Welcome to Issue 57 of the FSC Policy Update. At 9am Wednesday the FSC CEO Sally Loane will be In Conversation with Margaret Cole, Executive Board Member of APRA responsible for superannuation, at a free and exclusive FSC member event.
Ms Cole will share her perspectives on the superannuation industry earlier in her tenure at APRA, and what industry participants should expect from her leadership.
To attend, FSC members need to register by Tuesday COB HERE.
Parliament also resumes, with both Houses sitting this week, and Senate Estimates commencing a week later. Parliament is expected to debate the Royal Commission ‘Better Advice’ Bill that establishes a single disciplinary body for financial advice.
Last week the FSC also launched our White Paper on Financial Advice, outlining proposals to reduce the cost of providing financial advice by up to $2,000 and to respect advisers’ professional judgment.
Read more about these initiatives and other work underway at the FSC 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
Corporate Collective Investment Vehicle (CCIV) update
FSC’s White Paper proposals will reduce the cost of advice
ASIC Information Sheet 260 on financial adviser exam released
ASIC COVID-19 relief further extended
Your Future, Your Super Working Group
Removal of Exclusions and Restrictive Disability Definitions based on Occupation
Prudential Standard SPS 530 Investment Governance
FSC Standard on Claims Handling by Superannuation Trustees
House of Representatives Economics Committee Inquiry into Common Ownership and Capital Concentration
Product modernisation for Managed Investment Schemes
October 2021: Life insurance reforms
Strengthening of protections against Unfair Contract Terms (UCT)
Life Insurance Code of Practice
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PARLIAMENT, LEGISLATION AND REGULATION
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Design and Distribution Obligations (DDO) update
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Following the welcome Government announcement of various DDO reforms (including the removal of the DDO ‘nil complaints’ reporting requirement), ASIC announced that it would implement temporary relief until the Government is able to legislate for these changes.
The FSC provided comment on the draft ASIC instrument to implement this relief, including recommending changes to the exemption for employers providing Product Disclosure Statements (PDSs) relating to employer default superannuation funds.
The FSC’s template Target Market Determinations (TMDs) are being licensed by over 250 non-member businesses. The template TMD for funds management includes guidance on how to define/apply ‘significant dealing’. This guidance is designed to assist distributors (including advisers) with their DDO obligations. The FSC has recently developed draft guidance on significant dealings for life insurance as well.
Members are considering some DDO adoption issues, and the appropriate responses. Issues raised so far include:
- Advisers not taking a portfolio approach towards investments and (for example) assuming a conservative client must only invest in conservative investments, which is not the intention.
- Advisers believing that they must, in every case, stop clients from investing in products when they are outside the target market.
The FSC has provided copies of the significant dealings guidance for funds management and life insurance to the advice associations, partly in response to concerns raised by the Association of Financial Advisers (AFA) and the Financial Planning Association (FPA) that advisers did not have sufficient guidance on the meaning of ‘significant dealings’.
A new DDO Working Group has been established to develop template/standard set of DDO due diligence questions for product issuers to use with product distributors (platforms and advisers), so that distributors are not having to answer numerous different sets of questions from different issuers.
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Corporate Collective Investment Vehicle (CCIV) update
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The FSC made a submission on revised draft legislation to implement a CCIV.
The FSC’s submission argued in summary:
- There are many improvements to the CCIV model compared to the previous draft, particularly in the tax area.
- The (non-tax) regulations of CCIVs should be as close as possible to the regulations applying to Managed Investment Trusts (MITs), and the regulation of wholesale CCIVs should be as close as possible to wholesale MITs.
- The tax rules for a CCIV that fails the ‘widely held’ test need to be amended so that complex trust difficulties from Division 6 are not imported into the CCIV.
- The CCIV should be able to access tax treaty benefits on behalf of investors.
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ADVICE
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FSC’s White Paper proposals will reduce the cost of advice
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After almost a year of consultation with the industry, the FSC’s White Paper on Financial Advice was launched on 12 October. The paper acknowledges that financial advice is now a profession, with proposals for reducing the cost of providing financial advice by almost 40 percent, reorienting regulation of the sector around professional judgement and consumer need.
The White Paper proposes to:
- Expand consumer protections to 275,300 more consumers by raising the threshold under which consumers are identified as ‘retail clients’ to those with assets of less than $5 million and index the threshold to CPI;
- Abolish the safe harbour steps for complying with the Best Interests Duty;
- Abolish lengthy, complex Statements of Advice and Records of Advice, for a simpler, consumer-focused ‘Letter of Advice’;
- Break the nexus between financial product and advice, and remove complex labels for different categories of advice, by recognising two categories - ‘Personal Advice’ and ‘General Information’ and;
- Move to sustainable self-regulation by 2030 that supports prior learning and individual registration and update the Australian Financial Services Licensing (AFSL) regime.
The proposals are supported by independent research from KPMG which show that abolishing the safe harbour steps, implementing the Letter of Advice by abolishing the Statement of Advice and simplifying the definitions of advice into just Personal Advice and General Information would:
- Reduce the cost of providing financial advice per client from $5,334 to $3,466.
- Save financial advisers up to 32 per cent of time when providing advice to clients.
- Allow advisers to provide advice to up to an additional 44 new clients each year.
- Enable advisers to produce 2.2 Letters of Advice as opposed to 1.5 Statements of Advice per adviser per week.
- Addressing the compliance burden will reduce the time required to complete the advice process from 9 hours to under 16.8 hours per client.
- Potentially generate cost savings for the advice industry of $91 billion over 20 years.
The White Paper on Financial Advice is the FSC’s platform for shaping the next reforms to financial advice ahead of the Government’s Quality of Financial Advice Review.
You can read and download the White Paper and KPMG’s research here.
And watch the short explainer here.
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ASIC Information Sheet 260 on financial adviser exam released
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ASIC has released Information Sheet 260: FAQs: Timeframe for passing the financial adviser exam (INFO 260). Please see more information available here.
INFO 260 provides further clarity for financial advisers who are existing providers to understand their obligation to pass the financial adviser exam and the possible outcomes if they do not pass the exam within the required timeframe. It also provides information on the Government's proposal to extend the cut-off date for some existing providers.
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ASIC COVID-19 relief further extended
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ASIC has announced the further extension of the temporary COVID-19 advice relief measures for an additional 6 months, to 15 April 2022. In addition, to the ‘record of advice’ relief measure being extended, ASIC has also reintroduced the ‘urgent advice’ relief measure.
In extending the relief ASIC has also update COVID-19 advice FAQs, to in part reflect the extension of the relief measures. See INFO 262 here.
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SUPERANNUATION
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Your Future, Your Super Working Group
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As part of the Your Future, Your Super reforms, Registrable Superannuation Entity (RSE) Licensees are required to report Trustee Directed Product (TDP) information to APRA by 28 October 2021. A number of questions have arisen on how the reforms apply to TDP’s and the FSC is engaging with APRA to seek clarification.
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Gateway Network Governance Body (GNGB) – webinar event exploring the benefits of Multi-Factor Authentication (MFA) for the superannuation sector
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The GNGB is hosting a round table on MFA via webinar on Thursday 21 October.
The discussion will explore how MFA can be used to enhance the security of the superannuation ecosystem, implementation challenges and emerging technologies in this space. The roundtable will include guests:
- Dave Cowan, Chief Information Security Officer, Link Group
- Mick Dunne, Chief Information Security Officer, AustralianSuper
- Ben Foster, Assistant Commissioner Digital Identity Services, Australian Taxation Office
FSC members are invited to participate in the webinar.
When: Thursday 21 October 10am - 11am
Where: Online (MS Teams)
Register: If you would like to register, please send an email to This email address is being protected from spambots. You need JavaScript enabled to view it.
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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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Removal of Exclusions and Restrictive Disability Definitions based on Occupation
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The FSC announced on 11 October that it will be introducing an enforceable FSC Standard to prohibit the use of exclusions and restrictive disability definitions based on occupation. This Standard will apply to all default group life insurance in superannuation and will apply to both FSC superannuation and life insurance members.
This announcement followed a period of public consultation with retail and industry superannuation funds, life insurers and consumer advocates. View the submissions the FSC received here.
The FSC also made a submission to Treasury’s consultation on occupational exclusions which closed on 14 October. The proposed Standard was the focus of FSC’s submission and how it will address issues created by ‘stapling’ from the recent passage of the Your Future, Your Super legislation.
The FSC will now reconvene the occupational exclusions working group to draft the proposed standard with a view to consult with regulators in mid-November.
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Prudential Standard SPS 530 Investment Governance
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APRA released proposed amendments to Prudential Standard SPS 530 Investment Governance. The proposed revisions respond to findings from APRA’s unlisted asset valuation thematic review and APRA’s 2018-2019 post-implementation review of the superannuation prudential framework. The updates focus on enhancements to stress testing, valuation and liquidity management practices.
A meeting of the Superannuation Technical Working Group has been organised for Wednesday 3 November to review the proposed changes and the FSC’s response to the proposals.
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The FSC has made a submission to the Government’s Exposure Draft legislation to implement a Retirement Income Covenant.
The submission argues:
- Funds will develop a more sophisticated approach to the Covenant over time.
- The meaning of ‘period of retirement’ in the Covenant needs clarification.
- APRA should release draft guidance on the implementation of the Covenant as soon as possible in 2021.
- The interaction of the Covenant with personal advice needs clarification, and an additional safe harbour for trustees would assist.
- The Government should facilitate trustees obtaining Government information about fund members (such as income, total superannuation balance and demographic data the fund may not have).
- The Government should provide further certainty about other aspects of Government policy that affect retirement income, particularly Age Pension and aged care costs.
- A range of technical amendments should be made (for example to the Capital Access Schedule).
- The application of the Covenant to advised fund members should be clarified.
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FSC Standard on Claims Handling by Superannuation Trustees
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The FSC has been authorised to prepare a new FSC Standard on Claims Handling for Superannuation Funds, to replace Guidance Note 42, which itself replaced the claims handling provisions in the now defunct Superannuation Voluntary Code of Practice. Of note at this stage:
- GN42 was created in conjunction with other Superannuation Voluntary Code of Practice co-owners (AIST and ASFA), in an attempt to capture relevant areas in the rescinded Superannuation Code and replace these with non-enforceable industry guidance.
- a new Standard will enable super trustees to adopt claims handling best practices and to allow industry to provide ASIC with evidence of self-regulation in this area;
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Please contact Ashley Davies for more information.
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INVESTMENTS
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The Diversity Working Group will be meeting on Thursday 21 October at 11:00am. Former practice leader for learning & inclusion at Mercer (Australia), Yolanda Beattie, will be a guest speaker at the Working Group to share details of a new gender diversity supporting females move into investment management careers.
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House of Representatives Economics Committee Inquiry into Common Ownership and Capital Concentration
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The FSC appeared before the Committee on the 11 October to address the Committee’s questions about the implications of capital concentration and common ownership in Australia.
In the FSC’s remarks to the Committee, the FSC accepted that this is a legitimate area of inquiry for policy makers. However, the FSC argued that there is little evidence that common ownership is generating consumer detriment and encouraging a substantial lessening of competition in the Australian economy.
The FSC observed that there are plenty of strong incentives toward competition and that competition law is adequate to deal with any anticompetitive effects that may arise from increased capital concentration and common ownership.
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Product modernisation for Managed Investment Schemes (MISs)
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The FSC has established a special Working Group to discuss the Government’s proposals to introduce a specialised mechanism to permit product modernisation/rationalisation for MISs.
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LIFE INSURANCE
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The Life Board Committee has approved to update FSC Standard 21 for industry-wide commencement from 1 July 2022 following a review of the FSC Mental Health Working Group. The key changes proposed to the Standard are to:
- Expand the scope of employees covered to include those employees that interact with consumers indirectly, for example those whose role it is to design the products and coverage that consumers use; and
- Include those people or organisations that are appointed to interact with customers directly on the life insurer’s behalf. In these circumstances, insurers are not required to provide the training, but will need to take reasonable steps to ensure the people and organisations they appoint have been provided training consistent with the objectives of Standard 21.
Standard 21 was established in 2013 to ensure that customer facing employees of life insurers receive an appropriate level of education and training in relation to mental health awareness. A review of the Standard has also been recommended by the Productivity Commission (PC) in their Final Report of the PC’s Inquiry on Mental Health released on 16 November 2020.
The standard is expected to be finalised following approval of the FSC Board in December.
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October 2021: Life insurance reforms
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The first week of October saw eight major reforms land on the life insurance sector on consecutive working days, 1 October and 5 October.
The FSC worked with members in the run up to these reforms to ensure they could be implemented effectively to achieve their policy intent, with as few unintended consequences as possible.
See more here.
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Strengthening of protections against Unfair Contract Terms (UCT)
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The FSC has made a confidential submission to Treasury’s consultation on the Government’s exposure draft legislation in relation to strengthening the protections against Unfair Contract Terms for consumers, small businesses and insurance contracts. The key recommendations in the FSC’s submission are:
- Exclude insurance contracts that are reissued on substantially the same level of cover and were originally entered into before 5 April 2021;
- The penalty and remedy aspects of the UCT regime should be considered against the significant prudential issues it raises and the Government’s broader objective of promoting Australia as a financial centre; and
- Amend the draft bill so that it allows for a 12-month transition period for insurance contracts.
The FSC and other industry stakeholders have raised significant concerns on the draft legislation and are engaging with Treasury to work through these concerns and understand next steps in the process.
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ASIC has finalised its regulatory guidance in relation to hawking reforms which commenced on 5 October 2021. The final regulatory guidance incorporates a number of important revisions to the draft regulatory guidance that better enable real-time interactions between consumers and offerors, including:
- Confirming that an offeror that merely provides information to a consumer in real time would not breach the hawking prohibition;
- Confirming that an offeror is permitted to confirm a customer’s consent if the scope of consent is not sufficiently clear and that consent established in this way can be relied on for the purposes of making an offer of, or request or invitation to apply for, a financial product; and
- Establishing that consent can evolve during the course of real time contact so long as it continues to meet the requirements (positive, voluntary and clear) of valid consent.
The finalised regulatory guidance can be accessed here.
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Life Insurance Code of Practice
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The FSC is working through the feedback received on the recent consultation on its revised Life Insurance Code of Practice (Life Code). Feedback was received from a number of stakeholders including the Life Code Compliance Committee (LCCC), ASIC, Australian Financial Complaints Authority (AFCA), Public Interest Advocacy Centre (PIAC) and other consumer groups. The FSC aims to have the revised Life Code finalised for approval by the Life Board Committee at the end of November 2021.
ASIC has also indicated that it may not be able to approve the Code until they have finalised their regulatory guide, which is currently understood to occur by early 2022. In the meantime, the FSC and members are considering which provisions of the Life Code might be put forward as potential enforceable code provisions having regard to implications of also including a community benefit payment sanction within the revised Life Code.
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Please contact Ashley Davies for more information.
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TAX
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- The ATO has released its strategy for financial services for 2021–22 for both income tax and GST; a copy has been provided to members.
Income Tax
- The FSC made a submission on the tax aspects of the Corporate Collective Investment Vehicle (CCIV) – see regulation section above.
- The FSC continued discussions with Government, ATO and Treasury on tax treatment of non-arms’ length income by superannuation funds. The FSC raised concerns that the existing law, and the ATO’s interpretation of the law, would expose large super funds to the possibility of extremely large tax penalties for small errors, and funds would face substantial compliance burdens to avoid these possible tax penalties.
- The FSC has requested further information from members on the interaction of this issue with RG97 and expense allocation, and any particular issues relating to sub-scale funds that are exiting the industry (e.g. via merger).
- The Government has indicated they are very aware of the concerns and are looking into it.
- The FSC is developing a submission to a Government review of Australia’s tax treaty network. The draft submission argues the Government should prioritise new treaties with Luxembourg (which the Government has recently supported) and Hong Kong, and amend existing treaties so they work correctly for managed funds and superannuation funds.
- The FSC is developing a submission to an ATO review of the tax treatment of the ending of the London Interbank Offer Rate (LIBOR).
- The FSC is developing a submission to the Organisation for Economic Co-operation and Development (OECD) on how the OECD Pillar 2 reforms (for a global minimum tax rate) raise particular issues for Australian life insurers.
- The FSC participated in a meeting with the ATO and custodians to discuss third party data governance.
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