends to work closely with Treasury and the technical industry working group to shape the development of the streamlined mechanism.
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Please contact This email address is being protected from spambots. You need JavaScript enabled to view it., 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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Design and Distribution Obligations (DDO) update
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FSC members continue to develop the template Target Market Determinations (TMDs). The templates have been shared with ASIC for comment, and the relevant DDO Working Groups have made appropriate changes to reflect the comments. Most of the templates will shortly reach a stage where they can be kept unchanged for some time – this will enable product issuers to develop their own TMDs based on the template with greater certainty.
The FSC has been working with partners to broaden the suite of TMD templates available to cover:
- Superannuation master trust (choice products)
- Superannuation wraps/platforms and Investor Directed Portfolio Services (IDPS)
- Life insurance, TPD insurance, income protection insurance and trauma insurance
- Funds management (covering Exchange Traded Products)
- Managed accounts, developed with the Institute of Managed Account Professionals (IMAP)
- Investment bonds, funeral bonds, and education bonds (being developed with the Friendly Society Association)
All these TMD templates are available for FSC members to use at no cost. The FSC has been licensing the templates to numerous non-members; and a number of service providers are working on ensuring their technology services work with the FSC’s templates and data standards.
The FSC has reminded members that the TMD templates are not to be shared with non-FSC members or used as the basis for documents that are shared with non-FSC members.
The FSC’s data standards for the DDO are shortly being released as version 1.0 for use by the industry. Development of the standards will continue as needed. Several implementations of the standard are available here.
The DDO Funds Management Working Group is completing a survey of progress in implementation of the DDO rules, and the results of the survey will be shared with members of the Working Group.
The FSC met with ASIC to discuss the state of readiness of financial advisers for the DDO regime, and encouraged ASIC to help advisers understand their DDO obligations and take a facilitative compliance approach to the DDO regime at the start.
The FSC made a joint presentation with IMAP on the way the DDO rules apply to managed accounts. The presentation discussed the FSC’s template TMD for managed accounts. The presentation is available here.
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SUPERANNUATION
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APRA has released additional FAQs in relation to Phase 1 of the new reporting as part of the Superannuation Data Transformation project. Worked examples have also been provided for some reporting forms. APRA is expected to continue updating these FAQs regularly in the lead-up to the first reporting date of 30 September 2021.
Additional information on preparing for the transition to APRA Connect (APRA’s new data collection solution) has also been published, with the APRA Connect test environment due to be available to users from 17 June.
The FSC’s APRA Data Transformation Working Group is meeting regularly to discuss issues arising from the new reporting and the APRA Connect transition.
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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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Deferral of the policy contract term measure on Individual Disability Income Insurance (IDII)
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To provide life companies more time to implement the policy contract term measure, APRA has decided to postpone the implementation of the measure to 1 October 2022 as announced in its recent letter. APRA expects life companies to intensify their efforts to explore and develop workable solutions to meet the intention of APRA’s policy contract term measure and to proactively keep APRA informed of progress.
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Update to FSC Standard 26 on standardised consent for accessing customers’ health information
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From 5 October 2021, the Hayne Royal Commission response legislation will amend Part IV of the Insurance Contracts Act should be amended, for consumer insurance contracts, to replace the duty of disclosure with a duty to take reasonable care not to make a misrepresentation to an insurer.
As the consent wording currently contained within FSC Standard 26 includes a reference to the Duty of Disclosure, the consent wording needs to be updated to account for the change in the regime. Disclosure. As the consent is used as part of both underwriting and claims assessment processes, changing the wording is complex as, depending on the circumstances, either or both duties could apply to a single policy.
Accordingly, the FSC proposes to delete the paragraph containing the reference. The FSC is working members and the appropriate governance processes to confirm the change.
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Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. Kirwan for more information.
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Following a lot of hard work by the Life Code Working Group, the FSC will shortly release for public consultation the plain English draft of Code 2.0. As part of this process, the FSC will look to engage stakeholders through roundtables and bilateral meetings. Further work is being undertaken to better understand how the enforceable code provisions will impact on the Code.
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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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ADVICE
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Green Paper on Financial advice launched – submissions close 1 July
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In April the FSC launched Affordable and accessible advice: FSC Green Paper on financial advice. The Green Paper 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 scalable Letter of Advice that empowers consumers and is responsive to their needs
Submissions from the public are open until 1 July 2021 and these should be emailed to This email address is being protected from spambots. You need JavaScript enabled to view it.. The below animations provide more information on the Green Paper that you can share across your networks.
Following the close of submissions the FSC will release a White Paper on financial advice to be released later this year. This will be developed with input from the FSC’s Advice Working Groups:
- Industry Design Working Group
- Advice Licensing and Compliance Working Group
- Adviser Competency Working Group
The below animations outline key proposals in more detail that can be liked and shared across your networks:
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Work commences on industry standard consent and disclosure form
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The FSC is scoping options for an industry standard form aligning advice fee consent and independence disclosure ahead of the requirements in light of obligations taking effect on 1 July.
The Super and Advice Working Group is overseeing this work and Members should contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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Digital advice and the Consumer Data Right
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The FSC is developing its position digital advice in its Green Paper on financial advice and recent submission to ASIC on Consultation Paper 332. This looks at the inclusion of technology within the advice process, RG 255: Providing digital financial product advice to retail clients, and Treasury’s long-term rollout of the Consumer Data Right to financial advisers.
This work is being run across the Industry Design Working Group and the Tech and Innovation Expert Group. Members should contact This email address is being protected from spambots. You need JavaScript enabled to view it. if they have suggestions for what this work should consider.
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FSC Submission on the Single Disciplinary Body for financial advisers
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A full copy of the FSC’s submission to Treasury’s consultation on Exposure Draft legislation is available here.
The FSC’s submission suggests improvements which include:
- A more defined pathway for triaging vexatious and more serious claims, underpinned by a significance test, to reduce cost and resource pressures on the Financial Services and Credit Panel (FSCP) while ensuring timely resolution of claims and enforcement against misconduct that builds trust.
- Better defining which persons are within scope of the FSCP disciplinary oversight with a singular and independent pathway for reviews and appeals and more clearly set out process and timeframes for triaging claims.
- Removal of the term tax (financial) adviser from the Tax Agent Services Act 2009.
- Better reflection of relevant financial advice expertise to support a disciplinary process representative of the profession and obligations for ASIC and the FSCP to consult regularly with industry and take a holistic approach to compelling compliance.
- A flexible arrangement for registering financial advisers and a common agreement’ consulted on by ASIC clarifying this relationship should be reached with licensees.
- Legislation that is better aligned with the breach reporting requirements and the transfer of registrations from the Tax Practitioners Board (TPB).
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INVESTMENTS
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Foreign Financial Services Provider Regime
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Following the Government’s budget announcement that there would be consultation on options for restoring the Foreign Financial Services Provider (FFSP) regulatory relief, the FFSP Working Group has been reconvened and fund manager members who would like to participate in the upcoming Treasury consultation have been invited to nominate a representative to the Working Group.
Treasury is likely to undertake public consultation in the coming weeks and the FFSP WG will prepare a submission to the consultation. The FSC is aware that the Budget announcements have created considerable uncertainty for foreign financial services providers who are in the middle of, or about to commence, AFSL applications and the FSC is engaging with Government, Treasury and ASIC in this regard.
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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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Greater Transparency of Proxy Advice: Treasury Consultation Paper
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Treasury is currently exploring options to regulate the provision of proxy advice. The aims of proposed reform are to:
- Ensure independence between superannuation funds and proxy advice;
- Facilitate engagement between companies and proxy advisers, and
- Require suitable licensing for the provision of proxy advice.
Among the contemplated options for regulating proxy advice are:
- Disclosing whether voting actions were consistent with proxy advice received;
- Advice needing to be provided at arms length and trustees needing to demonstrate they have exercised independent judgment, and
- Requiring proxy advisers to provide their reports to the relevant company for comment before providing the report to investors.
The FSC ESG Working Group has been working on a response. The FSC’s submission will highlight FSC Standard 13: Voting Policy, Voting Record and Disclosure as reflecting best practice and the right balance.
The consultation paper can be found here.
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TAX
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- The 2021–22 Budget announced a number of tax measures and measures with tax components, including:
- The implementation of the Corporate Collective Investment Vehicle (CCIV) by 1 July 2022.
- Addressing issues with the tax treatment of foreign exchange hedges so that hedges are calculated on a whole-of-portfolio basis.
- A product modernisation (or rationalisation) scheme for funds management and life insurance (see discussion elsewhere in this update)
- Consult on extending the corporate tax residency rules to trusts and corporate limited partnerships (these changes were announced in the 2020–21 Budget).
- Establishing an ‘early engagement service’ (or concierge service) to provide foreign investors with fast track tax advice on transactions
- Consultation with industry on alternative measures to support financial services with the removal of the Offshore Banking Unit (OBU) regime.
- Funding of $6.0 million for the Treasury and Australian Taxation Office to accelerate the program of tax treaty negotiations (as foreshadowed in the 2020–21 Budget).
- Allow businesses to self assess the effective life of eligible intangible depreciating assets, such as patents, registered designs, copyrights and in- house software, in addition to using the current effective lives set by law.
- The FSC met with the ATO to discuss funds management tax issues, including:
- Governance of third party data.
- ATO justified trust reviews, including information requests.
- Foreign Income Tax Offsets (FITOs) and foreign capital gains, particularly after the Burton case.
- Widely held test issues, particularly during COVID-19.
- Issues with reclaiming withholding tax from Switzerland.
- Following from the ATO meeting above, members of the FSC Tax Expert Group considered a range of possible solutions to the problems with the tax treatment of FITOs and foreign capital gains, and has organised a separate meeting with tax advisers to work towards an industry-wide solution on the issue.
- The ATO has consulted with FSC on draft guidance and materials relating to the Attribution MIT Member Annual (AMMA) statement and Standard Distribution Statement (SDS).
- The Victorian Government announced large tax increases on land tax and property stamp duty, and increases in payroll tax. The members of the FSC Tax Expert Group agreed to raise concerns with these tax increases, working with other appropriate bodies such as the Property Council and the Corporate Tax Association.
- The FSC is meeting with Treasury to discuss the tax issues relating to life insurers implementing IFRS17 on 7 June.
- The Life Insurance Tax Expert Group is discussing a proposal to recommend to the Government that life insurers should withhold tax from income protection claim payments outside of super. Given the variety of views on this issue, members are discussing this in some detail at the Life TEG and a proposal will be brought to the Life Board Committee for discussion once these discussions are concluded.
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