Welcome to Issue 55 of the FSC Policy Update. Parliament is set to resume for two weeks starting Monday 23 August, but with significantly reduced attendance due to COVID restrictions in place in the ACT.
The health crisis and economic implications of increasingly strict restrictions in the Eastern States will continue to be the focus of political debate, along with an emphasis on raising vaccination rates.
The Government has commenced consultation on a range of financial services policy issues, including the retirement income covenant, as well as a House of Representatives inquiry into capital concentration. FSC Working Groups are preparing submissions to these initiatives.
Senator Bragg has also initiated an independent consultation on the potential to use the Future Fund as a national default fund, however this is not Government policy or a formal Government consultation.
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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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Design and Distribution Obligations (DDO) update
The FSC makes submission to ASIC CP 346 the hawking prohibition
FSC Submission on Treasury CP – Relief for Foreign Financial Services Providers (FFSP)
FSC Submission to Treasury – Financial Accountability Regime (FAR) draft legislation consultation
ASIC levy methodology for Responsible Entities
Women in Investment Management Charter
Climate Change Risk Guidance Note
House of Representatives Capital Concentration Inquiry
Further Consultation on Portfolio Holdings Disclosure
Superannuation financial reporting and auditing requirements
Your Future, Your Super Regulations and performance reporting next steps
FSC industry initiative on occupational exclusions
FSC releases KPMG research into mental health claims
Exemption application to ASIC regarding DDO regime and reissuing insurance products
ASIC announces reasonable approach to advice-related regulation
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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 Treasury to discuss key DDO implementation issues for FSC members, particularly:
- The DDO ‘nil complaints’ reporting requirement. The FSC emphasised the high compliance costs of this requirement, and the negligible consumer benefit of the requirement.
- The limited awareness and readiness for DDO in the advice community.
- The FSC’s application for a DDO exemption for the reissuing of life insurance contracts.
- Issues with how the DDO relief for personal advice works for platforms with independent (unaffiliated) advisers.
The Government announced a number of proposed amendments to the DDO regime, in particular an amendment that will effectively remove superannuation clearing houses from the DDO regime.
On 12 August, ASIC announced that it will take “a reasonable approach in the early stages” of the implementation of a number of reforms, including the DDO regime. ASIC stated the approach will extend to technical or inadvertent breaches, where firms have systems changes underway and act quickly to address problems as they arise. However, ASIC states they “will not hesitate to enforce the law” where firms are not acting in good faith or there is conduct causing actual harm.
The FSC made an application to ASIC for an exemption from the DDO regime for the reissue of life insurance products (see life insurance section below).
The FSC has finalised version 1.0 of Target Market Determination (TMD) templates for managed funds (including ETPs), IDPSs, managed accounts, investment/education/funeral bonds, life insurance products, and superannuation funds (both master trusts and super platforms/wraps).
The templates are free to FSC members and are being licensed to over 200 non-member businesses.
The FSC data standards are available to the whole industry on the FSC website and are now well developed. The standards cover:
- the transmission of TMDs to platforms and advisers;
- the reporting of complaints from platforms and advisers to issuers; and
- the reporting of significant dealings (and other transactions) from platforms and advisers to issuers.
The FSC is meeting with ASIC to discuss DDO issues specific to superannuation, including:
- how the DDO employer exemption operates after superannuation stapling commences;
- how the personal advice exemption works for ‘voluntary’ DDO compliance
- the application of the DDO to the switch from MySuper to Choice.
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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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The FSC makes submission to ASIC CP 346 the hawking prohibition
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The FSC has made a submission to ASIC’s consultation about its draft regulatory guidance for the hawking reforms in line with the implementation of Royal Commission recommendation 3.4 and 4.1 which will prohibit the hawking of superannuation and insurance products. The FSC submission highlights a number of areas where the proposed regulatory approach could be clarified to ensure consumers that engage in contact that occurs in real time with offerors of financial products are always in-control in their interaction. See the submission here.
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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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FSC Submission on Treasury CP – Relief for Foreign Financial Services Providers (FFSP)
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The FSC has made 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 has made a submission to address concerns and suggest improvements to the draft legislation.
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Please contact Ashley Davies for more information.
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INVESTMENTS
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ASIC levy methodology for Responsible Entities
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The FSC has written to ASIC as part of the Cost Recovery Implementation Statement (CRIS) to support changing the ASIC levy methodology for responsible entities to one which is based on Net Asset Value instead of Total Assets.
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Women in Investment Management Charter
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The FSC was pleased to co-host a webinar panel discussion with Mercer on 12 August, which explored ways in which fund managers can encourage greater gender balance in investment management. The panel, including David Bryant, President, Pacific Region & CEO, Mercer Australia and FSC Chairman; Kylie Willment, Chief Investment Officer, Mercer Pacific; Jodie Hampshire, Managing Director for Australia, Russell Investments and Michelle Lopez, Head of Australian Equities at Aberdeen Standard Investments, noted that this was a multifaceted issue. Encouraging greater numbers of women to select funds management as a career path following university, focusing on retention strategies so that talented females stay in the profession as their work/life requirements change, as well as taking a different perspective to hiring practices which look for the best person who complements the team (not just the person with the greatest years of experience) were a few of the suggestions discussed by the panellists.
At this event, the FSC launched the Women in Investment Management Charter (WIM Charter), which provides fund managers with a framework to introduce targets to support greater gender balance in investment management teams. In launching the WIM Charter, the FSC share the news that eight FSC fund manager members have signed up to the Charter already. Further details regarding the WIM Charter and signatories is available here: FSC Media Release - Improving Gender Balance in Investment Management.
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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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Climate Change Risk Guidance Note
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The Environmental, Social, and Governance (ESG) Working Group is commencing work on developing industry specific climate risk guidance. The guidance note is seeking to address the following areas:
- Applying the Task Force on Climate Related Financial Disclosures specifically to investment management.
- A framework and method for reporting on and assessing net zero in investment portfolios.
- Labelling of fund products that have features that claim to address climate risk concerns.
The FSC is currently seeking volunteers with expertise to help develop the initial draft.
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House of Representatives Capital Concentration Inquiry
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The House of Representatives Standing Committee on Economics, chaired by Tim Wilson MP, will be inquiring into the implications of capital concentration and common ownership in Australia. In particular, it will be exploring:
- The extent of capital concentration and common ownership of public companies, and its likely future trajectory in Australia;
- The influence of capital concentration and common ownership on markets, including on investment decisions, market behaviour, competition and any other relevant factors;
- The changing influence between individual investors and small funds, compared to larger funds, as a result of capital concentration and common ownership;
- Any related consequences that flow from capital concentration and common ownership, including international experiences;
- The role of regulators in responding to these consequences; and
- Policy responses to address these consequences, including by government, regulators and public companies.
The Deputy Chair of the committee, Dr Andrew Leigh MP, has recently released a paper on capital concentration, raising concerns about the effect on competition that common ownership may create, with some suggestions for future policy direction.
The FSC will be preparing a submission to the inquiry, due on Monday 13 September.
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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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Further Consultation on Portfolio Holdings Disclosure
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Treasury has released further draft Portfolio Holdings Disclosure regulations for final consultation.
The latest draft has removed the requirement to disclose maturity dates and counterparty name for derivatives. However, concerns remain about the level of derivatives disclosure and the disclosure of the value of unlisted infrastructure assets.
The FSC’s submission will reiterate members' concerns. The FSC has also been engaging the Government about these concerns, providing them with further information.
Submissions for this further consultation are due on 31 August.
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Superannuation financial reporting and auditing requirements
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Treasury has released draft legislation for consultation relating to financial and auditing requirements for super funds. The new legislation will require Registrable Superannuation Entities (RSEs) to lodge financial reports with ASIC and make them public, as well as strengthening audit requirements.
The FSC is convening an ad-hoc group for the purpose of this legislation, with submissions due on 8 September.
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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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Your Future, Your Super Regulations and performance reporting next steps
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On 5 August, the Your Future, Your Super reforms were released, and can be found here:
- Single Default Account (Stapling)
- Addressing Underperformance in Superannuation (performance assessment and related issues)
- Improving Accountability and member Outcomes (Annual Member Meeting requirements)
A small number of changes were made compared to the draft regulations, including changes to the assessment of administration fees.
APRA also issued an information paper setting out its approach to combining MySuper product performance histories, outlining its approach for the performance assessment and the data used for the ATO comparison tool.
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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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FSC industry initiative on occupational exclusions
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The FSC has initiated a process to consult with the superannuation and life insurance sectors, consumer advocates and other stakeholders with the aim of addressing an unintended consequence of the ‘stapling’ provision as part of the Government’s ‘Your Future, Your Super’ reforms.
The FSC strongly supports the implementation of stapling as it will prevent the creation of duplicate accounts that cause the erosion of superannuation savings. In a small number of instances, however, superannuation members can be stapled to a MySuper fund that has default group life insurance that contains exclusions based on occupational classification. In a small number of instances when an employee moves between occupational classifications, at time of claim they may find themselves unable to claim against their default insurance coverage in the MySuper product.
The FSC proposes to introduce a prohibition on the use of any terms in MySuper group life policies that would cause a claim to be declined in default group life insurance in superannuation on the basis of a change in the occupational classification of the member.
The policy proposed can be access here. Stakeholders are encouraged to provide feedback by Friday 3 September through This email address is being protected from spambots. You need JavaScript enabled to view it.. As part of this process the FSC would welcome feedback on the options outlined in the consultation paper to implement this solution.
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FSC releases KPMG research into mental health claims
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The FSC has released research, undertaken by KPMG, which reveals the long-term toll of mental illness among Australians, and the significant rate of recurrence of mental health conditions. The research has found that Australians who have made a mental health claim are 18 times more likely to claim again in the future for mental health compared to someone who has never claimed for a mental health condition.
The research covers a 13-year period from 2007 to 2019 and involves extensive data collection and examination of over 10,000 mental health claims from 2.6 million income protection policies purchased through financial advisers. A full copy of the research is available on the FSC website or access here.
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ASIC has recently released its short follow-up report (REP 696) to provide an update on ASIC’s work on total and permanent disability (TPD) insurance. It focuses on how insurers in particular are addressing the issues identified in ASIC’s Report 633 Holes in the safety net: A review of TPD insurance claims.
The FSC is pleased to see ASIC recognise the progress the life insurance industry has made over the last eighteen months or so and acknowledges there is more to be done by life insurers around gathering and using data. Overall ASIC report 696 is a positive score card, it is a good reflection of industry and regulators working well together to make things better for customers.
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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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Exemption application to ASIC regarding DDO regime and reissuing insurance products
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The FSC has written 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.
The FSC is now preparing a draft legislative instrument to provide to ASIC to assist with the exemption application.
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Following a series of meetings with ASIC, the Life Code Compliance Committee and the Financial Rights Legal Centre, the FSC released, on 18 August, for a six-week public consultation the plain English draft of Code 2.0.
As part of this process, the FSC will look to engage stakeholders through a roundtable (scheduled for Wednesday 8 September) and bilateral meetings. Further work is ongoing to better frame the enforceable code provisions and how they will impact the Code. Find out more and register for the roundtable here.
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Please contact Ashley Davies for more information.
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ADVICE
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ASIC announces reasonable approach to advice-related regulation
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ASIC this month confirmed that it will take a reasonable approach to the enforcement of key advice regulation taking effect in October. A full copy of ASIC’s media release is available here.
In summary:
- ASIC notes a ‘period of transition’, as these regulations are implemented, in which the Regulator will take a reasonable approach to the early stages of implementation.
- This includes accounting for the context advice licensees are operating and the challenges arising from the current environment (the volume of regulations to be implemented; COVID-19 and renewed lockdowns).
- The approach extends to technical or inadvertent breaches where firms have system change under and act quickly to address problems as these arise.
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TAX
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- The FSC provided Treasury with a list of requested policy changes to improve Australia’s competitive position in response to the impending closure of the Offshore Banking Unit (OBU) regime. The FSC’s key proposals were:
- Addressing Australia’s complex withholding tax arrangements for globally-focused funds that give the appearance of having high rates, but in fact raise little revenue
- Ensure the correct tax treatment of foreign capital gains after the Burton
- Fix the outstanding issues with the Investment Manager Regime
- Fix existing issues with tax treaties that do not adequately deal with collective investments (see below)
- Expand the Managed Investment Trust (MIT) start up concession (see below)
- The FSC met with the Australian Custodial Services Association (ACSA) to discuss issues of common interest including:
- The ATO’s information requests relating to foreign capital gains after the Burton
- Swiss tax reclaims
- Industry issues with foreign currency hedging
- The ACSA tax data standard
- ATO discussion on third party data governance
- FSC members are developing a policy argument to extend the existing start up concession for MITs given the difficulties in meeting the existing start-up requirements.
- The FSC is considering co-signing a letter to the OECD raising issues with how the OECD’s Pillar 2 tax reforms will operate for collective investment vehicles.
- The FSC met with Treasury to discuss FSC member issues with tax treaties. Issues discussed included:
- The difficulties with existing treaties relating to collective investments, particularly with withholding tax reclaims
- How to simplify the ability of Australian collective investment vehicles to obtain treaty benefits on behalf of members
- The need for Australia’s tax treaty network to extend to Hong Kong and Luxembourg
- The ATO released a consultation paper on the reform to Inter-bank Offered Rate (IBOR) benchmarks. The FSC is considering a draft submission being developed by the Australian Bankers Association (ABA) and Australian Financial Markets Association (AFMA) on this issue, with a view to co-signing the submission
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Superannuation taxation
- The FSC is having ongoing discussions with professional bodies and other superannuation bodies on an ATO ruling relating to non-arms-length expenditure – see superannuation section above.
- The ATO released a fact sheet on how remediation paid into superannuation will impact on contribution caps. In broad terms, remediation that is in response to a trustee’s right to sue should not impact on contribution caps, but otherwise the remediation is likely to affect concessional or non-concessional contribution caps.
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Life insurance taxation
- The FSC is requesting data from members on the impact of a proposal to impose tax withholding on IP claim payments. The FSC is requesting information on the estimated costs of implementing the change, any reduction in costs from not having to report to the ATO on claim payments, and impact of the change on claim payments. These will all be broad estimates.
- The FSC wrote to APRA requesting that APRA have ongoing discussions with Treasury on the implementation of AASB17 for life insurers, so that Treasury is well aware of the tax implications of APRA’s proposed approach.
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