New Bills establishing the CSLR and the FAR were introduced into Parliament on 8 March. The intention is for the CSLR to be operational from December this year, however the Bills need to pass through Parliament in March this year to enable this to occur. Any delay in the passage of the CSLR Bills in March would mean the CSLR will not be operational and available to pay claims this year.

Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information on the CSLR.

SUPERANNUATION

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Taxation of superannuation balances above $3 million

The Government has announced a proposal to introduce an additional 15 per cent tax on the earnings of that portion of superannuation balances that exceed $3 million. Treasury estimates indicating the measure will raise around $2 billion in its full year, increasing over time as more superannuation balances get captured by the non-indexed $3 million threshold.

The accompanying fact sheet to the announcement provides key details around the proposed measure:

The increased tax applies to an individual’s total superannuation balance
Earnings are calculated as the movement of an individual’s total superannuation balance plus withdrawals less net contributions
- This approach therefore taxes unrealised capital gains year on year
- It is proposed that negative earnings can be carried forward and offset against this tax in future years’ tax liabilities
Payment of additional tax
- This can occur either out-of-pocket or from their superannuation funds
- This tax will be separate to an individual’s personal income tax, similar to the existing Division 293 tax
Application
- Applies from 1 July 2025
- Tested for the first time on 30 June 2026, with the first notices of a tax liability expected to be issued to individuals in the 2026-27 financial year

The FSC will continue to engage constructively with Government on the design and implementation of the measure, with a Treasury paper expected to be released for consultation shortly.

Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. or Aidan Nguyen for more information.

Objective of Superannuation

The FSC is finalising its submission to the Treasury’s consultation to legislate an objective of superannuation. On balance, the FSC is supportive of the Government’s initiative as it can be expected that enshrining the superannuation system’s objective in legislation has the potential to deliver greater stability and public confidence in superannuation policy settings over the medium to longer term – the ultimate goal.

The FSC will also strongly recommend that the objective is enshrined in standalone legislation to ensure clarity that the objective is for policy makers. Feedback on the consultation paper is due by 31 March.

Please contact Aidan Nguyen for more information.

'Your Future, Your Super' (YFYS) Review

The Government’s response to the Review run by Treasury of the YFYS laws is expected very shortly. The Review examines all aspects of the YFYS laws for any significant unintended adverse consequences. The response will focus on changes to the performance test, via exposure draft regulations, given the Government’s busy legislative agenda reflecting broader non-financial services focus areas. This will limit the degree of wholesale change that can be expected to the YFYS measures.

Please contact Aidan Nguyen for more information.

APRA Superannuation Data Transformation (SDT) Minor Amendments

APRA have released their response to the Superannuation Data Transformation Phase 1 Minor Amendments consultation. APRA accepted much of the FSC’s recommendations, including providing an updated timeline for reporting. The FSC will continue working collaboratively with APRA on the SDT project, including the upcoming consultation on confidentiality and publishing, and Phase 2 of the project.

Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.

APRA Proposed Transfer Planning Requirements and Financial Resourcing for Operational Risk Consultation

APRA recently completed a consultation on proposed transfer planning requirements as well as changes to SPS 114: Financial Resources for Risk Events in Superannuation.

The FSC made a submission to both enquiries noting for both that the significant outlay of funds that both hypothetical transfer planning and non-risk-based quarantining of funds for potential operational risks incurs is not necessarily in the best financial interests of members.

Further, in relation to operational risk funding, the FSC noted that some members may choose to fund this requirement out of shareholder capital and that this should continue to be acceptable practice.

The FSC also made the point that this would not be the case in an industry fund. If APRA believes that it is in the best financial interests of members for operational risk funding to come from member funds in that instance, then it should be made clear that the same is true if retail superannuation funds fund these risks from member funds as well.

Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.

Superannuation Non-Arm’s Length Expenditure (NALE)

The FSC made a submission to Treasury on proposed changes to the rules relating to NALE. The FSC argued it was important for the rules to be amended as they were punitive and imposed high (and unnecessary) compliance costs on the superannuation industry. However, the FSC argued it is important that NALE rules be retained in some form to discourage superannuation funds from using related party transactions to artificially reduce administrations fees.

ASIC report assessing insurance in superannuation

ASIC has released Report 760 (REP760) which reviews trustee progress in improving member outcomes regarding insurance in superannuation. The review examined a selection of 15 trustees and their progress in addressing the issues in relation in insurance in superannuation previously raised by ASIC in previous public communications.

Value for money

ASIC previously raised concerns around insurance that unnecessarily erodes a member’s retirement balance because they are paying for insurance that does not meet their needs.
ASIC found that trustees have since made changes so members should get better value for money from insurance.
ASIC expects that trustees continue to review whether the insurance they offer is meeting members’ needs and providing value for money by collecting and analysing cohort level member data, including from their insurer, to support compliance with the Design and Distribution Obligations (DDO).

Overly restrictive cover

ASIC previously raised concerns around cover that members were unlikely to be able to claim on in the event of a member becoming disabled due to restrictive definitions and exclusions.
ASIC found that trustees have made changes so members should get better value for money from insurance.
ASIC expects that trustees continue to monitor outcomes of TPD claims assessed under restrictive definitions (including the Activities of Daily Work definition) and assess whether trustees should remove restrictions and/or change eligibility criteria to reduce the number of people assessed under the restrictive definitions.

Claims handling

ASIC previously raised concerns around some members not pursuing claims because of onerous and complex claims handling processes.
ASIC found that many trustees have since taken steps to streamline their claims processes to make it easier for members to navigate, although some trustees have done more than others.
ASIC expects that trustees analyse complaints and reasons or withdrawn claims, work with insurers to address procedural frictions and ensure that trustees have effective oversight of their insurers’ claims handling process.

Communications

ASIC previously raised concerns that trustees’ communications and processes that do not make it easy for members to understand their insurance or make changes to their cover. ASIC found that some trustees have improved the way they explain their insurance offerings, although there is room for improvement.
ASIC expects that trustees harness member data and consumer research as well as conduct testing of their processes, procedures and member communications to ensure communications are clear, balanced and easy to understand including in relation to changes as a result of regulatory reforms.

As background to the review, ASIC also specifically referenced self-regulation voluntarily adopted by the superannuation industry in relation to the Insurance in Superannuation Voluntary Code of Practice, the FSC standard (FSC Standard 27) to prohibit the use of occupational based exclusions and restrictive definitions for default cover in superannuation and the FSC Standard (FSC Standard 28) which came into effect on 1 January 2023 on a voluntary basis and will apply on a mandatory basis from 1 July 2023.

Please contact Aidan Nguyen for more information.

INVESTMENTS

Climate related financial disclosure

The FSC has been advocating the need for a mandatory climate risk disclosure regime to enhance funds’ ability to manage climate risk in their portfolio and efficiently allocate capital when accounting for climate-related risks and opportunities.

Our submission to the current Treasury consultation emphasises the need for a regime that is compatible and interoperable with overseas disclosure regimes and the International Sustainability Standards Board (ISSB) standards, has adequate coverage across the largest Australian public and private companies and emitters, and also allows for a flexible (best endeavours) and phased approach that allows improvement of disclosures over time.

Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. if you would like a copy of the FSC’s submission.

Greenwashing and FSC ESG Labelling Guidance

A key enforcement priority for ASIC this year continues to be combatting greenwashing. The FSC is working to create greater industry consensus around the use of sustainability-related labelling of investment products via sustainability product labelling guidance.

The FSC's work will look to create consistency with EU regulations, and proposals in the US and UK on labelling. The aim is to help members reduce the risk of greenwashing, provide greater confidence to consumers, and ensure that if there is future regulatory intervention that industry consensus is built around the different legitimate approaches to sustainability investing.

Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. if you would like to get involved with this work.

Launch of the Parliamentary Friends of Sustainable Finance

On 21 March, the FSC together with the Investor Group on Climate Change (IGCC) supported the launch at Parliament House of the Parliamentary Friends of Sustainable Finance. This group will be co-chaired by Independent Senator David Pocock, Labor Senator Karen Grogan and Liberal Senator Andrew Bragg.

The new group will provide a non-partisan forum for MPs and Senators to engage with institutional investors and companies that are accelerating the transition to net zero, identify legislative and regulatory opportunities to accelerate investment in cleaner technology and infrastructure, develop a greater understanding of the role of capital in accelerating the energy transition, and host events that showcase net zero investment opportunities.

If you have ideas for future events or programs for the group, or would like to be involved, please contact This email address is being protected from spambots. You need JavaScript enabled to view it..

Treasury Laws Amendment (Measures for Consultation) Bill 2023: Rationalisation of ending ASIC Instruments (Tranche 2)

The FSC provided a submission in March on the Treasury Laws Amendment (Measures for Consultation) Bill 2023: Rationalisation of ending ASIC Instruments (Tranche 2), which has a direct impact on class order relief currently utilised by managed investment schemes.

The FSC has requested a meeting with Treasury to ensure the intention of the legislation is achieved without causing unintended disruption.

The FSC raised concerns regarding:

the removal of the current ability for funds to use estimates of asset price valuations where real time prices are unavailable; and
the introduction of further civil penalty provisions that would cover minor or technical issues and add to the large number of breach reports being filed with ASIC that involve immaterial breaches and do not relate to serious breaches or systemic issues.

Please contact Ashley Davies for more information.

Review of the Regulatory Framework for Managed Investment Schemes (MIS)

The Government has released the focus of the MIS Review which will examine whether the MIS regulatory framework is fit-for-purpose, identify potential gaps, and consider what enhancements can be made to reduce undue financial risk for investors.

The Review will consider RE obligations and whether the governance, compliance and risk management frameworks for MIS are appropriate, investor thresholds for retail and wholesale clients, liquidity requirements for REs - and will not consider whether MIS should be brought within the scope of the Compensation Scheme of Last Resort.

A Treasury consultation paper is expected to be released by 'mid-year' and will consult with industry before reporting findings to the Government by early 2024.

The MIS Working Group will be convened to develop FSC policy positions and submission to the MIS Review.

Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.

ADVICE

Quality of Advice Review Final Report released

The Quality of Advice Review Final Report has been handed to the Government and was released publicly on 8 February. It has 22 core recommendations aimed at reducing the cost of advice and greatly simplifying its overall provision for consumers. In summary it recommends:

An expanded definition of personal advice.
Amended definition of relevant provider.
The introduction of a Good Advice Duty for non-relevant providers.
Introduction of a Statutory Best Interests obligation in which the safe harbour steps are removed and supported by the Code of Ethics.
Reforms to documentary requirements – the abolition of the Statement of Advice, Record of Advice, General Advice Warning, permitting the use of a Financial Services Guide (FSG) on company websites, and the replacement of Fee Disclosure Statements (FDSs) and consent requirements with a ‘Standard Form’.
Amendment of reporting obligations under the Design and Distribution Obligations (DDO) as they pertain to financial advice provided by relevant providers to remove unnecessary duplication.
Adoption of clearer member-directed charging requirements for personal advice provided by superannuation funds.
Tightened exemptions to the ban on conflicted remuneration.
Expansion of the Design and Distribution Obligations to non-relevant providers.

The Government has indicated it will respond to the Report’s recommendations soon.

A full copy of the Final Report is available here.

Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.

TECHNOLOGY

Cybersecurity Strategy

The Department of Home Affairs have released a discussion paper for the Australian Cyber Security Strategy 2023-2030. The paper outlines a vision for Australia to be world leading in its preparedness and responsiveness to cyber security.

The FSC is preparing a submission to the consultation. The response focusses on the need for better opportunities for cross industry information sharing and, while supportive of mandatory reporting requirements, streamlining the way in which this reporting occurs. Further, the FSC submission reiterates the position that there should be a clearer overarching, cross-government framework for all of the work happening across scams, fraud and cybersecurity and tangentially related areas such as Customer Data Right (CDR) and privacy.

Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.

Token Mapping Consultation

In February, Treasury released its long-awaited Token Mapping Consultation. The FSC made a submission supporting the Discussion Paper’s overarching principle that digital assets that are functionally similar to existing financial products should be brought within the existing financial services regime.

Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.

LEGAL, TAX AND CROSS-PORTFOLIO

Design and Distribution Obligations (DDO)

ASIC is continuing its enforcement actions relating to the DDO, issuing 27 DDO stop orders as of 21 March. Most of these stop orders relate to managed funds.

ASIC has advised the FSC that it is planning on releasing a report on the DDO in the next month or so. This report will contain ASIC’s observations about the implementation of the DDO to date. The FSC will advise members when the report is released and discussions about the report will occur through the DDO Working Groups. The FSC also plans to have a member discussion with ASIC on the report after it is released. Separately, ASIC’s review of superannuation choice distribution is focussing on how super trustees are meeting their DDO obligations in the choice environment.

The FSC is well progressed with the revised template Target Market Determinations (TMDs) for funds management. ASIC’s comments on the draft have been circulated to members of the relevant DDO Working Group for consideration and the FSC is working towards finalisation of the template. The finalised version will be provided to FSC members and non-members that license the TMD template. Following this, the FSC will consider the appropriate changes to be made to other FSC templates/artifacts.

Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. or Ashley Davies for more information.

Relief from DDO for Reissued Life Insurance Policies

ASIC has provided life insurers with relief from the DDO in limited circumstances when reissuing policies to the same policyholder on the same terms and conditions. For policies issued after the DDO regime commenced, the relief operates only when correcting administrative errors or reinstating lapsed policies. For those issued before 5 October 2021, the relief also applies when combining or separating policies, buying back cover, and reducing cover (other than for the sum insured).

Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.

Privacy Act Review Report

On 16 February, the Government released the report of the Attorney-General's Department's review of the Privacy Act 1988. The Report follows two years of consultation and review, following the ACCC 2019 Digital Platforms Inquiry final report which made several privacy recommendations. As members will know, the Review commenced in October 2020 with the release of an Issues Paper, followed by a Discussion Paper in 2021 - which put forward proposals for reforming the Act for consultation.

The Report makes 116 proposals on which the Government is seeking feedback. Submissions on the Report are due on 31 March. The Report does not attach an exposure draft of any reform legislation and many of the proposals are marked as being subject to further consultation. The revised Privacy Act reforms will require financial services businesses to make a number of important changes to the way they deal with personal information and interact with their customers.

The FSC has convened a meeting of the Privacy Working Group to discuss next steps and is preparing a submission. Some of the Proposals which are likely to be of particular interest to members include:

Proposal 4.6 Extend protections of the Privacy Act to de-identified information.
Proposal 4.7 Consult on introducing a criminal offence for malicious re-identification of de-identified information where there is an intention to harm another or obtain an illegitimate benefit, with appropriate exceptions.
Proposal 6.1 Remove the small business exemption, but only after an impact analysis has been undertaken, appropriate support is developed in consultation with small business and other preparatory steps.
Proposal 7.1 Enhanced privacy protections should be extended to private sector employees.
Proposal 10.1 Introduce an express requirement in APP 5 that requires collection notices to be clear, up-to-date, concise and understandable.
Proposal 10.3 Standardised templates and layouts for privacy policies and collection notices.
Proposal 11.1 Amend the definition of consent to provide that it must be voluntary, informed, current, specific, and unambiguous.
Proposal 12.1 Amend the Act to require that the collection, use and disclosure of personal information must be fair and reasonable in the circumstances.
Proposal 13.1 APP entities must conduct a Privacy Impact Assessment for activities with high privacy risks.
Proposal 15.2 Expressly require that APP entities appoint or designate a senior employee responsible for privacy.
Proposal 18.3 Introduce a right to erasure.
Proposal 21.8 An APP entity’s privacy policy must specify its personal information retention periods.

Please contact David McGlynn or Ashley Davies for more information.

Breach Reporting

ASIC have sent the FSC drafts of certain proposed changes to its breach reporting RG78 and have asked for input.

The areas for feedback are:

Circumstances in which multiple reportable situations can be grouped together in a single report (the ‘grouping test’) (updated text in the body of RG78)
How should I respond to the question ‘Have any similar reportable situations previously occurred’? (additional question in Appendix 2 to RG78)
How should I respond to the question ‘What are the root causes of the breach – or likely breach’? (additional question in Appendix 2 to RG78)
How should I respond to the question ‘What triggered the investigation or made me aware of the matter’? (additional question in Appendix 2 to RG78)
How should I calculate and report the number of clients affected by a reportable situation? (additional question in Appendix 2 to RG78)

ASIC have also informed the FSC that due to responding to further feedback, the release of the changes to R78 will be delayed. It is likely the changes will now be released closer to the end of April 2023 (originally they had said the release would be end of March or beginning of April).

Please contact David McGlynn or Ashley Davies for more information.

Anti Money Laundering and AUSTRAC

AUSTRAC’s annual consultation on the industry contribution levy for 2022–23 has been released. The FSC notes that AUSTRAC have increased the ‘earnings component’ of the levy by over 50 per cent on previous years. This may materially impact some members. Depending on member interest the FSC may prepare a submission.

The FSC has asked members give an indication of whether they consider the FSC should prepare a submission on this.

If a submission is considered appropriate by FSC, it could note the following:

The earnings per cent has been changed significantly.
This substantially increases the amount payable for entities that do not submit IFTIs and threshold transaction reports (i.e. that just pay a fixed % for the earnings component of the levy).

Submission is due by 13 April.

General tax issues

The Government has released draft legislation to make major changes to interest deductibility, replacing the existing thin capitalisation rules. The legislation provides a specific carveout for superannuation funds (but not managed funds) from part of the rules. The FSC’s Tax Expert Group is considering a response to this legislation.
The ATO has released web guidance on various tax administration issues for the Corporate Collective Investment Vehicle (CCIV), including how to register a CCIV for tax purposes, and how to lodge CCIV’s Business Activity Statement and income tax return.
The FSC made a submission to Treasury in relation to the expansion of the tax treaty network. The FSC argued that existing tax treaties should be amended so that they appropriately deal with Australian super funds and investment funds – particularly ensuring that the funds are able to claim tax treaty benefits on behalf of underlying investors.
The FSC wrote to the ATO to raise concerns about how the ATO’s Relationship Authorisation Manager works for trusts that have corporate trustees.
The FSC and the Australian Custodial Services Association (ACSA) met with the ATO to discuss issues the industry is facing with obtaining certificates of residency and reclaiming withholding taxes.
The FSC had several meetings with the ATO to discuss how managed funds and super funds should treat foreign capital gains and foreign income tax offsets (FITOs) after the Burton decision. As a result of these meetings, the ATO made changes to the standard forms for tax statements to managed fund members; and issue guidance through FSC membership on how funds should deal with this issue for the 2022-23 income year.
The ATO provided the FSC with draft guidance on the annual managed funds tax statements (the AMMA/SDS). The FSC met with the ATO to discuss these documents and member comments.
The FSC continues to work with ACSA on the Tax Data Standard. The Standard is currently available for use, while the ongoing governance of the Standard is currently being discussed by the FSC and ACSA.
The FSC has its regular six monthly catch up with the ATO in April. Issues scheduled for discussion include withholding tax reclaims, justified trust reviews, governance of third party data, and the ATO relationship manager.

GST

The FSC provided a submission to the ATO on proposed changes to the legislative instruments relating to Recipient Created Tax Invoices (RCTIs). The FSC’s comments largely focused on the difficulties with the proposal to require the frequent testing of whether suppliers are registered for GST.

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 Policy Update - Issue 70 March 27

FSC Policy Update - Issue 70 March 27

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You are here: FSC HomeNewsPolicy UpdatesFSC Policy Update - Issue 70 March 27

FSC Policy Update - Issue 70 March 27

PARLIAMENT, LEGISLATION AND REGULATION

SUPERANNUATION

.

INVESTMENTS

ADVICE

TECHNOLOGY

LEGAL, TAX AND CROSS-PORTFOLIO

Want to Talk

About

POLICY

Resources

News

Events

You are here:
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FSC Policy Update - Issue 70 March 27