Welcome to Issue 65 of the FSC Policy Update.
The first sitting fortnight of the 47th Parliament saw 19 Government pieces of legislation introduced, with a focus on implementing key Government commitments. This included the Climate Change Bill 2022, which will introduce a legislated minimum 2030 emission reduction target of 43 per cent below 2005 levels. While three Treasury Bills were introduced, only a handful of measures were relevant to FSC members, specifically:
- Treasury Laws Amendment (2022 Measures No.2) Bill 2022, which includes a measure to expand the eligibility for downsizer contributions from 60 years of age to 55. A commitment made by both major parties during the recent election campaign; and
- Treasury Laws Amendment (2022 Measures No.1) Bill 2022, which passed the parliament on 9 August, included technical amendments to finalise the repeal of the Superannuation Complaints Tribunal and place it within the AFCA legislative framework.
As previously flagged we expect, before the year is over, for the Parliament to return to considering legislation to implement a Compensation Scheme of Last Resort, and an expansion of Bank Executive Accountability Regime to other APRA regulated entities (Insurers and Superannuation funds) via a Financial Accountability Regime.
We also expect both a consultation paper, including a terms of reference, for the Your Future, Your Super Review, as well as a proposal paper for the Quality of Advice Review, before the end of August.
In the meantime, the Government is also pressing ahead with its own consultations aimed at supporting the financial advice industry, announcing a consultation on professional standards aimed at introducing its election commitment to remove the tertiary education requirements for financial advisers who had passed the exam, had 10 years’ experience and a clean record of financial practice. Although a consultation paper is yet to be released, this consultation will also consider options to streamline the education requirements for financial advisers, including for new entrants. A further consultation on the Code of Ethics is also slated for 2023, but post a Government response to the Quality of Advice Review.
Spiro Premetis, Executive Director of Policy and Advocacy
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Click on the topic of interest below to read more
Members feedback on Design and Distribution Obligations
FSC raises members concerns regarding breach reporting framework
Review of ASIC Industry Funding Model
APRA consults on new prudential standard to strengthen operational resilience
FSC Webinar Event Q&A with Margaret Cole on superannuation
APRA Discussion paper on strategic planning and member outcomes
ASIC releases initial findings of its surveillance of internal dispute resolution in superannuation
Preparing a New FSC Standard on Claims Handling in Super
Launch of Guidance Note 44: Climate Risk Disclosure in Investment Management
ASIC Consultation Paper ETP naming conventions and INFO 230 Update
Barriers to the uptake of Corporate Collective Investment Vehicle
Foreign financial services providers
Fee consent: development of a standard form for the industry is underway
RG 263: Financial Services and Credit Panels updated
Information Sheet 273: FSCP decisions: Your rights
New Guidance for Tax (Financial) Advisers
Review of FSC Guidance Note 32: HIV/AIDS Underwriting
The Genetics Moratorium Review
Review of Standard 26: Consent wording
New Life Insurance Code of Practice updates
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PARLIAMENT, LEGISLATION AND REGULATION
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Members feedback on Design and Distribution Obligations
The FSC is surveying members about their experience of the Design and Distribution Obligations (DDO) after the regime has been in operation for just under a year. The survey includes request for feedback on the usefulness of the products that have been developed by the FSC to help businesses implement the regime, and request for feedback on the remaining DDO problems.
The FSC is convening a meeting of platforms operators and product issuers to discuss various DDO issues, including:
- Any issues platforms/wraps/IDPSs have with Target Market Determinations (TMD) and the FSC DDO questionnaire;
- Issues with DDO reporting requirements, including reporting on significant dealings; and
- Recent DDO compliance action by ASIC.
The meeting is scheduled for Thursday 25 August at 3pm.
The FSC is also reviewing its TMD templates and working with members on preparing new versions. The feedback obtained from the survey referred to above will inform the production of these TMDs.
Please contact Michael Potter or Ashley Davies for more information.
FSC raises members concerns regarding breach reporting framework
The FSC met recently with Treasury and ASIC to address ongoing concerns that members have raised in connection with the breach reporting framework.
In particular, the FSC provided feedback that the enhanced regime is not achieving its objectives of:
- Ensuring that ASIC has appropriate information to identify emerging trends of non-compliance in the industry; and
- Encouraging Australian Financial Services Licensees to effect timely remediation of non-compliance.
Concerns about poorly designed legislation, significant deficiencies with the ASIC Portal and inadequate regulatory guidance imposing significant costs on industry were reiterated.
Subsequently, ASIC issued a media release on its approach to breach reporting. Key points include:
- ASIC will continue to engage with industry on reporting practices adopted by licensees to further understand any issues that are placing unnecessary compliance burden on industry;
- ASIC will consider whether enhancements are required to the approved form on the Regulatory Portal for lodging reports;
- ASIC will also consider whether further practical guidance should be developed to assist licensees in meeting their obligations;
- ASIC will continue to engage with Treasury on how the regime is meeting its policy objectives;
- ASIC’s first public report, due to be published in October 2022, will include high-level insights into trends observed across the reports lodged by licensees during the period 1 October 2021 to 30 June 2022. This report will not name licensees nor refer to the nature or number of reports lodged by specific licensees;
- ASIC will consider its approach to the 2023 public report early next year, including whether that report should include a list of all licensees who have reported to ASIC during the period; and
- ASIC will consult with stakeholders in advance of the commencement of licensee-level granular public reporting (likely in 2024).
ASIC has also separately written to the FSC with messaging broadly consistent with the above.
Please contact Ashley Davies for more information.
Review of ASIC Industry Funding Model
Treasury has announced that a review of the ASIC Industry Funding Model (IFM) has commenced, and issued a Terms of Reference (TOR) to guide the Review. Treasury will run a consultation process later this year.
The FSC is seeking a meeting with Treasury to confirm greater clarity on this further consultation, its timing and whether they are open to seeking further feedback.
Following this engagement, the FSC will work with members to prepare a submission on the consultation – further details will be provided in due course.
Please contact Ashley Davies for more information.
APRA consults on new Prudential Standard to strengthen operational resilience
APRA has released for consultation a new Draft Prudential Standard on operational risk management (CPS 230). The new standard encompasses requirements across three areas:
- Operational risk management (currently addressed at a high level in CPS 220 and SPS 220);
- Service provider management (currently contained in prudential standards CPS 231, SPS 231 and HPS 231); and
- Business continuity management (current contained in prudential standards CPS 232 and SPS 232).
The five existing standards relating to service provider and business continuity management will be replaced by the final version of CPS 230 when it comes into effect, which is proposed for 1 January 2024.
APRA has requested written submissions to this consultation by 21 October 2022. The FSC will look to coordinate a joint process across life insurance and superannuation members.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. or Aidan Nguyen for more information.
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SUPERANNUATION
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FSC Webinar Event Q&A with Margaret Cole on superannuation
Margaret Cole, APRA Member, joined FC CEO, Blake Briggs recently for a webinar event to share her perspectives on superannuation.
Insights from the discussion included:
- New Government – APRA notes the comments from Government around letting all the reforms from the previous era bed down, albeit with some adjustments. APRA wants to work efficiently with Government and focus on its job at hand to rectify industry sub-standard practices by eradicating products that have not performed well and have consistently underperformed;
- Operating environment – APRA believes the superannuation system is sound and can respond from a position of strength. There is more work trustees should do to improve their operational resilience including building in elements of stress testing and scenario planning, reflecting APRA’s current work in this area;
- Your Future, Your Super review
- The Performance Test has largely achieved its objectives. Although it is a blunt instrument and it could be refined, bringing in additional components to the test such as risk weightings will lead to additional complexity. APRA is supportive of the review, noting APRA is not yet clear on the specific areas that the review will examine. While APRA acknowledges the inherent complexities in expanding performance testing in the choice space, APRA believe some version of performance testing is critical to driving out poor, underperforming products from the system;
- The introduction of the best financial interests duty has rightly driven more scrutiny as to how superannuation funds are run to benefit members. This level of scrutiny, including on expenditure decisions, should be levied on all businesses particularly in this challenging economic environment. Those funds that are doing it well have used their business planning process to put rigor into their expenditure decisions, particularly those activities which are outsourced to test that there is value for money in that arrangement. This will be an area that APRA continues to look at; and
- Retirement Incomes – APRA has observed significant variability in trustees’ approaches to their retirement income strategy summaries with some adopting a more compliance based approaches while others seemed to have embraced the new retirement income covenant obligations. What is important to APRA is to see how these strategies are continually improved and to make sure that they are being effectively operationalised in practice. APRA referred to its discussion paper on SPS 515 to use a data-informed cohort based approach to look at members at the different stages of their superannuation journey.
Margaret Cole’s opening speech has been published on the APRA website available here.
Please contact Aidan Nguyen for more information.
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APRA Discussion paper on strategic planning and member outcomes
APRA has released a discussion paper as part of its review of SPS 515 so that member outcome considerations are embedded and integrated with other prudential requirements across trustee’s business operations.
The discussion paper outlines proposals from APRA in six key areas:
- More granularity by member cohorts when assessing outcomes;
- Requirements to articulate, adopt and monitor holistic financial management practices, including the use of stress testing and scenario analysis;
- More credible and detailed financial projections used to support the SPS 515 business plan;
- Requirement to demonstrate how trustees have set fees and costs in a manner that is consistent with APRA’s fee principles;
- Requirements for the Business Performance Review to better identify triggers and factors affecting business performance and outcomes delivered to members; and
- The Business Performance Review must make clear, when relevant, an RSE licensee making a decision to transfer and/or exit if necessary to improve member outcomes.
In its discussion paper, APRA has also flagged the release of further upcoming connected superannuation prudential reforms. APRA has also indicated an intention to consult on an updated draft SPS 515 and associated guidance in 2023.
The deadline for submissions to APRA’s discussion paper is 11 November 2022. The FSC will look to develop a response to APRA’s discussion paper via the Superannuation Technical Working Group and with governance from the Superannuation Board Committee.
Please contact Aidan Nguyen for more information.
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ASIC releases initial findings of its surveillance of internal dispute resolution in superannuation
ASIC has issued a media release and infographic detailing its findings from its first stage of ASIC surveillance around industry implementation of Regulation Guide 271 internal dispute resolution.
Its findings highlight a number of areas of concern from ASIC around indicators of significant compliance issues with implementation. The FSC will follow-up with ASIC to better understand its work in this area to provide a more detailed update to FSC members.
Please contact Aidan Nguyen for more information.
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Preparing a New FSC Standard on Claims Handling in Super
The FSC has completed its work with the member working group on preparing a draft FSC Standard to replace Guidance Note 42 on Claims Handling in Super. The draft will shortly be going through further review processes.
Please contact Ashley Davies for more information
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INVESTMENTS
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Launch of Guidance Note 44: Climate Risk Disclosure in Investment Management
The FSC launched its guidance on Climate Risk Disclosure in Investment Management earlier this month. The FSC worked with its funds management members to develop this guidance for the funds management industry as it seeks to meet the challenge of climate risk.
The guidance draws from global and domestic initiatives and best practice to provide baseline expectations when making climate risk disclosures and making climate-related sustainability claims.
The guidance note covers:
- Net Zero Targets - The guidance provides an approach to the assessment of emissions in portfolios, setting net-zero targets and aligning portfolios to net zero targets. This will help fund managers taking steps to contribute to the goal of net zero and emissions reduction, backing up their targets robust science-based methodology and working with their portfolio companies via stewardship to reduce emissions;
- Climate Greenwashing - The guidance provides key considerations for investment managers to avoid greenwashing when labelling their funds as addressing climate risk concerns. This includes clearly disclosing objectives, investment approaches to meet objectives, label definitions, and ongoing assessment to ensure fund remains aligned with objectives; and
- Climate risk disclosure and reporting - The guidance provides key considerations in the application of Taskforce on Climate Related Financial Disclosures (TCFD) reporting to asset managers.
Guidance Note 44: Climate Risk Disclosure in Investment Management can be downloaded here.
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 Consultation Paper ETP naming conventions and INFO 230 Update
ASIC Consultation Paper 356 - Exchange Traded Product (ETP) naming conventions released earlier this year sought feedback on proposals to update guidance in Information Sheet (INFO) 230 on ETP naming conventions. The FSC provided a consultation to this submission.
By way of update, we understand that ASIC is still working through the update to Information Sheet 230 and the intention is to finalise this in Q3.
We will provide a further update on this as it becomes available.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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Barriers to the uptake of Corporate Collective Investment Vehicle
The FSC has provided members with a draft paper on the barriers to uptake of the Corporate Collective Investment Vehicle (CCIV). The draft states the main barrier to increased adoption of the CCIV is the lack of an appropriate regime to facilitate the transition of existing fund vehicles into the CCIV regime. Other issues in the draft include the ‘importation’ of trust tax concepts into the CCIV, issues with double tax treaties, and existing restrictions on listing of CCIV sub-funds.
The FSC plans to survey members shortly about the CCIV – asking whether members are planning on using the CCIV, and if not, seeking views from members on the key barriers to uptake of the CCIV.
In addition, the FSC is continuing to liaise with ASIC on revising relevant regulatory guides that are of relevance to the CCIV.
Please contact Michael Potter or Ashley Davies for more information.
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Foreign financial services providers
ASIC announced earlier this month that it is extending, for a further 12 months, the transitional relief for foreign financial services providers (FFSPs) from the requirement to hold an Australian financial services (AFS) licence when providing financial services to Australian wholesale clients.
During this extended transitional period, ASIC will consider new applications for individual temporary licensing relief, or new standard or foreign AFS licence applications, from entities that cannot rely on the transitional relief. FFSPs that have been, or are granted a foreign AFS licence, will be able to continue to operate their financial services business in Australia under the licence issued by ASIC.
ASIC has also indicated to the FSC that it anticipates there will be a further public consultation on the parameters of a new FFSP bill.
Please contact Ashley Davies with any questions.
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ADVICE
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Fee consent: development of a standard form for the industry is underway
Following the issuing of FSC Guidance Note 43: Advice Fee Consent Requirements, the FSC is now scoping work to develop a standard form that can be used across the industry.
The Superannuation and Advice Working Group oversees this project and has been mapping various issues for a form to resolve to bring about a fundamentally simpler process for consumers and providers to consent to fee arrangements while complying with Fee Disclosure Statement (FDS) obligations.
The FSC’s intention is for such a form to be adopted before the end of this year subject to internal approval by its members.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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RG 263: Financial Services and Credit Panels updated
ASIC has updated RG 263 to support compliance in relation to the convening and determinations of Financial Services and Credit Panels.
This update reflects legislative changes in the Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Act 2021 and the feedback of industry when ASIC consulted on the framework. This feedback is detailed in Report 734 Response to submissions on CP 359 Update to RG 263 Financial Services and Credit Panel (REP 734).
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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INFO 273: FSCP decisions Your rights
Additional to ASIC’s update of Regulatory Guide 263, the Regulator has also published a new Information Sheet 273 FSCP decisions: Your rights. INFO 273 outlines the rights of financial advisers affected by a Financial Services and Credit Panel decision, including:
- How to make an application to vary or revoke FSCP decisions
- How to seek an independent review of FSCP decisions.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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New Guidance for Tax (Financial) Advisers
Through the Advice Regulatory Affairs Working Group, the FSC is engaging ASIC on relief for certain tax (financial) advisers whom because of a legislative change last year have been required to undertake further commercial law and tax law courses.
This situation is misaligned from the ultimate policy intent of the legislation and FSC members will be updated on developments from the FSC’s engagement.
Relating to this issue, ASIC has released INFO 268– FAQs: Regulation and registration of relevant providers who provide tax (financial) advice services. It provides further information for individuals on the Financial Advisers Register and tax (financial) adviser requirements in relation to relevant providers and how these interact with the Better Advice Act 2021. The webpage also provided contains a list of the commercial law and taxation law courses previously approved by the Tax Practitioners Board under the Tax Agent Services Regulations.
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LIFE INSURANCE
Review of FSC Guidance Note 32: HIV/AIDS Underwriting
Following the PRIDE Report, the FSC is currently conducting a review of FSC Guidance Note 32. There have been significant developments in the field since 19 June 2013 when this guidance was first published.
One development that many people now have access to is pre-exposure prophylaxis (known as PrEP) which is highly effective at preventing HIV infection and has materially changed the risk factors associated with the condition. More information relating to the review will be provided to 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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The Genetics Moratorium Review
The FSC committed to reviewing the Moratorium in 2022 with a view to extending it. The FSC invited submissions from interested parties and is working through these with members.
The key aspects of the Moratorium that are under review include cover limits and how best to extend the sunset clause which currently brings the Moratorium to an end on 30 June 2024.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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Review of Standard 26: Consent wording
It has come to our attention that a number of health practitioners are not accepting Standard 26 as valid consent, preferring to use their own. The most common examples seem to be institutions that have obtained legal advice on their own consent firm which they prefer to use, resulting in slowing down the underwriting and claims processes. As a result the FSC is currently reviewing the Standard with members.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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New Life Insurance Code of Practice updates
The FSC is working on a number of collateral items relating to the New Life Code published in June 2022. These are required to support the new Life Code when it takes effect from 1 July 2023 and include:
- Explaining Premiums better - Code consultation feedback suggested that industry could do more to better explain how life insurance premiums can change, and also that the labels “stepped” and “level” could be improved so that they give consumers a clearer expectation of how they work. Accordingly, we are working with members and stakeholders to develop some clearer standard explanations;
- Family & Domestic Violence Guidelines - The new Life Code requires life insurance subscribers to have a published policy on Family & Domestic Violence. Accordingly, to bring a measure of consistency, with the support of stakeholders and consumer advocates, FSC is developing guidelines on areas that these policies might cover;
- Consumer guide to life insurance law - The new Life Code aims not to repeat the law. This approach means the new Life Code will not need to change whenever the law does, and makes it shorter, more approachable and easier for consumers to read; and
- Revised Code Charter – The FSC is currently revising the Code Charter primarily to support the new sanctions.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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TAX
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- The FSC joined with other funds management associations around the world to make a submission to the EU arguing for improvements to tax treaty relief relating to withholding taxes. The letter was coordinated by the Investment Company Institute in the US. As part of this meeting, the ATO has agreed to meet with FSC members twice a year on general issues – while there will still be additional meetings on specific issues;
- The FSC coordinated a joint industry letter to the Government arguing for the prioritisation of unlegislated tax policies of the previous Government, including reforms to foreign exchange hedging, corporate residency, tax treaties, CGT rollover relief, and reform of the Offshore Banking Unit regime. The letter was also signed by the Australian Banking Association (ABA), Australian Financial Markets Association (AFMA) and the Insurance Council of Australia (ICA);
- The FSC met with the ATO to discuss various tax issues, including the next steps with justified trust reviews and third-party data governance; and progress with facilitating withholding tax reclaims. A member meeting with Treasury to discuss the proposals has been organised for Friday 19 August; and
- The Government released a consultation paper on multinational tax integrity and tax transparency. The paper proposes that financial services be ‘carved out’ of the proposed limit on debt deductions. However, a number of the transparency proposals will have substantial impacts on FSC members.
- The FSC provided a response to ATO questions about the tax impact of the introduction of the new AASB17 accounting standard;
- The joint industry letter to the Government (see general tax issues above) encouraged the Government to develop a smooth tax transition to the new AASB17 standards; and
- The FSC is developing a policy position paper outlining the case for the introduction of withholding tax on income protection (IP) claim payments where the payments are not currently subject to withholding.
- The FSC joined with a number of other industry associations and professional bodies to write to the Government indicating the importance of addressing the issues with superannuation Non Arm’s Length Expenditure (NALE).
- The ATO has released for consultation proposed changes to GST ruling 2002/2: GST treatment of financial supplies. The proposed changes will be discussed at the upcoming meeting of the GST Expert Group; and
- The meeting of the GST Expert Group (on 24 August) will also consider ATO reviews of GST; GST and remediation; IT outsourcing; the GST reverse charge; and the GST treatment of Protecting Your Super measures.
- Revenue NSW released a Commissioner’s Practice Note including changes reflecting views put by FSC and the ICA that penalties do not apply where insurers rely on third party data; and
- FSC members are working with the ICA to provide input to Revenue NSW on a proposed ruling on remission of penalties of insurance duty.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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