Welcome to Issue 59 of the FSC Policy Update, our last issue of 2021.
Parliament has concluded for the year, but the impact and pace of regulatory change has not slowed as we approach the Christmas shut down.
ASIC, APRA and the new Financial Regulatory Assessment Authority have each released new consultation papers over recent weeks for feedback early in the new year. The FSC is continuing to work through these items and appreciates ongoing member support as we continue to tackle complex and challenging policy issues.
Parliament resumes for two weeks in February, creating a narrow window to pass important outstanding legislation before the March Budget and the likely calling of the Federal Election. The FSC is supporting the passage of the Retirement Income Covenant and Corporate Collective Investment Vehicle regime, but the narrow window and competing Government priorities will make this a challenge.
I would also like to take this opportunity to thank the FSC team and members’ representatives on FSC Board Committees and Working Groups for their tireless work throughout the year. The scope of reform this year has been unprecedented, in addition to the challenges of COVID-19, and everyone’s good humour and hard work has been appreciated.
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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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ALRC launches first interim report looking definitions in financial services law
Design and Distribution Obligations
Superannuation Portfolio Holdings Disclosure
FSC Standard on Claims Handling by Superannuation Trustees
Superannuation Technical Issues
Corporate Collective Investment Vehicle Legislation
Your Future Your Super Working Group
Product Rationalisation for MIS Legacy Products
Climate Risk and Reporting Guidance Note
Early bird pricing ends soon - Investment and Retirement Incomes Summit 16 February 2022
Life Insurance Code of Practice
New regulatory materials for limited advice
ASIC launches financial advice hub
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PARLIAMENT, LEGISLATION AND REGULATION
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Financial Regulator Assessment Authority (FRAA) assessment of the effectiveness and capability of ASIC
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The Financial Regulator Assessment Authority (FRAA) released on Monday 29 November the scope of its first assessment of the effectiveness and capability of the Australian Securities and Investments Commission (ASIC).
The first FRAA assessment of ASIC, to be provided to Government by the end of July 2022, will be a targeted assessment of ASIC’s effectiveness and capability in strategic prioritisation, planning and decision-making, ASIC’s surveillance function, and ASIC’s licensing function. The first review will also examine ASIC’s use of data and technology in each of these areas of focus.
The FSC will be preparing a submission and we will be convening a new Working Group. The closing date for submissions is 28 January 2022
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In November ASIC released a draft updated and expanded regulatory guide to consult on the way licensees should conduct remediations to return money owed to consumers.
CP 350 seeks feedback on the draft consumer remediation regulatory guide which in turn reflects consideration of the feedback received on CP 335. ASIC’s response to the feedback is set out in detail in Report 707 Response to submissions to CP 335 Consumer remediation: Update to RG 256.
The FSC will convene a Working Group meeting in the coming weeks to discuss.
Senate Economics Legislation Committee Inquiry into Financial Accountability Regime Bill 2021 (FAR) and Financial Services Compensation Scheme of Last Resort Levy Bill 2021 (CSLR) and related bills.
FAR
The bill for the FAR has been referred to the Senate Economics Legislation Committee and a report is due to be issued in February 2022. The bill 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 making a further submission to reiterate key concerns and suggest improvements to the draft legislation.
Please contact Ashley Davies for more information.
CSLR
The FSC will be making a submission broadly supporting the current scope and design of the CSLR to the Senate Economics Legislation Committee.
The FSC is concerned by misleading arguments from some stakeholders during the recent committee hearings into the collapse of Stirling Property Funds that the CSLR should be expanded. The FSC’s view is that ASIC’s new powers, not least the Design and Distribution Obligations regime, should play a larger role in protecting consumers from such failures.
A compensation scheme for similar high risk investments would create unprecedented moral hazard and the FSC will re-iterate our current views on strengthening capital requirements for financial advice businesses to ensure a level playing field in the industry.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
ALRC launches first interim report looking definitions in financial services law
The Australian Law Reform Commission (ALRC) has released the first of three interim reports consulting on proposals to simplify corporations and financial services law. Key proposals relate to:
- Changing disclosure rules around ‘responsible persons’ and outcomes-based regulation in relation to product disclosure.
- Simplifying regulatory boundaries between ‘financial product’ and ‘financial service.’
- Properly defining ‘personal advice’, removing the definition of ‘financial product advice’ while renaming ‘general advice.’
- Consideration of the licensing framework for financial advisers.
- Redefinition of ‘wholesale clients’ and ‘retail clients’ and reforms to the definition of ‘sophisticated investor.’
- Simplification of the conduct disclosure regime.
The FSC will develop its submission through the working group process which is due in February 2022. Two further interim reports will be released in the course of next year with a final report being issued at the end that year.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
Design and Distribution Obligations (DDO)
The FSC has prepared guidance on the meaning of significant dealing for life insurance. The draft guidance is being amended in response to comments from ASIC and from financial planners and will be recirculated to members and stakeholders.
The FSC prepared guidance on two DDO implementation issues for managed funds related to:
- 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 been working closely with advice associations on these two issues.
In response to an FSC application, ASIC provided FSC with a letter stating that it will take a DDO no-action position and an exemption in relation to the reissue of life insurance products. This will mean that the DDO requirements will not apply to administrative changes to products (such as reinstatement after a credit card payment fails), facilitating good consumer outcomes.
The FSC made a separate application to ASIC requesting that ASIC indicate that it will not take action against financial services businesses that voluntarily comply with the DDO and ask questions of customers while not following all the requirements for the provision of personal advice.
The FSC is developing a draft 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.
The FSC released updated versions of the Excel data standards for significant dealings and complaints.
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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Superannuation Portfolio Holdings Disclosure
With the finalised portfolio holdings disclosure regime’s first reporting date approaching on 31 March 2022, and occurring every six months after, members are currently working through interpretation and implementation issues. The FSC’s Portfolio Holdings Disclosure Working Group will be meeting on 14 December to discuss questions such as the disclosure of non-associated entities.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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FSC Standard on Claims Handling by Superannuation Trustees
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The FSC has been working on 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. The 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. The new Standard is expected to be ready in early 2022.
Please contact Ashley Davies for more information.
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- Legislation to implement the Covenant was introduced to Parliament, as part of the legislation to implement the Corporate Collective Investment Vehicle. The FSC issued a press release welcoming the legislation, and called for Parliament to pass the legislation as a priority.
- The Bill has been referred to the Senate Economics Committee. The FSC plans to make a submission to the Committee arguing for the speedy passage of the legislation to provide certainty for industry.
- APRA has indicated that it will provide guidance in the start of 2022 on key implementation issues for the Covenant for super funds.
APRA released a discussion paper on trustee financial resilience, which includes how trustees are responding to the recent changes to section 56 of the Superannuation Industry (Supervision) (SIS) Act, which prevent the payment of certain fines and penalties from trust assets (i.e, member benefits).
A new FSC Working Group has been established to work through the FSC response. The Working Group will consider issues such as whether fines and penalties can be paid by a trustee balance sheet, whether payments to the trustee balance sheet should be treated as dividends, and the appropriate source for payment of remediation.
Please contact Michael Potter for more information.
Superannuation Technical Issues
- Members are considering ASIC’s proposed changes to the regulatory relief relating to superannuation calculators and retirement estimates.
- The FSC is seeking member views on ASIC’s proposed changes to SPS 530 on investment governance.
- The FSC is seeking member views on draft amendments to commutation rules for certain income stream products.
- The FSC provided feedback to the Department of Social Services on the proposals to remake social security Income Stream Instruments. The FSC was supportive of the remaking of the instruments, but asked that approach to the instruments take into account the Budget announcement that the Government will allow individuals to exit a specified range of legacy retirement products.
- The FSC provided members with Treasury advice about the operation of recent changes to the bring forward rule for Non Concessional Contributions.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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INVESTMENTS
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Corporate Collective Investment Vehicle Legislation
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The Government introduced legislation to implement the long-awaited Corporate Collective Investment Vehicle (CCIV). The legislation was largely as expected, with the FSC’s submission on a draft of the CCIV leading to some important issues being addressed in the legislation as introduced. The FSC issued a press release welcoming the legislation, and called for Parliament to pass the legislation as a priority.
The Bill has been referred to the Senate Economics Committee. The FSC plans to make a submission to the Committee arguing for the speedy passage of the legislation to provide certainty for industry.
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Your Future Your Super (YFYS) Working Group
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Fund manager and superannuation members continue to meet to discuss benchmarking matters and new data standards that apply to Trustee Directed Products. Updated regulations for the YFYS reforms are expected to be released in Q1 2022.
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The Diversity Working Group is continuing its work on identifying 2022 priorities that are related to the current focus which is increasing gender diversity of women in investment management.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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Product Rationalisation for MIS Legacy Products
The FSC’s Product Modernisation Working Group has continued to meet in parallel with Treasury’s smaller expert working group to consider Treasury’s initial thinking in designing a mechanism for the rationalisation of legacy managed investment scheme products. The Treasury consultation paper is expected for release in January 2022.
Climate Risk and Reporting Guidance Note
The FSC continues the development of a guidance note that will provide the investment management industry with baseline expectations on disclosing of climate risk and net zero targets, helping to provide confidence to regulators and investors. If you would like to get involved with the ESG Working Group’s ongoing work, please get in touch.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
Early bird pricing ends soon - Investment and Retirement Incomes Summit 16 February 2022
Early bird pricing for the FSC Investment and Retirement Incomes Summit on 16 February 2022 will end on Friday, 14 January. Make sure to secure your tickets and save now before standard pricing comes into effect. For program details and to register see here
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LIFE INSURANCE.
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The FSC Board has approved changes to strengthen FSC Standard 21, an industry standard setting out minimum requirements for mental health awareness and literacy training for those people working in the life insurance industry that interact with customers. 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. The updated Standard 21 comes into effect for FSC life insurance members from 1 July 2022.
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 Code of Practice
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The FSC is working towards finalising the Life Insurance Code of Practice (Life Code). Feedback was received from a number of stakeholders including the LCCC, ASIC, AFCA, PIAC, the FRLC and other consumer groups. The FSC aims to have the revised Life Code substantially advanced by end of 2021 and then finalised for approval by the Life Board Committee in February 2021.
ASIC has also indicated that it may not be able to approve the Life Code until they have finalised their regulatory guide on enforceable code provisions. A draft regulatory guide is not expected until July 2022 at the earliest, so finalisation of that guide is likely to be postponed until late 2022. In the meantime, the FSC and members will continue to consider 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.
Please contact Ashley Davies for more information.
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ADVICE
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New regulatory materials for limited advice
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ASIC has published several materials to support the provision of limited advice:
- Information Sheet 267: Tips for giving limited advice (INFO 267) (The Information Sheet provides tips and summarises relevant guidance from Regulatory Guide 175 and Regulatory Guide 244)
- An example Limited Advice Statement of Advice
ASIC’s media release can be found here.
This is an outcome of the feedback our members provided for ASIC’s Consultation Paper 332: Promoting access to affordable advice for consumers.
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ASIC launches financial advice hub
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ASIC has launched the Financial Advice Hub, a centralised webpage providing a one-stop access point for guidance and information relevant to practitioners in the financial advice sector.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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TAX
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The Government introduced legislation to implement a Corporate Collective Investment Vehicle (CCIV) – see investments section.
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The FSC discussed the tax treatment of non-arms’ length income by superannuation funds with the Government and with Treasury. The FSC raised concerns that the existing law, and the ATO’s interpretation of the law, would expose funds to the possibility of extremely large tax penalties for small errors, and funds would face substantial compliance burdens to avoid these penalties.
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The FSC made a submission to a Government review of Australia’s bilateral tax treaty network, welcoming the Government’s announcement of an expansion to include Luxembourg which is a long-standing FSC policy request. The FSC also argued for improvements to existing tax treaties so that they deal appropriately with collective investments.
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The FSC provided the Government with proposals to extend the access to the Managed Investment Trust (MIT) start-up concession, given the time that it takes for MITs to become widely held.
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The FSC joined with other global investment fund associations to raise concerns with how the OECD’s Pillar 2 reforms (a global minimum tax rate) work for investment funds. The OECD has indicated in response that it is exploring these issues.
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Separately, the FSC made a submission to Treasury raising concerns about how the OECD Pillar 2 reforms (for a global minimum tax rate) raise particular issues for Australian life insurers, and met with Treasury to discuss these concerns.
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The ATO indicated to the FSC that is it has now provided several items of public guidance on tax issues relating to remediation and is not proposing to provide further guidance in future.
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The FSC made a joint submission with the Australian Custodial Services Association (ACSA) on the tax treatment of foreign exchange hedging, which currently causes substantial tax issues for investment managers. The Government has committed to addressing industry issues by 1 July 2022.
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The FSC is working with ACSA to develop a Tax Data standard for custodians and asset managers.
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The ATO released draft guidance on governance of third-party data relating to tax, following extensive consultation with FSC and custodians. The FSC will make a submission on the draft.
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The FSC co-signed a joint letter to the ATO with the ABA and the AFMA recommending approaches to the tax treatment of contract changes due to the ending of the London Interbank Offer Rate (LIBOR), and made a separate submission to the ATO on this issue raising issues specific to fund managers.
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The FSC provided a paper to the ATO on the GST issues relating to the ending of grandfathered conflicted remuneration (including commissions).
.Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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