The FSC held a policy briefing on 1 February to give members a taste of what they can expect.
The Year Ahead
By Mark Smith
The FSC held a policy briefing on 1 February to give members a taste of what they can expect in the policy world in 2018. Here we take you through the main takeaways by policy area.
Superannuation
Hitting the deck over the next few weeks is the final report of the Productivity Commission Review into Superannuation. Recommendations for reform of the default fund market will likely be considered relative to the status quo, which is that the retail sector is more or less cut out of the default fund selection process due to the awards system. The FSC will be making a measured response to that report when it is available.
The progress of the Member Outcomes legislation, which addressed issues of super fund governance and the right for consumers to choose where their superannuation contributions are invested, was paused by the government at the end of last year. The Government has this week resume debate on aspects of the reforms in the Senate and the FSC will watch the progress closely.
Another issue on the boil is the early release of superannuation. Recent discussion has centred on the idea that it is currently too easy for people to access their superannuation for reasons other than their retirement and there is now a review into whether those rules should be tightened up.
There are also a range of proposals being consulted on at the moment to protect the integrity of the superannuation guarantee. One of particular interest is the potential introduction of criminal penalties for the most severe evasion of the super guarantee by employers. Separately we have urged the Select Committee inquiry into the Future of Work and Workers to consider the impact of the gig economy on superannuation balances.
A more niche issue is the pension means testing arrangements in relation to lifetime annuities, which the FSC is progressing through the retirement income policy working group.
Tax & Economics
FSC Senior Policy Manager for Tax and Economics, Michael Potter, said this year the FSC is strongly encouraging the government to push ahead with existing policies to provide for the rationalisation of legacy products, commit to raising the SG to 12% and lower the corporate tax rate to 25%.
Another priority for the FSC is to continue to campaign for the removal of the non-resident withholding tax which is effectively preventing overseas residents from using Australian investment products. The success of the Asia Region Funds Passport, with all the economic benefits it will bring, depends on this barrier being removed.
Legal & Compliance
ASIC’s fee disclosure regulatory guide (known as RG97) is an on-going saga for FSC Legal Counsel Paul Callaghan. This guide was envisioned as the basis for transparent and comparable disclosure of fees for consumers, but has turned out to be anything but. Mercifully, the start date of the new regime has been delayed indefinitely, and independent expert Darren McShane has been appointed by ASIC to review the regulations. The FSC is pleased to report that the dialogue between the industry working group and Mr. McShane, via ASIC’s secretariat, has been very constructive. We will keep members up to date as this review progresses.
Investment & Global Markets
Priorities in the FSC’s investment and global markets policy arena this year are to show leadership in communicating the value of funds management and to play a key role in helping the government form the regulatory and tax settings that allow the creation of the new investment vehicles needed to pave the way for increased export of funds management services through the Asia Region Fund Passport.
The pilot for the passport initiative is commencing in March with the FSC taking a central role. The scheme will be relevant not only to asset managers but associated service providers as well.
Elsewhere the FSC is looking closely at climate related issues and particularly how the Paris Agreement relates to asset managers ESG considerations. Global Investment Performance Standards are also coming. These are standardised, industry-wide ethical principles that guide investment firms on how to calculate and present their investment results to prospective clients. The Internal Governance and Stewardship Standard also becomes compulsory for members from 1 July.
Technology & Innovation
The FSC has in the last year brought together a broad cross-section of experts from each of the council’s portfolios to form a new policy area responsible for developing an agenda for furthering innovation in the financial services industry.
Policy priorities which have now been approved by the FSC board committees are focused on:
- Cyber security;
- Digital identity;
- Advocacy to ensure financial services companies can use technology without being hampered by regulations;
- Global regulatory issues;
- Robo-advice; and
- Fin-tech
Advice
Senior Policy Manager for Advice, Mel Toomey, has been speaking to lots of licensees over the last six months and says their highest priority is to ensure that their advisers meet the incoming professional standards requirements before the deadline (January 2019 for new advisers and 2024 for existing advisers). FASEA has released some details about what the education requirements will be and the FSC will look to play a part in the six month consultation period that follows.
Vertical integration and approved product lists were recently reviewed by ASIC and the findings published in Report 562. The regulator found that among Australia’s five largest licensees, external products represented 77% of all those on investment APLs and 69% of all funds invested sat under in-house products. Applying its own interpretation of the best interest duty, ASIC then took a closer look at a sample of client files and said that it still had concerns with how the large licensees were managing conflicts of interest.
The FSC will continue to work with our members and ASIC to address regulatory concerns.
Life Insurance
2018 looks set to be a big year for the life insurance sector with a Royal Commission and the final report of the PJC Inquiry into Life Insurance (expected in February/March). The FSC has identified five areas for Senior Policy Manager Jesse Krncevic and Policy Consultant Nick Kirwan to focus on:
- Strengthening trust;
- Develop a consistent data collection mechanism across the industry;
- Publish the second iteration of the FSC Life Insurance Code of Practice;
- Maintain the sustainability of group insurance; and
- Continue to advocate for industry led reforms that will result in improvements for consumers
Hot issues arising from the PJC parliamentary hearings included direct insurance, unfair contract terms, mental health, genetics, group insurance and data collection.
The Insurance in Superannuation Voluntary Code of Practice was released at the end of last year and super funds have until the end of March to state their intention to adopt that Code. The PC review into superannuation may put forward a recommendation which impacts the sector as well.
Nick Kirwan is in the process of drafting the next version of the FSC Life Insurance Code of Practice which is expected to come into play on 1 July 2019. The new and improved Code will add further commitments in the area of mental health, stipulating more specific questions in the underwriting process to help consumers understand what they need to disclose. The Code will also be strengthened by moving some of the FSC standards in relation to genetics into the Code. This will bring those standards under the independent oversight of the LCCC.
Keep an eye out for more communications from the FSC on matters of policy; as ever we will keep you well informed of our progress.