Welcome to Issue 80 of the FSC Policy Update. This article outlines legislative and regulatory developments in the superannuation, investments, financial advice, tax, technology and innovation sectors, plus more. Learn about what’s impacting the financial services industry below.
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PARLIAMENT, LEGISLATION AND REGULATION
Tranche 1 of the Delivering Better Financial Outcomes Legislation passes through Parliament
The Tranche 1 legislation has now passed through Parliament following strong coordinated advocacy between the FSC and broader industry in support of legislative amendments to the provisions relating to overseeing third party adviser fee deductions. This was an important reflection of the strength of the industry to advocate for good policy outcomes for the advice community and its customers, notwithstanding political opposition from some sectors.
Tranche 1 also covers ongoing fee consent requirements; financial services guide requirements; rules banning conflicted remuneration; and standardised consumer consent requirements for certain insurance commissions.
The FSC has also submitted on the Draft Regulations supporting the Act seeking clarity from regulators on their approach to implementation with the Act now entered into force. The submission was developed by FSC Working Groups.
Please contact Zach Castles or Harvey Russell if you would like any further information.
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Multinational tax - public Country-by-Country Reporting
Following exposure draft consultation, the Government has revised aspects of the public Country-by-Country Reporting provisions in the recently introduced Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024.
Greater clarity has been provided in the Explanatory Memorandum on protection of commercially sensitive information using ATO discretionary powers, and further context on listed jurisdictions. The Bill also introduced a new provision limiting exemptions to one year.
The Bill has been referred to the Senate Economics Legislation Committee, which is due to report by 2 August 2024.
In a submission to the Committee, the FSC recommended that the one-year limit for exemptions not be legislated and for the ATO to retain discretion to set the timeframe based on the circumstances of each application, and for objective criteria to better target the jurisdictions for country-level reporting, such as removing those jurisdictions with taxes equivalent to a 15 per cent minimum that automatically exchange tax data with the ATO.
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Global and Domestic Minimum Tax – primary legislation
The Government has introduced legislation to implement aspects of the OECD/G20 Two Pillar Solution as part of a global solution to ensure corporate income tax settings implementing a 15 per cent minimum effective rate of taxation. These Bills introduce the primary legislation, which are to be followed by subordinate instruments.
Submissions are being received by the Senate Economics Legislation Committee, which will issue its report by 14 August 2024.
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Government faces hurdles with new superannuation tax on balances over $3 million
The Better Targeted Superannuation Concessions Bill is still before the House of Representatives. Independents have sought amendments in relation to both indexation and unrealised gains. Recently, Senators Jaqui Lambie and David Pocock have also publicly criticised the Bill as it stands due to the taxation of unrealised gains.
The FSC continues to advocate for our policy position – that the new tax should be indexed and should not be applied to unrealised gains. We will continue to work with the Government and cross-bench to work through these policy issues as the Bill progresses through the parliament.
Please contact Aidan Johnson if you would like any further information.
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SUPERANNUATION
New Standard for Scam and Fraud Mitigation Measures for Superannuation Funds
On 1 July, a new standard for superannuation funds came into effect. Standard 29: Fraud and Scam Mitigation Measures for Superannuation Funds requires FSC superannuation members to uphold a minimum level of fraud and scam mitigation measures for their customers. This includes having in place strong policies which outline how funds will manage scam and fraud incidents, such as how they will communicate with their customers. It also requires high-risk transactions, such as changes to contact and payment details, to have multi-factor authentication or a suitable alternative.
The Standard is currently in effect with voluntary compliance until 1 July 2026 when all superannuation funds must be compliant.
Please contact Kirsten Samuels if you would like any further information.
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ASIC and APRA Pulse Check on Retirement Income Covenant Implementation
APRA and ASIC have released Rep 784 Pulse check on Retirement Income Covenant (RIC) implementation. The pulse check was a voluntary survey of 48 trustees which asked them to elaborate on improvements made and planned across the three main areas of implementation for the RIC: understanding members’ needs, designing fit for purpose assistance, and overseeing strategy implementation.
The report noted that RSE licensees are actively engaged in areas of improvement identified in the thematic review report including increasing the amount of effort being placed on understanding members’ needs, with many RSE licensees prioritising interrogating existing data and identifying and addressing data gaps. Other areas where trustees were doing well included providing member guidance and advice, with more than half of RSE licensees focusing on updating or expanding existing offerings on website content and member communication, or advice offerings.
It was noted that there is only incremental progress in measuring and tracking the success of retirement income strategies. The 2023 thematic review report included examples of success metrics that focused on member outcomes by category, such as product, retirement income outcomes, and usage and quality of assistance. Based on the survey responses, the adoption of metrics aligned to the examples provided in the thematic review report is very low.
To better understand the obstacles experienced by the superannuation industry, the survey asked RSE licensees to identify up to three challenges they face in implementing the covenant. The key challenges identified included the ability to meet members’ retirement advice needs, given the uncertainty around the financial advice framework such as potential law reform; the depth and availability of existing data pertaining to members; privacy, security and cost concerns surrounding the need to collect more member data in order to better understand and support members’ needs; and a general lack of member engagement and financial literacy relating to their superannuation and retirement phases.
APRA and ASIC expect RSE licensees to continue to take a member-centric approach in monitoring and reviewing their members’ retirement outcomes as part of Prudential Standard 515 Strategic Planning and Member Outcomes (SPS 515) which was finalised this month as well.
Please contact Kirsten Samuels if you would like any further information.
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APRA Releases Results of Thematic Review of Readiness for Compliance with CPS 190
APRA have released the results of its thematic review into the readiness of the superannuation industry to comply with CPS 190: Recovery and Exit Planning. The Standard commences on 1 January 2025 for RSE licenses and requires them to contemplate events that may threaten their financial viability by developing plans to ensure they are able to successfully navigate these events.
APRA noted that some licensees are well progressed but identified the following areas that required improvement:
- Early warning indicators and trigger levels need to be relevant to the RSE’s operating environment and risk profiles;
- Enhanced preparatory measures should be considered for recovery and exit options, together with an uplift capability to reduce execution risk; and
- Proactive communication strategies should be implemented to support the effective execution of recovery and exit plans, particularly in periods of stress.
APRA will continue to monitor readiness and later compliance through existing supervisory relationships.
Please contact Kirsten Samuels if you would like any further information.
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APRA Release Final Prudential Practice Guidance on CPS 230 Operational Risk Management
APRA has released both its response to the CPG 230 Guidance consultation and the final prudential practice guide: CPG 230.
Of note is that some institutions have received an extension to some of the implementation requirements of the Standard until 1 July 2026. Non-significant financial institutions (Non-SFIs) have an extension on the implementation of clauses 40 – 46 of the Standard. These relate to the updating of the organisation’s business continuity plan (including testing and review). Certain requirements of CPS 230 will continue until 1 July 2026 for Non-SFIs. SFIs must be fully compliant by 1 July 2025.
The major change in the guidance is that APRA has removed references to “best” and “better” practice, focusing instead on guidance directly related to the implementation of the Standard as it’s written. This is consistent with the FSC’s feedback to APRA.
The response also outlines APRA’s expected enforcement approach, commencing with a review of select SFIs in the first year, followed by a wider review capturing select non-SFIs and further SFIs the following year.
In the appendix of the response is a checklist of the order which APRA suggests entities consider the implementation of CPS 230, starting with critical operations and tolerance levels, followed by the identification of material service providers related to those.
The FSC continues to work with the CPS 230 Implementation Working Group on implementation issues.
Please contact Kirsten Samuels if you would like any further information.
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Tax regulations updated to resolve unintended consequences impacting Transfer Balance Caps in Successor Fund Transfer processes
On 6 July, the Government issued updates to the Income Tax Assessment (1997 Act) Regulations 2021 to resolve an issue where some superannuation consumers that have certain types of defined benefit products were inadvertently having their transfer balance caps impacted by successor fund transfer processes. The FSC has advocated for these changes to be made and are supportive of the final regulations released.
The FSC raised concerns with the implementation of the regulation changes, particularly the retrospectivity component, in our submission to the Government with the overarching recommendation that the ATO is best placed to implement the necessary changes.
The ATO has since conceded it will have to lead the implementation of the retrospective component of the regulation change and are in the process of developing a process and/or system to help enable this. We are continuing to engage the ATO on this issue as it develops.
Please contact Aidan Johnson if you would like any further information.
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APRA releases final Strategic Planning and Member Outcomes prudential standard and associated guidance
On 4 July, APRA released their final SPS 515 Strategic planning and member outcomes prudential standard, with associated guidance (SPG 515), noting former draft SPG 516 Business Performance Review, has been incorporated into SPG 515.
As they have flagged earlier, APRA has moved the commencement date of the updated SPS 515 forward six months to 1 July 2025, this now aligns the commencement with CPS 230 Operational risk and SPS 114 Operational risk financial requirement.
Some of the key changes made by APRA since the draft SPS 515 and SPG 515 were issued include:
- Clarifying that while the removal of the term 'significant' means all expenditures need justification, this should be done proportionally. Guidance now includes specific expectations and examples;
- Requirements for reviewing retirement income strategies have been detailed, including a mandatory review every three years and annual outcome reviews. SPG 515 now includes factors to consider during these reviews;
- Removing the term 'non-financial' from SPG 515. Clarified that while member outcomes must be measurable, the primary focus remains on financial outcomes, even if benefits are long-term;
- Clarifying that the level of detail in business plans for key initiatives should be proportional to their size, complexity, and cost, with guidance on how to determine what constitutes a 'key' initiative;
- Guidance now specifies that monitoring processes should include specified triggers for escalation, which should be regularly reviewed and updated to reflect changing circumstances; and
- Emphasising the need for preparatory steps before receiving a cancellation notice. Provided additional guidance on the transfer process, including managing service outages, member communication, and data security. Clarified the interaction between SPS 515 transfer planning and CPS 190 recovery and exit planning.
While APRA has addressed some of the concerns raised in the FSC's submission, there are still some areas in which further clarification could assist members in implementing the changed standard, such as the regulations relating to the charging of fees.
The FSC will continue to engage with APRA to seek further clarification of expectations upon SPS 515 and SPG 515’s commencement on 1 July next year.
Please contact Kirsten Samuels if you would like any further information.
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FSC provides supplementary submission to Treasury on the Performance Test consultation
The FSC has also been continuing to engage with stakeholders in relation to the Government's Performance test - Design options consultation, including a meeting with the Your Future Your Super (YFYS) team where we discussed the FSC's submission in more detail.
At this stage Treasury have asked the FSC for additional information to assist them in improving the current benchmark test. In response, we have provided a supplementary submission to the consultation focusing on Treasury’s areas of interest, which include further information on:
- any changes to the prescribed benchmarks in the performance test – this includes suggestions for the unlisted infrastructure benchmarks and the addition of equity benchmarks for domestic and international ‘small cap’ equities;
- on the issue highlighted on the cost of these benchmarks from providers and what could be done to resolve this issue – including suggestions of models that would assist in bringing down prices of indices for industry; and
- the proposed new class of investment referred to as CPI+X% in the FSC’s submission – including ways to develop an alternative way to assess new and emerging assets, such as using a ‘growth’ and ‘defensive’ portfolios.
We will continue to engage Treasury and Government as they continue to develop a way forward for the Performance Test.
Please contact Aidan Johnson if you would like any further information.
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INVESTMENTS
In June the Federal Government released its sustainable finance roadmap , which it has developed in consultation with stakeholders including the FSC.
The Government has committed to commence consultation on a product labelling regime for sustainable investment products, which will help address the current regulatory uncertainty. Consultation is scheduled in the roadmap to commence in early to mid-2025, with the government aiming to legislate the regime in 2026 and commence in 2027.
The climate-related financial disclosures Bill is still before Parliament. The roadmap plans to have the Australian Accounting Standards Board (AASB) finalising the climate-related financial disclosure standards by August, Auditing and Assurance Standards Board (AUASB) to develop the assurance standards by late 2024 and ASIC to commence consultation on climate-related financial disclosure guidance this year.
The sustainable finance taxonomy consultation will continue to be led by Australian Sustainable Finance Institute (ASFI) throughout 2024, with the aim of making the climate mitigation objective against the identified priority sectors available for use by investors and other users by mid 2025. In mid-2025 Treasury will then consult on use cases for the taxonomy and whether it should be embedded in the regulatory regime. Treasury will also consider ongoing governance arrangements for the taxonomy.
The roadmap also flags the Government is considering feedback on the superannuation performance test and whether it is discouraging funds from responding to sustainability-related risks and opportunities which may otherwise be in the best financial interest of members. As part of that consultation, the FSC provided the Government with policy options that would avoid watering down the test.
Other key elements include:
- Treasury consultation on best practice guidance for transition plans in late 2024.
- APRA consultation on CPG229 Climate Change Financial Risks in late 2024.
- Council of Financial Regulators to make recommendations to government on addressing key sustainability data challenges.
The FSC will work with the Government as it seeks to implement the climate-related financial disclosure regime, and will continue to advocate for the need to prioritise a sustainable investment product labelling regime to create greater regulatory certainty for industry.
Issues arising from the roadmap will be considered in detail at our ESG Working Group meetings.
Please contact Chaneg Torres if you would like any further information.
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ADVICE
ASIC announces a month for advice licensees to ensure compliance with information provided on the FAR
A recent spot check of the Financial Adviser Register (FAR) conducted by ASIC has found certain information entered onto the FAR about adviser qualifications is either incorrect or incomplete.
In reminding industry of its obligation to provide complete and accurate information, ASIC is requesting AFSL’s to immediately check information entered onto the FAR is complete and that errors are corrected. From 1 August, ASIC will conduct a compliance program to ensure that information recorded on the FAR is up to date.
ASIC’s media release is here.
Please contact Zach Castles or Harvey Russell if you would like any further information.
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TECHNOLOGY AND INNOVATION
Government Further Consults on Digital ID Rules
Following the passage of enabling legislation, the Department of Finance commenced further consultation on the Digital ID Rules, Digital ID (Accreditation) Rules and the Digital ID (Accreditation) Data Standards.
Of most relevance to FSC members, as relying parties, is the Digital ID Rules, which have been updated to allow relying parties to collect certain identity credentials for the purpose of AML/CTF rules. The FSC noted in its submission that this was undesirable. Not only because this undermines the purpose of the verification system, meaning organisations would have to hold on to valuable ID data, but this approach is inconsistent with existing ID practices.
The FSC also again sought certainty and clarity about the treatment of relying parties in cases of fraud.
The FSC will continue to monitor developments with regards to the Digital ID.
Please contact Kirsten Samuels if you would like any further information.
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LEGAL, TAX AND CROSS-PORTFOLIO
ASIC investigation and enforcement - Senate Economics References Committee Report
The final report by the Senate Economics References Committee into ASIC investigation and enforcement action was released on 3 July.
The Senate back in October 2022, referred an inquiry into the capacity and capability of ASIC to undertake proportionate investigation and enforcement action arising from reports of alleged misconduct to the committee for report.
The report, authored by Committee Chair Senator Andrew Bragg, is highly critical of ASIC. It asserts that ASIC’s response to most reports of alleged misconduct is to take no further action and only a fraction of reports are investigated, civil penalties imposed are often at odds with the scale of the offending, few criminal sanctions are achieved, and ASIC’s investigation and enforcement decisions are opaque and difficult to scrutinise. It asks the Government to consider separating ASIC’s functions into two separate entities: a companies regulatory and a separate financial conduct authority.
It criticises ASIC’s attempts to influence the inquiry process including its reticence to engage with the committee, the interim report of the inquiry, as well as other Senate orders to produce documents. The report notes that the Australian Government should recognise that ASIC has comprehensively failed to fulfil its regulatory remit.
Labor Senators provided additional comments to the report, criticising aspects of the Chair’s report, but agreeing with the Chair that practical improvements can be made such as greater transparency for the reporting of data on the handling of reports of alleged misconduct.
The final report, inquiry home page and further information can be found here.
Anti-Money Laundering and Counter-Terrorism Financing Laws (AML/CTF)
KYC issues and other AML/CTF obligations arising from the closure of the mFunds service
The FSC wrote to AUSTRAC in June concerning the winding down and closure of mFunds as a service. The closure will occur on a staggered basis over the next two years.
With the closure of the mFunds service, industry is considering what obligations under the AML/CTF Act might apply in respect of those investors who acquired units via the mFunds service, particularly in circumstances where the scheme operators (i.e. issuers of units in the fund) have not received typical customer information on the basis that investors have not been required to complete an application form when using the service.
The FSC has asked to meet with AUSTRAC to discuss a potential transition plan to deal with KYC issues and other AML/CTF obligations arising from the closure of the mFunds service.
AGD Consultation on proposed reforms of Australia’s anti-money laundering and counter-terrorism financing
In May 2024 the Attorney-General’s Department (AGD) announced Part 2 of its public consultation on proposed reforms of AML/CTF regime. The consultation includes potential reforms to simplify, clarify and modernise the regime, including as follows:
AML/CTF program reforms: the AGD proposes to streamline the separate parts of an AML/CTF program into a single obligation and reinforce the requirement for regulated entities to take a risk-based approach to their AML/CTF program.
New customer due diligence framework: the AGD proposes to replace the existing CDD framework and outline revised core obligations of CDD.
Exception for assisting an investigation of a serious offence: eligible law enforcement agencies will be able to issue a ‘keep open notice’ directly to a reporting entity to enable them to continue to provide a designated service to a customer notwithstanding the entity is unable to fully comply with the AML regime if this would assist with the investigation of a serious offence.
New tipping off offence: will focus on preventing the disclosure of SMR information or section 49 related information where it is likely to prejudice an investigation or potential investigation. The new framework would clarify that reporting entities can disclose information for legitimate purposes.
The consultation closed on 13 June 2024. An FSC submission was developed through the AML Working Group. The FSC expressed support for simplification and modernisation to remove complexity, provide clarity and certainty as well as deliver regulatory efficiencies, noting that the proposed reforms should enhance the ability of Australian regulators and businesses to efficiently work together to combat and disrupt serious financial crime without being overly prescriptive or unduly increasing the regulatory burden.
AUSTRAC consultation on industry contribution levy
AUSTRAC asked for submissions on the proposed arrangements for the 2023-24 industry contribution levy. The FSC worked with members to prepare a submission which advocated for a calculation method which is more correlated to the earnings of an individual entity that are generated from regulated activity.
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Financial Accountability Regime (FAR)
ASIC and APRA as joint regulators released final Regulator rules and new information for Superannuation and Insurance AFSLs on 11 July (these were previously expected by end June 2024).
New information includes:
- an amendment to the Regulator rules, which prescribes key functions information for inclusion in the FAR register of accountable persons for insurance and superannuation industries; and
- a short joint ASIC and APRA letter summarising key issues raised during consultation and their response, including the concept and application of key functions.
The package updates previously released information to reflect the final Regulator rules, including:
- an updated information paper to assist entities and their accountable persons in understanding and complying with their obligations under the FAR, with changes made to reflect the final list of key functions and their descriptions;
- an updated accountability statement guide and template to help entities subject to the FAR enhanced notification obligations to prepare accountability statements; and
- reporting form instructions to assist insurance and superannuation entities in providing the required information to ASIC and APRA.
The FSC is convening the FAR Working Group to discuss implementation practicalities including how different businesses determine who are accountable persons and significant related entities.
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Breach Reporting (Reportable Situations)
Research project
The FSC is looking at ways in which it can advance the evidence base for our advocacy on reforms to breach reporting regulations.
As part of this, FSC has been discussing with an economic consultant how we might be able to estimate the compliance costs of the current regime and the potential compliance cost savings of the FSC's proposed recommendations. This evidence base would be useful to assist our communications with the government. We have been discussing possible research projects and frameworks with the Breach Reporting WG and other stakeholders.
ASIC meetings
The FSC also reached out to ASIC to discuss ongoing concerns with the implementation of the reportable situations regime, including suggestions for how to improve guidance and the mechanics as to how breaches are reported.
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Design and Distribution Obligations (DDO)
The FSC continues to meet with members to discuss ongoing issues of concern regarding the DDO regime. Some members have expressed interest in further discussions regarding satisfying the reasonable steps obligations and it is expected that further DDO working group meetings will be convened to discuss.
In a recent meeting with ASIC the FSC was informed that ASIC is still considering whether to issue a report on its targeted surveillance of AFSLs. If a report is issued this is likely to be some time later in 2024.
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The LCEG working group has been asked to consider an issue regarding the unfair contract terms regime. The issue for UCT is that the definition of 'small business contract' for the purposes of the UCT provisions in the ASIC Act (and the Australian Consumer Law) captures contracts with many companies even if they are related to other companies which are arguably not small businesses. The FSC is seeking feedback from members on this matter and whether there is any merit in providing a short submission to Treasury,
Please contact Ashley Davies if you would like any further information.
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