Welcome to Issue 60 of the FSC Policy Update.
The pace of regulatory change picked up where it left off last year, as 2022 gets into full swing.
The first parliamentary sitting week for the year saw passage of important legislative reforms, specifically, the Retirement Income Covenant, the Corporate Collective Investment Vehicle regime and a number of changes to the superannuation system, including the removal of the $450 threshold for SG coverage. The FSC thanks members for their substantial contributions to submissions and discussions on these issues.
The balance of the parliamentary period before the next federal election will see the focus shift to the forthcoming Federal Budget in March, which will present opportunities for continued advocacy.
The FSC will continue to work with members on a range of complex consultations taking place during this period and appreciates ongoing member support throughout our policy development processes.
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Spiro Premetis, Executive Director for Advocacy
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Click on the topic of interest below to read more
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Financial Services industry benefits from passing of key legislation
APRA Consultation on strengthening crisis preparedness
Design and Distribution Obligations
Retirement Income Covenant legislation
Enhancing Superannuation Outcomes for Australians Bill 2021
Superannuation Calculators and Retirement Estimates
Superannuation Technical Issues
FSC Standard on Claims Handling by Superannuation Trustees
Your Future Your Super reforms
Corporate Collective Investment Vehicle legislation
ASIC ETF Naming Convention Consultation
Portfolio Holdings Disclosure: Further Guidance
Proposed changes to the Unfair Contract Terms regime
Life Insurance Code of Practice
FSC Guidance Note 43: Advice fee consent requirements
Quality of Financial Advice Review – Draft Terms of Reference released for consultation
Australian Law Reform Commission (ALRC) Inquiry
Education Standards for Financial Advisers
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PARLIAMENT, LEGISLATION AND REGULATION
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Financial Services industry benefits from passing of key legislation
Legislation to implement the Corporate Collective Investment Vehicle (CCIV) and the Retirement Income Covenant passed Parliament on Thursday 10 February. Both regimes will now come into force on 1 July 2022. The FSC issued a media release welcoming the passage of these important reforms. The FSC thanks members for their substantial contributions to submissions and discussions on these issues.
The FSC will continue work with members, Treasury, ASIC and APRA on the implementation issues relating to the CCIV and Covenant. These reforms demonstrate the value to the financial services sector of sustained industry advocacy.
The Parliament also has passed legislation to make a number of changes to the superannuation system including:
- Increasing the maximum release from the First Home Super Saver Scheme
- Amending the downsizer contributions measures
- Removing the $450 a month threshold for SG coverage
- Amending the work test for those aged 67 to 75.
The legislation is called Treasury Laws Amendment (Enhancing Superannuation Outcomes For Australians and Helping Australian Businesses Invest) Bill 2021.
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The FSC has implemented changes to a range of Standards that have been superseded by legislation or would be better served as Guidance Notes.
This follows a process of consultation with our membership, including through relevant working groups, individual portfolio Board Committees, our Standards Oversight & Disciplinary Board Committee, and the FSC Board.
The following Standards will be converted into Guidance Notes:
- Standard 6: Product Performance – Calculation of Returns
- Standard 8: Scheme Pricing
- Standard 8A: Crediting Rates
- Standard 9: Valuation of Scheme Assets and Liabilities
- Standard 10: Presentation of Past Performance Information and Visual Promotions
- Standard 17: Errors in Pricing/Crediting Rates when Determining Scheme Interests – Correction and Compensation.
Following consultation with members the following two Standards have been repealed:
- Standard 7: References to FSC Logo
- Standard 20: Superannuation Governance Policy.
In relation to repealing Standard 20: Superannuation Governance Policy, following the Government’s implementation of the Royal Commission recommendation 3.1: ‘Trustees of Registrable Superannuation Entities should hold no other role or office, the FSC’s assessment is that it has been largely superseded by legislation. The Royal Commission recommended that trustees be prohibited from having a duty to act in the interests of another person and that this obligation should apply to each individual trustee.
Following the repeal of Standard 20: Superannuation Governance Policy the FSC will begin work with members on a modernised Guidance Note for trustees that provides best practice guidance on ESG risk management and trustee board diversity policies.
FSC members will not be required to attest to compliance with these Standards effective from 1 July 2021, meaning that they will be excluded from the attestation process that occurs as part of FSC membership renewal in the first half of 2022.
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APRA Consultation on strengthening crisis preparedness
The FSC has initiated a process with interested members to respond to APRA’s consultation on two new prudential standards to strengthen the preparedness of banks, insurers and superannuation trustees to respond to future financial crises. The two proposed standards are aimed at ensuring entities are prepared to deal with threats to their viability, thereby reducing the negative consequences resulting from failure. The submission deadline is 29 April 2022.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information or if your organisation is interested in contributing to the preparation of the FSC submission.
Financial Regulator Assessment Authority (FRAA) assessment of the effectiveness and capability of ASIC.
On Monday 29 November 2021, the Financial Regulator Assessment Authority (FRAA) released 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 made a submission on 28 January 2022.
Please contact Ashley Davies for more information.
In November 2021 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 is working on a submission to be filed mid-February 2022.
Please contact Ashley Davies for more information.
Design and Distribution Obligations (DDO)
The FSC finalised its DDO guidance on distribution of funds management products.
This advice is designed to explain:
- The situations where an adviser/distributor can take a ‘portfolio’ view on investment products.
- The situations when an adviser/distributor can allow a client to enter a product even when they are outside the target market.
The FSC provided this guidance to advice associations and to businesses licensing the FSC’s Target Market Determination (TMD) templates.
The FSC developed draft guidance on the meaning of significant dealings for life insurance. The guidance was provided to advice associations for comment and is being revised in response to the comments.
The FSC continues to develop a due diligence questionnaire for issuers that are, as a result of DDO, wishing to conduct due diligence on distributors of products. As a result of substantial feedback, the FSC is discussing the draft with relevant members with the aim of finalising the questionnaire shortly.
The FSC provided ASIC with examples where life insurance products are reissued for administrative reasons, and (in the view of FSC members) the DDO regime should not apply to the reissue. ASIC has indicated it plans to consult with FSC and other interested parties on a potential DDO exemption for these type of reissue transactions.
The FSC will start working on a revised version of the TMD template for funds management in the immediate future. A special FSC working group has been established for this purpose, and members are encouraged to join this group and/or provide feedback on the FSC’s template.
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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Retirement Income Covenant legislation
In early January, the FSC made a submission to a Senate Inquiry into this legislation providing strong support for the Covenant, and urging Parliament to pass the Covenant speedily. The FSC issued a media release welcoming the final report of the Senate Inquiry which supported the Covenant and agreed that the legislation should pass Parliament quickly.
The legislation passed Parliament on 10 February, and the FSC welcomed this development in a media release (see Parliament and Legislative section above).
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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Enhancing Superannuation Outcomes for Australians Bill 2021
The Parliament has passed legislation to make a number of changes to the Superannuation system including:
- Increasing the maximum release from the First Home Super Saver Scheme
- Amending the downsizer contributions measure
- Removing the $450 a month threshold for SG coverage
- Amending the work test for those aged 67 to 75.
The legislation is called Treasury Laws Amendment (Enhancing Superannuation Outcomes For Australians and Helping Australian Businesses Invest) Bill 2021
The passage of this legislation provides significant certainty to the industry.
Superannuation Calculators and Retirement Estimates
The FSC made a submission to ASIC to their consultation paper on guidance and relief relating to superannuation and retirement calculators/estimates. The FSC welcomed the proposal from ASIC that relief should continue, and argued:
- A number of specific prohibitions should be removed so that calculators can be provided in more circumstances, particularly to retirees
- Calculators should be able to include risk/randomness, and explicitly be allowed to provide a range of forecasts or scenarios
- Calculators should be able to include the Age Pension
- Various required assumptions should be made more flexible and customisable
- Various issues with the interaction with personal advice should be addressed
- A longer transition period should be provided.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
The FSC convened a meeting of members to discuss issues relating to trustee financial resilience following the release by APRA of a discussion paper on this issue, which requests information from superannuation funds on issues including trustee reserving, capital policies, and insurance, and trustee responses to changes to Section 56 of the SIS Act.
The FSC is preparing a submission to the APRA discussion paper through the working group.
Please contact Michael Potter for more information.
Superannuation Technical Issues
The FSC made submissions on two technical superannuation issues:
- A submission on draft amendments to commutation rules for specific income stream products
- A short submission to the Department of Social Services on the remake of Social Security Income Stream Instruments.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
FSC Standard on Claims Handling by Superannuation Trustees
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 work on the new Standard is being paused while the Life Code is being finalised but is expected to resume early in 2022.
Please contact Ashley Davies for more information.
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Your Future Your Super reforms
The FSC continues to work with fund manager and superannuation members regarding the implementation of the Your Future Your Super reforms.
Joint FMBC – YFYS WG and SBC – YFYS WG are held to consider benchmarking issues, whilst the SBC YFYS also considers broader issues relating to the reforms.
The regulations are envisaged to be updated this year (expectation of timing has not been confirmed) and the FSC has requested the opportunity to provide feedback on exposure draft regulations.
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
In early January, the FSC made a submission to a Senate Inquiry into this legislation providing strong support for the Corporate Collective Investment Vehicle (CCIV), and urging Parliament to pass the CCIV speedily. The FSC issued a media release welcoming the final report of the Senate Inquiry which supported the CCIV and agreed that the legislation should pass Parliament quickly.
The legislation passed Parliament on 10 February and the FSC welcomed this development in a media release (see Parliament and Legislative section above).
The FSC met with Treasury to discuss the CCIV regulations and made a submission on draft CCIV regulations requesting some technical fixes to the rules relating to custody, and requesting a new regulation specifying that CCIV distributions may be sourced from profits or share capital (particularly to address issues with the tax treatment of CCIV distributions).
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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ASIC ETF Naming Convention Consultation
ASIC has released the ETF Naming Convention consultation paper (CP 356 and draft updated to Info Sheet 230) which includes proposed updates to on exchange traded product naming conventions in Info Sheet 230. The proposals seek to introduce “primary labels” (which are mandatory for by licensed exchanges) and "secondary labels” (which are optional for use). ASIC is seeking feedback on proposals to update the guidance in Information Sheet 230 Exchange-traded products with submission due on 3 March 2022.
The FSC ETP Product Issuer WG is developing the FSC’s submission to the consultation.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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Portfolio Holdings Disclosure: Further Guidance
ASIC has responded to the FSC’s request for further guidance on the interpretation and implementation of several provisions of the regulations.
Of primary concern to members was the question of what the regulations require when it comes to the disclosure of non-associated entity managed funds. ASIC has stated that if the underlying assets of the non-associated entity are multi-sector then the investment can be disclosed as 'unlisted equity.' However, once APRA SRS 550 reporting commences, ASIC's preferred approach is to classify assets in a similar manner to APRA reporting.
ASIC has also indicated that it will not be formally announcing a best-efforts approach to compliance, nor is it proposing to delay the commencement of the PHD regime.
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 Climate Risk Guidance Note
The FSC ESG climate risk sub-working group is currently working with KPMG on an initial draft of the FSC climate risk guidance note for investment managers.
The guidance note will cover:
- Assessing, reporting and investment approaches for net zero portfolios
- Labelling of funds that claim to address climate risk concerns
- Applying the Task Force on Climate related Financial Disclosures.
KPMG held a workshop with members of the sub-group and the FSC is currently coordinating feedback from members on a first draft. Following this, the FSC will work with the wider ESG working group on finalising the guidance. It is anticipated that the guidance note will be released by mid-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.
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Proposed changes to the Unfair Contract Terms regime
The Government has finalised its consultation on strengthening protections against unfair contract terms in its introduction of the ‘Treasury Laws Amendment (Enhancing Tax Integrity and Supporting Business Investment) Bill 2022’, which contains its proposed amendments to strengthen the unfair contract terms regime. From a life insurance perspective, the key changes in the introduced bill from the draft bill include:
- life insurance contracts entered into before 5 April 2021 are excluded, whether or not they are reissued afterwards;
- the problematic rebuttable assumption provision has been removed;
- a 12-month (rather than 6-month) transition period has been proposed.
The FSC will continue to observe the passage of the bill through Parliament and advise members of any relevant changes. With a very narrow window of parliamentary sitting dates until the Federal election, we do not expect the bill to pass Parliament before a new Government is formed.
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
The FSC has finalised drafting the revised Life Insurance Code of Practice (Life Code) which will be submitted to the FSC Board for final approval later in February 2022. Feedback from a number of stakeholders including the LCCC, ASIC, AFCA, PIAC, the FRLC and other consumer groups has now been fully considered.
Following approval by the FSC Board, the FSC expects to launch the Life Code shortly thereafter.
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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FSC Guidance Note 43: Advice fee consent requirements
FSC Draft Guidance Note 43 provides guidance on advice fee consent requirements that can be adopted across the industry to ensure consistency, best practice and efficiency and has been publicly released.
Feedback from the sector about its uptake has been sought and future improvements to the Guidance will be tasked to the Super and Advice Working Group.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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Quality of Financial Advice Review – Draft Terms of Reference released for consultation
The FSC submitted to Treasury’s consultation on the Draft Terms of Reference for the Review of the Quality of Financial Advice on 4 February 2022. The Draft Terms of Reference closely resemble the issues and reforms promoted in the White Paper on Financial Advice. The FSC has in its submission recommended to Treasury that:
- Further refinements are made to the Review’s scope focus aspects of the regulatory framework adversely increasing the cost of advice, the diverse range businesses and actor operating in the sector
- The Review considers developments impacting the levels of insurance coverage in the community in addition to the Life Insurance Framework (LIF).
- The Review focuses on non-traditional advice pathways beyond the provision of advice by Financial Advisers
- A series of issues papers and a draft Final Report form the basis of the Review’s consultation process to ensure the Review’s final insights and recommendations are appropriately scrutinised and validated by industry.
The Terms of Reference and an Independent Reviewer are to be confirmed by Government in March. The FSC will be actively contributing to the subsequent consultation through its Quality of Financial Advice Working Group.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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Australian Law Reform Commission (ALRC) Inquiry
Interim Report A of the Australian Law Reform Commission’s inquiry into corporations and financial services laws has been released for public consultation. The FSC’s submission is being developed with input from the Legal and Compliance Expert Group and the Advice Licensing and Compliance Working Group.
Interim Report A proposes several simplifications of definitions and terminology within the Corporations Act 2001 (e.g. disclosure, conduct, financial product, and financial product advice). The FSC while broadly supportive of the ALRC’s initial proposals and will suggest refinements to the ALRC’s proposals that more closely align with its objective of legislation that is simple and easier to navigate.
Several interim reports will be issued for public consultation ahead of the inquiry’s final report in December 2023.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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Education Standards for Financial Advisers
The FSC submitted to the Government’s consultation on amendments to the professional standards and education requirements for financial advisers on 3 February 2022. The FSC has advocated that the Government’s proposed 10-year experience pathway, have attached to it, a requirement on candidates that they hold a relevant historical qualification and have completed 2-4 subjects that meet the education standard. The FSC is also advocating greater consultation on ways to recognise prior learning, enable a principles-based approach for licensees when determining the suitability of a candidate’s qualifications against the education standard and a more appropriate form of accrediting courses and qualifications (eg an increased role for universities and registered training organisations (RTOs).
The FSC’s submission was developed with input from the Advice Licensing and Compliance Working Group and the Adviser Competency Working Group.
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 FSC worked with other industry bodies to develop a joint submission on ATO draft guidance on governance of third party data. The FSC is meeting with the ATO to discuss the draft guidance.
- The FSC made a submission to Treasury on issues relating to the proposed expansion of Australia’s tax treaty network. FSC’s submission responded to some issues specific to investment funds.
- The FSC is developing a letter to the Government raising concerns about the tax treatment of offshore investment vehicles.
- The FSC met with the Australian Custodial Services Association (ACSA) to discuss issues of common concern, including:
- The taxation of foreign capital gains after the Burton decision
- The CCIV
- The joint FSC/ACSA submission on tax issues with foreign exchange hedging
- Tax treaties
- The ATO’s draft AMMA/SDS statement and guidance note
- ACSA’s proposed tax data standard
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- The Government released its latest estimates of tax expenditures (or ‘Tax Benchmarks and Variations’). The tax expenditures relating to capital gains and superannuation remain some of the largest expenditures
- Life insurers have been discussing the tax issues with the impending implementation of AASB17, and plan to meet with ATO and Treasury on these issues.
.Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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