Welcome to Issue 62 of the FSC Policy Update.
On the eve of the Federal Election, it was a pleasure to host Shadow Minister for Financial Services and Superannuation, Stephen Jones MP for a FSC Political breakfast event in Sydney on 26 April.
FSC members heard from the Shadow Minister about Labor’s election policies for the financial services industry, including his ongoing commitment to engage with the industry.
If elected to form the next term of Government, Mr Jones discussed the importance of stability and certainty in the financial services sector after a period of significant reform.
High on Labor’s agenda is fostering innovation in superannuation products and refinements in the financial advice sector, enhancing cyber security, and a review of the payments system, including regulation of crypto currencies.
The FSC Political breakfast series provides FSC members to hear from politicians and industry leaders about the key issues facing the financial services industry and beyond.
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Blake Briggs, CEO
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Click on the topic of interest below to read more
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APRA consults on new prudential standards on crisis preparedness and resolution planning
APRA proposes its 5-year roadmap for direction of data
AFCA Proposed New Funding Model
Treasury review of ASIC Industry Funding Model
Updating the FSC investment management agreement
Your Future Your Super reforms - Performance Test for Trustee Directed Products
APRA initiates Phase 2 of its Superannuation Data Transformation Project
FSC makes submission to retirement income standards by Super Consumers Australia
ASIC cybersecurity webinar with FSC Fund Managers and Advice Licensee members
Life Insurance Framework Update
Quality of Advice Review: Issues Paper
ASIC corrects Legislative Instrument on education requirements
Recent years have challenged the industry to implement unprecedented reforms to improve customer protections and to ensure the products offered to the community are sustainably priced and managed. As an industry we have become stronger, more resilient and increasingly focused on the needs of our customers. Starting with the release of the updated Life Insurance Code of Practice, this year heralds a new era for the industry, which will give Australians the confidence and trust in our products and services when they need it most.
Join us on 27 July 2022 as we discuss the trends and issues shaping our industry at the annual FSC Life Insurance Summit. This year’s Summit promises delegates a high-quality program, expert speakers and networking opportunities including the annual FSC Life Insurance Dinner and Awards night to be held directly following the Summit.
Register here
Please contact Ben McAlary for more information.
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PARLIAMENT, LEGISLATION AND REGULATION
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APRA consults on new prudential standards for crisis preparedness and resolution planning
APRA will shortly close its consultation on two draft prudential standards, CPS 190 Financial Contingency Planning (CPS 190) and CPS 900 Resolution Planning (CPS 900), to strengthen the preparedness of banks, insurers and superannuation trustees to respond to future financial crises. The FSC is currently finalising a submission with its life insurance and superannuation members.
The FSC submission recognises the benefits that can be achieved through appropriate financial contingency and resolution planning. However, the development of financial contingency and resolution plans as envisioned by APRA will impose significant compliance costs on industry. Our submission therefore provides feedback that mainly relates to areas where we believe APRA’s proposals could be amended to realise greater efficiencies to reduce burden on affected entities whilst still achieving the underlying regulatory intent.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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APRA proposes its 5-year roadmap for direction of data
APRA has issued a discussion paper setting out APRA’s five-year roadmap for its approach to data collection through APRA Connect for each regulated industry APRA supervises. APRA’s discussion paper lays out APRA’s vision, guiding principles and year by year timeframe for the proposed changes and so provides a good opportunity for industry to engage closely and early with APRA on its proposals. APRA has also indicated it will hold webinars and roundtable discussions in the coming weeks.
APRA has invited stakeholders to provide a response to its proposals by 24 June 2022. The FSC intends to make a high-level submission to APRA in relation to the life insurance and superannuation aspects raised in the discussion paper.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
The FSC met with ASIC in early April in connection with the FSC submission on ASIC Consultation Paper 350, an ASIC consultation on the way licensees should conduct remediations to return money owed to consumers, and the content of an updated regulatory guide to be issued by ASIC on the matter.
ASIC indicated that a large number of submissions were made to ASIC by stakeholders and these are being considered. Their aim is for a final regulatory guide to be issued in July, although this timetable is not a commitment and may well slip.
FSC will continue to liaise with ASIC on this issue.
Please contact Ashley Davies for more information.
AFCA Proposed New Funding Model
The Australian Financial Complaints Authority (AFCA) recently proposed a new user-pays funding model that is now the subject of consultation by AFCA with financial firms. AFCA is seeking feedback from members during a consultation period that ends in April (although the FSC has suggested that this be extended). The model will then be put to AFCA’s independent board in May, for a decision. Any changes would take effect from 1 July 2022.
The FSC attended a preliminary introductory presentation by AFCA and PwC Australia on this model and received feedback which it has shared with members.
The FSC also established a new working group to discuss and prepare a submission on this issue. We have already submitted a letter with our preliminary views and members’ concerns to AFCA.
We understand that AFCA intends to write to members individually and offer to discuss the impact of the new funding model.
Please contact Ashley Davies for more information.
Treasury review of ASIC Industry Funding Model
The FSC met with Treasury in March in connection with the proposed review of the ASIC Industry Funding Model (IFM) to ensure it remains fit for purpose over the long-term.
The FSC sought feedback from members and is preparing a short submission of key points and suggestions for improvement which it intends to provide to Treasury in the coming weeks.
Please contact Ashley Davies for more information.
Update to the FSC investment management agreement
The FSC has started work on updating the FSC investment management agreement (IMA). The FSC is discussing with members and legal counsel what some of the key changes and updates are likely to be. As a first step, a new FSC IMA Working Group to discuss and agree on the main changes members would like to see developed has been formed.
Please contact Ashley Davies for more information.
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SUPERANNUATION
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Your Future Your Super reforms - Performance Test for Trustee Directed Products
The FSC has continued to engage with the Government, Treasury and regulators regarding implementation of the performance test for Trustee Directed Products (TDP), given that exposure draft regulations have yet to be released.
While there will be a potential window to finalise regulations before 30 June 2022, this is expected to be a much more administratively difficult task for regulators to complete given the number of investment options captured by the TDP definition. FSC will continue to keep members updated on any important developments.
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 to provide guidance on the application of the Retirement Income Covenant to risk only superannuation products
The Retirement Income Covenant (the Covenant), which will come into effect from 1 July 2022, will require superannuation trustees to formulate and give effect to a retirement income strategy for beneficiaries of the superannuation fund who are retired or are approaching retirement. The Covenant currently provides an exemption for superannuation funds that contain solely risk-only products, but not risk-only products inside a superannuation fund that also offers other types of superannuation products.
To assist superannuation trustees in meeting to better understand the requirements of the Covenant in relation to superannuation products that exclusively provide any of the following: (a) death benefit; (b) permanent incapacity benefit; (c) temporary incapacity benefit risk-only products (these products are called risk-only products), FSC members have drafted model wording for a retirement income strategy for these products. The FSC plans to engage with APRA on this approach and other key issues that have come up as part of implementation in the coming weeks.
Please contact Michael Potter and Aidan Nguyen and for more information.
APRA initiates Phase 2 of its Superannuation Data Transformation Project
APRA has released a discussion paper on Phase 2 of the Superannuation Data Transformation Project. A key outcome from Phase 2 will be to improve the granularity of the superannuation data collection. Written submissions on this discussion paper are due to APRA by 12 May.
Consultations on the reporting standards will not commence until September 2022 and will occur over the following three stages:
- Consultation on RSE licensee operations and profile and financial data over September to November 2022;
- Consultation on non-financial risk, insurance and investments over November to February 2023; and
- Consultation on membership, retirement outcomes, defined benefits, disclosure and other topics raised through consultation over March to June 2023.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
Mandatory Cyber Incident Reporting enlivened for Superannuation Funds under the Security of Critical Infrastructure Act 2018
Part 2B of the Security of Critical Infrastructure Act 2018 has been enlivened for superannuation funds with the making of the Security of Critical Infrastructure (Application) Rules (LIN 22/026) 2022 by the Minister for Home Affairs.
Under the regulations, 'critical superannuation assets' now have an obligation to notify the Australian Cyber Security Centre of ‘critical cyber security incidents’ (where the incident has had, or is having, a significant impact, whether direct or indirect, on the availability of the asset) and ‘other cyber security incidents' (where the incident has had, is having, or is likely to have, a relevant impact on the asset.) Notification is given to the Australian Cyber Security Centre.
This obligation will commence at the latest on 8 July 2022, at the end of the 'grace period’ provided by the regulations.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
FSC makes submission to retirement income standards by Super Consumers Australia
The FSC made a submission to Super Consumers Australia on retirement income standards. Super Consumers were proposing to measure retirement income adequacy using budget standards, which set a fixed dollar amount for all Australians, or several different fixed dollar amounts for particular cohorts. The FSC argued a better approach would focus on replacement rates, which are based on retirement income as a proportion of working age income.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
ASIC has extended its existing relief relating to fund members providing retirement estimates on a periodic statement.
ASIC has provided this extension so that it can further consider the feedback on the ASIC CP 351 Superannuation Forecasts: Update to relief and guidance. ASIC has indicated that it plans to make a new instrument for both superannuation calculators and retirement estimates before July 2022, but this will not prevent trustees from relying on the existing relief.
Further details on the ASIC announcement are available from here: https://asic.gov.au/about-asic/news-centre/find-a-media-release/2022-releases/22-073mr-asic-extends-relief-for-retirement-estimates/
The FSC facilitated a meeting of members with ASIC to discuss our submission on CP 351 and ASIC’s next steps with the relief.
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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ASIC cybersecurity webinar with FSC Fund Managers and Advice Licensee members
ASIC’s work with financial market firms and operators (see REP 716 – Cyber resilience of firms in Australia’s financial markets 2020-21 published in December 2021) has identified supply chain risk management as a continuing area of challenge for firms.
ASIC wishes to engage with fund managers and advice licensees in relation to the role of supply chain risk management as a mitigant to cyber attacks. Fund manager and advice licensee members will be invited to participate in a webinar with ASIC which will be held from 9:00-10:00am on 25 May 2022.
The purpose of this session is to start a conversation regarding cyber resilience, share insights and understand challenges for identifying and managing cyber related risks with third party providers and influence ASIC’s planned future work in this area.
Invitations will be sent to fund manager and advice licensee members shortly.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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Treasury Consultation Paper - Crypto Asset Secondary Service Providers: Licensing and Custody Requirements
Treasury has released a consultation paper on regulating crypto asset secondary service providers (including fund managers and custodians).
The paper proposes creating a distinct Crypto Asset Secondary Service Provider licensing regime, separate from the Australian Financial Services licensing (AFSL) regime. Treasury argues that while crypto assets have similarities to financial products, they also have other use cases that are expanding. Therefore, the same rationale for regulating financial products does not apply to crypto assets.
The FSC will argue that it is important to maintain a level regulatory playing field, so that where digital assets are used to make a financial investment, manage a financial risk, make a non-cash payment and/or make a financial investment, they should be classed as a financial product under the Corporations Act and therefore subject to the ASFL regime.
While we agree that it is important to ensure that innovation is not inhibited, particularly as the use cases for digital assets continue to expand and evolve beyond financial products, the government should avoid creating a parallel regime for digital assets that can be properly characterised as financial products. For such products, consumers should have the benefit of the financial services regime that has been built overtime to protect consumers.
The FSC is seeking feedback from members on the discussion questions in the Treasury paper about proposed licensing and custody obligations for digital assets.
Submissions are due on 22 May 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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With the introduction of the new Corporate Collective Investment Vehicle (CCIV) regime scheduled for 1 July 2022, the new licensing regime that will apply to CCIVs is now a focus of attention for regulators and industry. ASIC released a consultation paper on this issue in March setting out ASIC’s proposed approach.
The focus of CP 360 includes the licensing requirements relating to:
- Corporate directors seeking to operate a CCIV
- Financial advice relating to CCIVs
- Persons seeking to deal in CCIV securities
FSC considers the proposals set out by ASIC could in some areas be made materially more user-friendly for industry. As drafted, they run the risk of unduly discouraging a quick and widespread uptake of the opportunities afforded by the new CCIV regime.
In late March, FSC met with ASIC to discuss our initial thoughts on CP 360. Issues raised include the requirements for professional indemnity insurance, financial requirements and the various documents that need to be submitted to ASIC prior to obtaining approval for a licence variation.
FSC has been working with members on preparing a submission which sets out key concerns and suggestions to make the proposals more attractive to industry.
ASIC intends to release updated regulatory guides before 1 July 2022 to allow entities adequate time to prepare for the provision of CCIV-related financial services before the new regime commences. .
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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On the subject of CCIVs, ASX recently released a discussion paper on the listing and quotation of the sub-funds of CCIVs.
The FSC worked with members on considering the ASX proposals and prepared a targeted submission on the discussion paper which was sent to the ASX on 18 March 2022.
The paper seeks feedback on changes ASX is proposing to:
- ASX Listing Rules to facilitate the listing on the ASX market of:
- CCIV sub-funds;
- notified foreign passport funds; and
- NZ registered managed investment schemes making a recognised offer of securities under Chapter 8 of the Corporations Act; and
- ASX Operating Rules to facilitate the admission of products issued by the entities listed above to trading status on the ASX Quoted Assets (“AQUA”) market or for settlement through the ASX Managed Funds Settlement Service.
Subject to the receipt of the necessary regulatory approvals, ASX is aiming to have the amended rules in force on, or as soon as practicable after, 1 July 2022, the start date for the CCIV regime.
Please contact Ashley Davies for more information.
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LIFE INSURANCE.
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Life Insurance Framework update
Treasury’s Quality of Advice review will determine the policy settings of life insurance for years to come and show that the Life Insurance Framework has been an effective reform that has protected consumer outcomes.
Therefore, this Review’s ultimate recommendations could be the difference between whether life insurance needs of Australians are met under a sensible framework that is in the interests of consumer outcomes, or not.
Retention of the Life Insurance Framework is a crucial part of our broader advocacy of a simpler regulatory regime that does not diminish consumer protection. For decades Australians have been purchasing life insurance policies to guarantee the security of themselves and their families in the event they become sick or pass away. With the rise of the ‘sole trader’, it is even more important now for hard working Australians to have access to appropriate risk-based policies to protect against incidence through the thousands of Advice providers across the country.
The Life Insurance Framework reforms were initiated back in 2018 to balance the interests of providers of financial advice in the life insurance sector with access to life insurance products to meet the insurance needs of consumers.
The simple fact is – the Life Insurance Framework balances secure access to world class life insurance products while acknowledging the reality that the work involved in developing effective wealth plans in a consumer’s best interests, comes at a significant cost and time – in strong part exacerbated by the regulatory net such as the cumbersome advice process holding back limited advice options for consumers.
By allowing upfront and ongoing commissions to be paid to advisers at a level that appropriately reimburses them at the commencement and throughout the life of the policy, the Life Insurance Framework can ensure the sustainability of life insurance through the advice model in the best interests of the consumer. This is especially pertinent when considering the increasing number of advisers exiting the market over the past few years and the cost of advice being inaccessible to ordinary Australians.
Demonstrating the value the Life Insurance Framework has achieved for Australians in such a comparatively short-time, while the advice sector battles a spiralling compliance burden, is a cornerstone of FSC’s advocacy to the Review alongside intensive policy development from our members.
Please contact Matthew Hawkes for more information.
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ADVICE
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Quality of Advice Review: Issues Paper
The Government released for consultation an Issues Paper as part of the Quality of Advice Review has been released for consultation. Submissions are due from the public by 3 June 2022. Most issues and recommendations made in the FSC’s White Paper on Financial Advice are covered in the paper. The role of ASIC, licensing, the types of advice, remuneration and consents are also key areas the review will look at. The FSC is developing its response to the Issues Paper and Members are invited to provide individual feedback by 2 May 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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ASIC corrects Legislative Instrument on education requirements
ASIC has recently resolved an unintended consequence of the prohibition on authorising certain providers of retail personal advice to ensure qualification cut-off date of 1 January 2026 for the education requirements.
The updated regulatory materials are below:
- ASIC Corporations (Existing Providers) Instrument 2022/241 (legislation.gov.au)
- Information Sheet 260 FAQs: Timeframe for passing the financial adviser exam
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 ATO finalised its guidance on the governance of third party data. The final governance addressed a particular issue raised in a meeting with FSC members – the guide was amended so that it excluded Investor Director Portfolio Services (IDPS) providers from the scope of the guidance.
- The FSC is continuing to work with the Australian Custodial Services Association (ACSA) on a tax data standard.
- The FSC has provided several sets of feedback to ACSA on the standards and how they will be implemented.
- The ATO released final guidance on the tax issues with the reform of inter-bank offered rates (IBOR). Initial feedback from FSC members is that the final guidance addresses a particular concern the FSC raised in consultation by limiting the need for taxpayers to conduct a transaction-by-transaction analysis of the impact of IBOR reform.
- The FSC met with the ATO to discuss a draft ATO determination on reporting of erroneous share and unit transactions. The FSC raised concerns that the new determination would cause substantial issues for investment platforms.
- In response to these concerns, the ATO has agreed to extend the current exemption that benefited investment platforms (and fund managers more generally).
- The Government announced that it will review the existing rules relating to superannuation Non-arms’ length income, and make appropriate changes to ensure the legislation operates as intended.
- The FSC participated in discussions with the ATO on their approach to compliance on this issue while the Government reviews the issue.
- The Board of Taxation is conducting a review of the tax treatment of digital assets, and the FSC Tax Expert Group will provide input to this review.
- The FSC is continuing to meet with the ATO to discuss the tax issues relating to the Corporate Collective Investment Vehicle (CCIV), including GST and withholding tax issues.
- FSC members have developed a letter to the Government raising concerns with the existing tax treatment of offshore investment vehicles.
- The FSC is meeting with the ATO and Treasury to discuss the tax issues for life insurers relating to the implementation of AASB17, particularly the large changes in tax position for life insurers caused by the change in the accounting and tax treatment of Deferred Acquisition Costs (DAC).
- The FSC is considering the approaches to introduce tax withholding on income protection (IP) benefit payments outside of super. FSC members are considering how soon any change should be made, and the transitional arrangements for existing claimants. FSC members are also considering the next steps for discussing the proposal with the ATO and Treasury.
- The 2022–23 Budget also included a range of tax measures that were included in the member update provided on Tuesday 29 April.
.Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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