Welcome to Issue 54 of the FSC Policy Update. Parliament is scheduled to resume on Tuesday 3 August for four weeks of sitting across August and early September, with only a single week break in the middle of August.
Whilst Parliament’s usual sitting process during Sydney and Brisbane’s lock downs are likely to be disrupted, with minimal staffing, the FSC expects most MPs and Senators to travel to Canberra and stay in the ACT for the duration of August. There will likely be restrictions on the number of staff and external stakeholders allowed to enter Parliament House.
The Government has used the July recess to commence consultation on two Royal Commission recommendations, the Compensation Scheme of Last Resort and the Financial Executive Accountability Regime, as well as the long-awaited Retirement Income Covenant. The FSC is currently consulting with members on all of these initiatives and more detail can be found below.
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) update
Compensation Scheme of Last Resort (CSLR)
Australia as a Financial Centre
ASIC consults on draft RG 38 The Hawking Prohibition
ASIC CP 343 Crypto-Asset submission
Don’t miss the FSC and Mercer Gender Diversity in Investment Management event – 12 August
FSC Policy Briefing: APRA and Climate Risk – 19 August
Investment and Retirement Incomes Summit – 20 October
FSC Guidance Note 40: Responding to Modern Slavery Reporting Requirements
Performance Analytics – 20th Annual Performance Online Training
Retirement Income Covenant Position Paper
Amendments to commutation rules for certain income stream products
Claims handling reforms: commencement of transaction confirmation requirement
Exemption application to ASIC regarding DDO regime and reissuing insurance products
Reference Checking and Information Sharing Protocol released
Submissions on the FSC’s Green Paper on financial advice
Expressions of interest sought for Chair of the Technology and Innovation Expert Group
FSC Submission on Treasury CP – Relief for Foreign Financial Services Providers (FFSP)
FSC Submission to Treasury – Financial Accountability Regime (FAR) draft legislation consultation
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PARLIAMENT, LEGISLATION AND REGULATION
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Design and Distribution Obligations (DDO) update
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The FSC has finalised version 1.0 of Target Market Determination (TMD) templates for managed funds, superannuation choice, superannuation platforms, managed accounts, and life insurance products. The aim is for there to be minimal or no changes to the template for some time to allow funds, platforms and advisers to prepare for the introduction of the DDO regime with certainty. Version 1.0 of templates should be shortly completed for IDPSs and insurance bonds (investment/education/funeral bonds).
All the templates are available for use for free by FSC members and are being licensed to non-FSC members for a fee. There are over 200 non-member businesses licensing the templates.
The FSC data standards are now well developed, particularly with the work of key FSC member service providers, and the use of them in the industry is expanding. The standards cover:
- The transmission of TMDs from fund managers to platforms and advisers;
- The reporting of complaints from platforms and advisers to fund managers; and
- The reporting of significant dealings (and other transactions) from platforms and advisers to fund managers.
The data standards are being made publicly available. There are two DDO Working Groups overseeing the work on the standards, one focusing on DDO information requirements for life insurance and another on these requirements for fund managers.
The FSC is facilitating a number of member meetings with ASIC to discuss the TMD templates and outstanding DDO implementation issues including the high compliance costs from the requirement on all distributors to make ‘nil complaint’ reports to product issuers. FSC Working Groups on DDO are meeting weekly or fortnightly to discuss implementation issues.
The FSC is in the process of applying to ASIC to request an exemption from the DDO regime for the reissuing of life insurance products – see the life insurance section of this update for details.
The FSC is hosting an event to discuss the complaint reporting requirement and explaining the FSC’s data standards for complaints on Wednesday 4 August at 1pm. Details and registration details are here.
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Through the support from the FSC’s Product Modernisation Working Group, a paper has been submitted to Treasury which outlines sector specific design and taxation issues for Treasury to consider as it begins the mechanism design process.
The FSC understands that Treasury has decided to set-up two separate technical industry working groups for life insurance and managed investment funds respectively and is in the process of finalising membership for these two groups. The FSC will look to convene another meeting of the Product Modernisation Working Group to support the Treasury process accordingly.
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Compensation Scheme of Last Resort (CSLR)
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The Government has released draft legislation and a CSLR Proposal Paper for consultation. The exposure draft covers the key features of the CSLR, including which sectors are covered by the scheme, how it will be funded and how it will operate. Further technical detail, such as the funding formula for the levy, will be included in delegated legislation via the regulations.
Submissions are due 13 August. The FSC submission is being developed through the CSLR Working Group.
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Australia as a Financial Centre
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The FSC provided a submission to the Senate Select Committee on Australia as a Technology and Financial Centre that shares the FSC’s views on a number of policy changes that would promote Australia as a financial centre, including:
- Implementing a competitive Corporate Collective Investment Vehicles (CCIV);
- The Government abandoning tax changes that would make funds management less competitive (the removal of the CGT discount for managed funds, and tightening of penalties for attribution, see point 1);
- Removing the withholding tax on managed funds inside the Asia Region Funds Passport; and
- Addressing various unresolved tax issues, including the tax treatment of foreign exchange hedging, issues with the Investment Manager Regime (IMR), and the treatment of foreign capital gains.
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ASIC consults on draft RG 38 The Hawking Prohibition
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ASIC has released for consultation its draft regulatory guidance for the hawking reforms in line with the implementation of RC recommendation 3.4 and 4.1 which will prohibit the hawking of superannuation and insurance products.
Submissions to this consultation close on 18 August. The FSC submission is being primarily developed through the Life Distribution Working Group, with separate input from superannuation members.
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INVESTMENTS
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ASIC CP 343 Crypto-Asset submission
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The FSC finalised its submission to ASIC Consultation Paper 343 on crypto-assets as underlying assets for Exchange Traded product (ETPs) and other investment products (CP343) on 27 July.
The proposals set out in CP 343 envisage that a range of ‘factors’ (or criteria) need to be met for a particular asset to be suitable as an underlying asset for an ETP, such as having a high level of institutional support and acceptance of the crypto-asset being used for investment purposes.
CP343 identifies Bitcoin and Ether as currently meeting the factors set by ASIC. The FSC submission supports ASIC taking a considered approach to the regulation of investment in crypto-assets.
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Don’t miss the FSC and Mercer Gender Diversity in Investment Management event – 12 August
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The FSC and Mercer are pleased to co-host a Gender Diversity in Investment Management event, which is being held from 1.00 - 2.00pm on Thursday 12 August. The discussion will feature David Bryant, CEO Mercer Australia and FSC Chair; Diversity Working Group Co-Chair, Jodie Hampshire, Russell Investments; Kylie Willment, Mercer Pacific and Michelle Lopez, Aberdeen Standard Investments, exploring how we can shift the dial to achieve greater gender balance in funds management.
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Find out more and register here.
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FSC Policy Briefing: APRA and Climate Risk – 19 August
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The FSC will be hosting a policy briefing on Thursday 19 August (10.30am) for members, with Dr Graham Sinden, Head of Climate Risk at APRA and Dr Sean Carmody, Executive Director (Cross Industry Insights and Data).
APRA will be providing a presentation on:
- APRA’s prudential practice guide CPG 229, designed to assist entities in developing frameworks for the assessment and monitoring of climate-related financial risks;
- The climate vulnerability assessment (CVA), assessing climate risks to large banks and the Australian economy;
- Domestic climate risk activities, including the focuses of the Council of Financial Regulators and industry groups such as the Australian Sustainable Finance Initiative; and
- International climate regulatory activities, outlining some relevant international bodies and their future areas of focus.
There will also be time to take questions from attendees.
Register here.
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Investment and Retirement Incomes Summit – 20 October
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The FSC has rescheduled the inaugural Investment & Retirement Incomes Summit to Wednesday 20 October at Crown Sydney.
The Summit provides a unique opportunity for specialists from across the superannuation, wealth, advice and investment sectors to come together to discuss today's in-depth issues.
New sessions and speakers will be announced soon.
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EVENT DETAILS
DATE: Wednesday 20 October, 2021
TIME: 8.30am - 4.30pm / 4.30pm - 6.30pm Cocktail Function
VENUE: Crown Sydney, 1 Barangaroo Ave, Barangaroo
REGISTRATION COSTS - Early Bird Rates
IN PERSON
Group Member (4 tickets): $950 + GST per person
Member: $1,050 + GST per person
Non Member: $1,450 + GST per person
VIRTUAL
Member: $550 + GST per person
Non Member: $700 + GST per person
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FSC Guidance Note 40: Responding to Modern Slavery Reporting Requirements
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The new FSC Guidance Note 40 on modern slavery reporting under the Modern Slavery Act 2018 is now available on the FSC website. The guidance note covers:
- Establishing a governance process for investors that are not required to report under the Act.
- Considerations for global fund managers.
- Considerations for managing modern slavery risks across different asset classes.
- Resources to help identify sectors, industries and countries which are more exposed to modern slavery risk.
- Answering commonly asked questions in questionnaires.
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Thank you to the members of the Environmental, Social and Governance (ESG) Working Group for their valuable contribution in the creation of this guidance note.
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Performance Analytics - 20th Annual Performance Online Training
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The FSC is pleased to support the Performance Analytics Group Annual Performance Online Training on 21 and 22 September.
Carl Bacon will again be facilitating the P Group Training Courses, incorporating material developed for similar courses he has run throughout Europe, the US and Asia. This course is designed as an intensive masterclass for investment professionals and other key players who wish to increase their technical knowledge and gain a broader understanding of the complete range of risk-adjusted performance measures.
The two workshop sessions being offered are:
- Online Workshop 1: Introduction to Performance Measurement & Attribution
- Online Workshop 2: Risk-adjusted Performance Measurement
Further details about the workshop sessions, cost and registration can be found here.
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SUPERANNUATION
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Retirement Income Covenant Position Paper
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The Government has released a position paper on the Retirement Income Covenant.
The paper proposes a covenant which will require trustees to “formulate, review regularly and give effect to a retirement income strategy” for their members, with the following objectives:
- Maximise their retirement income;
- Manage risks to the sustainability and stability of their retirement income; and
- Have some flexible access to savings during retirement.
The paper reiterates the Government’s intention to have the Covenant legislated for commencement on 1 July 2022.
The FSC’s Retirement Policy Working Group has met to discuss the FSC’s submission.
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Amendments to commutation rules for certain income stream products
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The FSC facilitated a Treasury consultation meeting on the Government announcement in December 2020 that the commutation of certain pension income products (including market linked pensions and similar products) would be treated correctly under the Transfer Balance Cap. Treasury has agreed to provide the questions raised at the consultation which the FSC will circulate to interested members for comment.
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On Monday 28 June, the Government released the 2021 Intergenerational Report. The report confirmed that superannuation was acting to reduce the cost of the Age Pension over time, with Australia projected to have a declining spend on the pension in coming decades, despite the ageing of the population. Australia is expected to have the lowest age pension spending in the OECD largely as a result of Australia’s superannuation system.
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LIFE INSURANCE
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The FSC Board has formally approved a new version of FSC Standard 26, which was updated to remove the paragraph referencing the duty of disclosure which will, for consumer insurance contracts, change to the duty to take reasonable care not to make a misrepresentation from 5 October 2021. A copy of the updated FSC Standard 26 is available on the FSC website.
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Claims handling reforms: commencement of transaction confirmation requirement
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The FSC is engaging with ASIC to facilitate appropriate relief for the unexpected commencement of the of transaction confirmation requirement for claims handling. This requirement technically commenced when an exemption from requirements to provide a transaction confirmation for the acceptance or settlement of a claim relating to an insurance product was repealed by Treasury in regulations that came into force on 19 February 2021.
Based on the FSC’s discussions with ASIC, it's understood that it is currently ASIC’s intention to provide relief by way of legislative instrument. The FSC is supportive of this position and looks forward to reviewing the draft legislative instrument in due course.
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Claims handling reforms: appointment of Authorised Representatives (ARs) and the requirement to notify ASIC
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Through discussions with ASIC, the FSC would like to understand whether life insurers have identified any claims handling issues around the notification requirement (s 916F of the Corporations Act) which requires details of sub-authorised representatives to be lodged with ASIC through written notice. In particular, whether any life insurers are concerned that they will have claims handling and settling service ARs with significantly large numbers of sub-authorised representatives that they would need to notify to ASIC.
The FSC appreciates this may not be an issue at all for some insurers and may depend on what arrangements they have with other entities for the provision of claims handling services.
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Exemption application to ASIC regarding DDO regime and reissuing insurance products
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The FSC is in the process of applying to ASIC to request an exemption from the DDO regime for the reissuing of life insurance products. These reissuing transactions include the reissue of an expired life insurance policy after a customer’s credit card has expired, and the movement of a policy into or out of superannuation. However, after the commencement of the DDO regime, to fulfil such requests will likely mean issuing a new financial product, triggering the DDO requirements. These include the requirement to have a TMD, the reasonable steps requirements, the record keeping requirements, the requirement to review TMDs, and the requirement to report significant dealings to ASIC.
The FSC has applied to ASIC to provide an exemption for these reissuing transactions in the circumstances where the new policy replaces or reinstates the old policy and provides the policy holder with equivalent cover to the old policy.
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Following a series of meetings with ASIC, the Life Code Compliance Committee and the Financial Rights Legal Centre, the FSC will shortly release for a 4-5 week 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 ongoing to better frame the enforceable code provisions and how they will impact the Code.
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Please contact Ashley Davies for more information.
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ADVICE
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Reference Checking and Information Sharing Protocol released
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ASIC has issued its finalised ASIC Reference Checking and Information Sharing Protocol for financial advisers and mortgage brokers. In addition to the legislative instrument and accompanying explanatory statement available here, this includes:
- ASIC information sheet on the ASIC Protocol (INFO 257)
- Feedback Report (REP 694) which summarises ASIC’s responses to feedback in submissions to Consultation Paper 33 (‘CP 333’ which set out options for the scheme and design of the protocol and which the FSC submitted on earlier this year).
The FSC is monitoring live issues arising from the implementation of the protocol ahead of the breach reporting obligations taking effect in October.
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Submissions on the FSC’s Green Paper on financial advice
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Public submissions on the FSC’s Green Paper on financial advice closed on 1 July. The FSC is on track to delivering its White Paper on financial advice this year and is still inviting members and the broader public to contribute suggestions and input into this process. More information on the Green Paper is available here.
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TECHNOLOGY
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Expressions of interest sought for Chair of the Technology and Innovation Expert Group
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The FSC is seeking expressions of interest from members on a Chair for its lead expert group on technology and innovation. The role involves chairing Working Group discussions to maintain member-led advocacy and focus with regard to the FSC’s policy priorities for technology and innovation in financial services.
Members should email expressions of interest to Zach Castles, Policy Manager (Advice) by COB Monday 9 August. The chair will be confirmed at the next meeting of the Expert Group.
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TAX
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- The FSC met with Treasury to discuss Budget tax measures, particularly the proposed improvements to foreign exchange hedging, corporate residency rules (including applying the changes to trusts and Corporate Limited Partnerships) and the increased resourcing for tax treaty negotiations. The FSC indicated its interest in further consultations with Treasury on all these issues.
- The FSC also discussed with Treasury the tax changes that would offset the impact of the ending of the Offshore Banking Unit (OBU) regime. The FSC indicated the tax settings that affected Australia’s competitiveness for funds management including our corporate tax rate, the tax settings for funds, and the personal tax settings applying to employees who manage funds. Australia’s competitiveness could be improved by addressing the issues raised in the previous point, plus addressing the issues with the Investment Manager Regime (IMR) and significantly broadening the Interest Withholding Tax (IWT) exemption.
- The FSC is collaborating with the Australian Custodial Services Association (ACSA) on a number of tax issues, including a paper outlining the tax issues relating to foreign exchange hedging.
- A joint FSC-ACSA meeting to discuss this issue, plus the Burton issue (see next point), Swiss withholding tax reclaims, expense allocation, and ATO work on tax governance has been organised for 13 August.
- The ATO has provided a discussion paper to the FSC on the tax implications of ending of LIBOR (London Interbank Offered Rate).
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Funds management tax
- The FSC wrote to the ATO requesting the ATO prioritise the finalisation of advice on how the Burton case (which is about foreign capital gains and Foreign Income Tax Offsets) applies to managed funds, and make a commitment that it will not apply compliance resources to the Burton issues for the 2021 income year. The ATO has recently responded to this letter, requesting further data from fund managers. The FSC Tax Experts Group (TEG) is considering the letter.
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Life insurance tax
- The FSC has considered a proposal for income tax to be withheld from Income Protection (IP) claim payments that are made outside of super. The FSC Life Tax Experts Group will continue to discuss this proposal.
- The FSC is preparing a letter to APRA requesting that APRA liaise with the Treasury in relation to the tax issues resulting from the implementation of AASB17 for life insurers.
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LEGAL
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FSC Submission on Treasury CP – Relief for Foreign Financial Services Providers (FFSP)
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The FSC is making a submission which is supportive of making FFSP licensing relief and the fast-track licensing process simpler, quicker, more accessible and transparent for FFSPs. In this submission, the FSC raises issues of concern and suggest changes to address these concerns with a view to making the new regime more practical, while at the same time enabling it to achieve its regulatory intent. In particular, it is important that the new regime not adversely impact the ability of FFSPs to manage primarily offshore assets for Australian professional investors.
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Please contact Ashley Davies for more information.
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FSC Submission to Treasury – Financial Accountability Regime (FAR) draft legislation consultation
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Draft legislation for the FAR has been issued for public consultation. The draft legislation adopts recommendations 3.9, 4.12, 6.6, 6.7 and 6.8 of the Financial Services Royal Commission regarding the extension of the Banking Executive Accountability Regime to all APRA-regulated entities, with joint administration from APRA and ASIC.
The FSC is meeting with members and preparing a submission to address concerns and suggest improvements to the draft legislation.
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Please contact Ashley Davies or more information.
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