Welcome to Issue 68 of the FSC Policy Update, our last issue of the year.
2022 saw a change of Government and with it new policy priorities for the country. Whilst financial services did not feature prominently in the election campaign, issues brought over from the previous parliament, along with the new Government’s focus, have resulted in ongoing reform and review of the sector.
The Government continues to grapple with unfinished Royal Commission legislation, including the Financial Accountability Regime and the Compensation Scheme of Last Resort, and has continued the Quality of Advice Review. The Government has also commenced its own review of the Your Future, Your Super laws, and foreshadowed a detailed examination of Managed Investment Schemes.
The FSC team has worked hard for members this year, having led the debate for reform of financial advice, supported industry action on climate reporting and disclosure, championed the importance of investment choice in superannuation, and ensured defining the objective of superannuation is articulated before new taxes are implemented.
The focus on the financial services industry will continue into 2023 and the FSC will take a leadership role in representing our members in these important debates. As always, the FSC is only as strong as the skills and expertise provided by our members to assist in policy develop and coordinated advocacy, so I want to take this opportunity to thank everyone that provides their time and experience on FSC working groups and board committees.
I want to also welcome Kirsten Samuels that has joined the FSC team as Policy Manager for Superannuation and Innovation, who will join Aidan Nguyen in the superannuation team. I am also delighted to note Aidan has been promoted to the role of Policy Director for Superannuation, and Zach Castle’s position has been broadened to include the new focus area of Platforms, in addition to Financial Advice.
The FSC team is match fit going into the new year and we look forward to working with members on important industry initiatives.
Blake Briggs, CEO, Financial Services Council
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Click on the topic of interest below to read more
Financial Accountability Regime and Compensation Scheme of Last Resort update
Government consults on Financial Counselling Scheme
Design and Distribution Obligations
Your Future, Your Super review
Government announces changes to reporting disclosure
APRA initiatives to strengthen the superannuation prudential framework
FSC Standard for Claims Handling in superannuation
ASIC Revised Info 230 - Exchange Traded Products: Admission Guidelines
Asia Region Funds Passport Survey
Public Beneficial Ownership Register
Sustainable Finance Statement and Climate Risk Reporting
Corporate Collective Investment Vehicle
2023 Financial Adviser Exam dates
Government to implement changes for tax agents
Industry preparedness for individual registration from April 2023
Australian Law Reform Commission report
Revising the FSC Investment Management Agreement
National Stigma and Discrimination Reduction Strategy
Modernising Business Communications
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PARLIAMENT, LEGISLATION AND REGULATION
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Financial Accountability Regime and Compensation Scheme of Last Resort update
In the final sitting week, neither the Financial Accountability Regime (FAR) nor the Compensation Scheme of Last Resort (CSLR) were considered by the Senate, meaning legislation will be dealt with in 2023.
The Greens are pushing the Government adopt amendments on the FAR to include individual civil penalties for executives who breach their FAR obligations (and prevent accountable entities and their significant related entities from indemnifying or insuring an accountable person against the consequences of breaching an obligation under the FAR).
Independent Senator David Pocock has also proposed an amendment in the Senate to reduce the scope of the Minister’s ability to exempt accountable entities, requiring this to now be only by way of notifiable instrument (rather than written notice) and only where the Minister is satisfied that it would be unreasonable for the accountable entity to comply.
The earliest the FAR would apply for the banking sector is six months after the Financial Accountability Regime Bill receives Assent. For the insurance and superannuation sectors, it would be 18 months after the Financial Accountability Regime Bill receives Assent.
Please contact Ashley Davies (FAR) and This email address is being protected from spambots. You need JavaScript enabled to view it. (CSLR) for more information.
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Government consults on Financial Counselling Scheme
The Government is consulting on its proposed industry model for meeting a $45 million gap in funding for the financial counselling sector.
An industry funding model was recommended by the Sylvan Review, and the release of this most recent paper follows FSC advocacy regarding initial proposals by Department of Social Services last year to ‘soft start’ the scheme with a $20 million levy on all AFSL holders, which lacked detail as to the sector split, fee methodology and proposed sectors for inclusion. This more recent discussion paper seeks to address design issues of the regarding model with the industry through further consultation.
The paper sets out the Government’s proposals for recovering this contribution from the financial services sector up to 2026, that while appearing to omit Australian Financial Services License holders does call out financial advisers/planners, life insurers, and services that provide assistance in relation to a superannuation fund.
The FSC will submit to the consultation with input from 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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Design and Distribution Obligations
ASIC continues to issue stop orders for managed funds under the Design and Distribution Obligations (DDO). The FSC’s DDO working group for managed funds has been discussing the stop orders and how members should respond to the orders, particularly in relation to distribution conditions in Target Market Determinations (TMDs).
The work on revising the FSC’s template TMD for funds management is well progressed, and the proposed revisions are being shared with the wider FSC membership. The proposed changes have been taking account of ASIC’s stop orders, ASIC feedback on the template, and feedback from users of the template.
Please contact Michael Potter or Ashley Davies for more information.
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The FSC held a member event to discuss ASIC’s recently released regulatory guide on consumer remediation, RG 277. As part of their presentation, ASIC covered the main changes in the new RG from previous drafts and guidance, and responded to a variety of questions from members relating to issues such as low value remediation, the coverage of the guidance, communication about remediation programs and other relevant issues.
A copy of the PowerPoint presentation is being provided to members who registered for the event and ASIC has indicated it will also respond to several questions taken on notice during the presentation.
Please contact Michael Potter for more information.
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SUPERANNUATION
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Your Future, Your Super review
Treasury will provide its briefing to Government before the end of this year on its recommended changes to the Your Future, Your Super (YFYS) measures following public consultation with stakeholders over September and October. The FSC expects the Government will not be in a position to announce key outcomes from the consultation this year.
To maintain the Government’s public commitment to having changes to the YFYS measures in place in time for the next run of the performance test (by 1 July 2023), Treasury will look to consult on draft laws amending the YFYS measures in the first quarter of 2023.
Separately, following parliamentary debate over the treatment of faith-based products under the MySuper performance test, the Government has agreed to consider how to treat faith-based superannuation products under the performance testing framework as part of the broader YFYS review.
The FSC is continuing to advocate to Government on the need to provide as much advance notice to the changes as possible to manage implementation risk. This is particularly important for the changes to the performance test benchmarks and the extension of the performance test to Choice products, given that the test would apply retrospectively for the (currently) 8-year period up to 30 June 2022.
Please contact Aidan Nguyen for more information.
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Government announces changes to reporting and disclosure
The Government, via the Assistant Treasurer, has announced three changes to the disclosure and reporting framework for superannuation funds.
- The Government has introduced legislation into Parliament that would require superannuation funds (RSEs) to file annual, publicly available financial reports with ASIC. These new requirements will also impose stricter auditing requirements, including additional reporting and independence obligations for audit firms and audit companies. The proposed requirements would apply for superannuation funds for Financial Years ending after 1 July 2023
- APRA will publish annually a report on individual superannuation fund performance and expenditure (to be called the ‘Annual Super Transparency Report’). The first publication will be based on data collected under Phase 1 of the Superannuation Data Transformation project for the period ending 30 June 2023
- We note APRA are currently considering amendments to Phase 1 of these reporting standards with a view to finalising any changes by the end of 2022
- The publication format and confidentiality requirements will be a matter for further consultation, and is expected to occur in early 2023.
- Treasury will conduct a process that will aim to streamline existing reporting and disclosure requirements. The exact scope and process is still to be determined, with any consultation to occur next year.
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 initiatives to strengthen the superannuation prudential framework
The Claims Handling in Superannuation Working Group has met to consider and agree the revisions required to accommodate, where appropriate, the feedback received from Financial Rights Legal Centre and Super Consumers Australia on the draft FSC Standard.
The working group has proposed for the Claims Handling Standard to commence operation on 1 January 2023 on a voluntary compliance basis and for full mandatory compliance for FSC superannuation members from 1 July 2023.
Please contact Aidan Nguyen for more information.
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FSC Standard for Claims Handling in Superannuation
APRA has recently issued a new Quarterly Superannuation Industry Publication containing new data on superannuation products and investment options, member demographics and investments as of 30 June 2022.
It is the first of five new publications that APRA plans to release over the coming months (until Q1 2023), which aggregates the data that superannuation funds are now required to report to APRA under Phase 1 of its Superannuation Data Transformation Project.
The future fund-level and product-level publications will contain fund and product level data for all accumulation superannuation products.
Please contact Ashley Davies for more information.
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APRA has recently issued a new Quarterly Superannuation Industry Publication containing new data on superannuation products and investment options, member demographics and investments as of 30 June 2022.
It is the first of five new publications that APRA plans to release over the coming months (until Q1 2023), which aggregates the data that superannuation funds are now required to report to APRA under Phase 1 of its Superannuation Data Transformation Project.
The future fund-level and product-level publications will contain fund and product level data for all accumulation superannuation products.
Please contact Ashley Davies for more information.
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INVESTMENTS
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ASIC Revised Info 230 - Exchange Traded Products: Admission Guidelines
ASIC released revised Info 230 and its guidance on naming conventions for Exchange Traded Products (ETP) on 24 November 2022.
We were pleased to see the naming convention amendments support consistent and clearer ETP naming conventions.
Key changes include:
- The introduction of a two-tier labelling structure of primary labels (‘ETF’ and ‘Structured Product’) based on product type; and secondary labels (‘Active’ and ‘Complex’) for products with specific risks or strategies, however consistent with FSC feedback discretion on secondary labels has been removed (which should be applied to the trading names of ETPs that meet the relevant definition). ASIC have also clarified that secondary labels are intended to apply exclusively. A product that must apply the ‘Complex’ label will not need to also apply the ‘Active’
- Based on stakeholder feedback, the definition of ‘Active’ has been amended to link it directly to the concept of a ‘robust and transparent index or benchmark’. This label will apply to products where the objective is to outperform an index or which are benchmark unaware. Related to this, the section on smart beta, or rules-based products, has also been updated. These products may be ‘ETFs’ or ‘Active ETFs’, depending on whether the product tracks a robust and transparent index or benchmark
- The ‘Complex’ label needs to be interpreted and understood in the context of its purpose as a flag to investors that there may be elements of the product that require more detailed consideration. Amendments have been made to the definition of ‘Complex’ to clarify when the label should be applied to funds that use derivatives. Key changes to this definition include:
- Clarification that the intent of the derivatives use limb is to identify products with a higher risk profile because of non-temporary material exposure to derivatives to implement the underlying investment strategy
- Expansion of the exclusion to include disclosed hedging of exchange rate or interest rate risks, similar to RG 240.
ASIC’s response to the consultation paper is set out in the following report.
Further information is available on the ASIC website
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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Asia Region Funds Passport Survey
The FSC held a meeting with members on 2 November 2022 regarding the Asia Region Funds Passport (ARFP) survey which ASIC has issued for fund manager feedback regarding industry interest in, and barriers to adoption of, the ARFP.
The short survey has been prepared as part of ARFP review provided for in the Memorandum of Cooperation which seeks feedback from the funds management industry in each of the member economies which includes Australia, Japan, New Zealand, Thailand and the Republic of Korea. Survey responses to ASIC closed on 15 November 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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Public Beneficial Ownership Registry
Treasury has released a consultation paper on the implementation of a public beneficial ownership register. This is in furtherance of an election commitment to help with combatting multinational tax avoidance. A beneficial ownership register has also previously been supported by Labor members of the House Economics Committee in the context of examining capital concentration and common ownership.
The consultation paper proposes an obligation on proprietary companies, unlisted public companies, unlisted managed investment schemes, and unlisted corporate collective investment vehicles, to publish and maintain a public beneficial ownership register. Regulated entities would be required to take reasonable steps to identify and verify their beneficial owners, and to develop and maintain an accurate, up-to-date, publicly accessible beneficial ownership register.
The threshold for the reporting of beneficial ownership is proposed to be a person/entity who holds, directly or indirectly, 20 per cent of the shares or units in the regulated entity or exercises significant control or influence over the regulated entity.
For more information please contact This email address is being protected from spambots. You need JavaScript enabled to view it.
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Sustainable Finance Statement and Climate Risk Reporting
The Federal Government is expected to release a statement on its sustainable finance policy priorities in mid-December. This will coincide with the release of the Treasury consultation paper on a mandatory climate risk reporting regime. The consultation period is expected to run into early next year.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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Corporate Collective Investment Vehicle
The FSC working group has met and finalised a 'term sheet' of key issues to include in a CCIV Constitution template. An associate member law firm is now taking the lead on drafting a constitution template to be circulated and discussed by the wider working group in due course.
Please contact Ashley Davies for more information.
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ADVICE
2023 Financial Adviser Exam dates
ASIC has released dates for scheduled sittings of the Financial Adviser Exam.
The first exam sitting of 2023 will be held on 16 February 2023. Enrolments for the February Cycle 20 sitting will be open from 10 January 2023 and close on 30 January 2023. More information is available on ASIC’s website.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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Government to implement changes to tax agents
Treasury is now consulting on Exposure Draft legislation to amend the Tax Agent Services Act 2009 (TASA) and implement the Government’s Response to a report into the Tax Practitioners Board’s (TPB) effectiveness issued in November 2020.
While supportive of the changes, the FSC is advocating the legislation’s proposals for annual registration of tax agents are drafted appropriately to ensure it does not unintentionally impact the self-registration of tax (financial) advisers under the Better Advice Act 2021 taking effect in mid-2023. The FSC’s submission will note unintended consequences or cost implications for tax (financial) advisers arising from arbitrary sequencing, timeframes, or drafting. Changes proposed to TASA should as be viewed in the context of recent and incoming changes with potential implications for tax (financial) advisers:
- The incoming requirement for self-registration from 1 July 2023
- The Review of the Code of Ethics signalled to take place next year
- Government’s response to Financial Adviser Professional Standards implementing a 10-year experienced pathway and potential changes to the Financial Adviser Exam and the Professional Year (PY)
- The lack of coverage of transitional provisions in the Corporations (Relevant Providers – Education and Training Standards) Determination 2021 for certain advisers not current on the Financial Advisers Register.
Further information about the consultation is available on Treasury’s website.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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Industry preparedness for individual registration from April 2023
The Government has extended the deadline for individual registration of financial advisers to 1 July 2023 under the Better Advice Act.
ASIC have advised that as a result of the Government extending this date they are targeting April next year for rolling out the appropriate system build for self-registration, while providing guidance and support to industry to ensure it can meet its obligations when the extension takes effect. ASIC will also be providing clarification in relation to how deemed advisers are impacted by these changes and how the law works with respect to advisers moving between licensees but being unregistered for amounts of time for the purposes of the Better Advice Act 2021.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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LEGAL
Australian Law Reform Commission report
The ALRC Report, Financial Services Legislation: Interim Report B (Report 139, 2022), was tabled in Parliament on 30 September 2022.
Interim Report B contains recommendations, proposals, and questions in relation to the reform of corporations and financial services legislation. The recommendations in Interim Report B relate to improvements that would simplify corporations and financial services legislation.
The FSC has finalised a submission, working with the Legal and Compliance Expert Group. While broadly supportive of the ALRC goal of making the legal hierarchy more coherent and navigable, the FSC expressed concerns with some of the proposals, for example that greater power to make delegated legislation be concurrently shared between the Minister and ASIC pursuant to an unenforceable protocol.
Please contact David McGlynn or Ashley Davies for more information.
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Revising the FSC Investment Management Agreement
The FSC continues to gather feedback from members on a new draft investment management agreement template. A number of members have provided helpful comments and the FSC is working through these comments with the co-chairs of the FSC IMA working group.
Please contact David McGlynn or Ashley Davies for more information.
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LIFE INSURANCE
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National Stigma and Discrimination Reduction Strategy
Earlier this month, the National Mental Health Commission issued a draft report to Government for consultation on National Stigma and Discrimination Reduction Strategy. While the report is well intentioned and has many helpful recommendations, one recommendation of concern is to remove the 'other relevant factors' and ‘unjustifiable hardship’ tests from the insurance exemption under s46 of the Disability Discrimination Act 1992 (Cth). The FSC has concerns around the unintended consequences and resulting consumer detriment, and will prepare a short submission which is due by 1 February 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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TECHNOLOGY
Modernising Business Communications
The Government has released an updated version of the Treasury Laws Amendment (Modernising Business Communications) Bill 2022 after the bill introduced by the previous Government lapsed. The updated Bill has been referred to the Senate Economics Legislation Committee with a report date of 25 January 2023.
The major difference between the old and new bill is that it now includes provisions to allow ASIC and APRA to hold hearings and examinations virtually and winds back the original bill’s proposed changes to credit laws, which will now be dealt with at a later date.
As a reminder, the original bill proposes to amend the Corporations Act to provide that:
- All documents which are required or permitted to be signed under the Act can be signed electronically or in wet-ink
- Documents sent under Chapters 2A to 2M, 5 to 5D, 6-6 C, 8A and 9 or Schedule 2 of the Corporations Act can be sent in either hard copy or electronic form
- Companies are not required to send documents to a member where the contact details for that member are known to be incorrect.
It proposes amendments to the Life Insurance Act Section 191 allowing for technology-neutral publication of notice of an intention to make an application for confirmation of a scheme, subject to APRA’s power to approve the form of notice. Further, the bill repeals the notification requirements for the re-issuing of replacement policy documents, allowing for electronic issue.
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 made a submission to a Government consultation paper about how Australia could implement the OECD’s framework for addressing Base Erosion and Profit Shifting (BEPS). The submission argues that the Australian implementation of these rules should take account of particular issues for managed funds and life insurers, there should be a delay in start date, and there should not be a domestic minimum tax or an Australian ‘top up’ tax.
- The Government announced that it was planning on expanding Australia’s tax treaty network to include a number of additional European countries. The Government also announced a consultation on the key outcomes Australia should seek in its tax treaty negotiations. The FSC is considering how to respond to this consultation.
- The Government announced consultation on the Budget measure to change the tax treatment of offmarket buybacks. The measure now includes an additional measure that would prevent franking of consideration paid for the cancellation of a membership interest. The FSC is considering whether to make a submission to this consultation.
- The FSC is developing a letter to the ATO to raise concerns about how the ATO’s Relationship Authorisation Manager works for trusts that have corporate trustees.
- At the FSC’s request, the ATO has agreed to a meeting with members in December to discuss the FSC’s comments on an ATO proposals paper outlining how managed funds and super funds should treat foreign capital gains and foreign income tax offsets (FITOs) after the Burton decision. The meeting invitation has been sent to the members who have been involved in this work.
- The FSC is working with the Australian Custodial Services Association (ACSA) to respond to ATO questions on the tax data standard which will be jointly managed/owned by ACSA and FSC.
- The FSC met with Treasury to discuss the tax issues for life insurers relating to AASB17. The FSC indicated that it was likely that insurers under AASB17 would need to write-off acquisition costs immediately in a number of instances. This means the transition to full write-off remains an important tax issue for insurers.
- The FSC provided Treasury with an example of how tax withholding could apply to income protection (IP) benefit payments made outside of superannuation.
- A meeting of life and general insurers with the ATO has been scheduled for Monday 12 December to discuss AASB17 issues and the ATO’s assurance program. The invitation has been provided to the FSC Life Tax Expert Group.
- The ATO has provided the FSC with proposed changes to the legislative instruments relating to Recipient Created Tax Invoices (RCTIs). A draft has been provided to the GST Expert Group for comment.
- The ATO provided the FSC with a draft GST data test for financial services, and the FSC provided feedback on the draft.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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