Welcome to Issue 26 of the FSC Policy Update – a fortnightly member briefing on the main legislative and regulatory changes across the financial services industry. In this issue, the FSC team analyses Royal Commission Exposure Draft legislation, the Compensation Scheme of Last Resort (CSLR) and the Financial Accountability Regime (FAR).
As reported in the previous issue, the Government has committed to introducing the Hayne Royal Commission recommendations by the end of this year – and I appeared on ABC's The Business last week to talk about some of these recommendations, in particular, enabling legislation to match people up with their 'lost' superannuation. See the interview here.
To share any relevant feedback with the FSC about this issue, please email the team.
Sally Loane, FSC CEO
Click on the topic of interest below to read more
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Royal Commission Exposure Draft legislation
Winding up Eligible Rollover Funds (ERFs)
Australian Bushfires Assistance
Advice solutions for the Government’s Royal Commission Roadmap
FASEA releases legislative instrument on financial adviser qualifications
Survey: Nearly 50% of Australians receiving financial advice say their mental health has benefited
Compensation Scheme of Last Resort (CSLR)
Financial Accountability Regime (FAR)
Fees and Costs Disclosure: RG 97
Australian Financial Complaints Authority (AFCA)
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PARLIAMENT AND REGULATION
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Royal Commission Exposure Draft legislation
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Treasury has released for consultation draft legislation on 22 recommendations relating to the Royal Commission. See the Treasurer’s media release here, and the draft legislation and explanatory materials here.
The FSC will be managing responses as follows:
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Legislation |
Working Group |
Board Committee |
FSC contact |
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Recommendations 2.1 and 2.2 - Ongoing fee arrangement and disclosure of lack of independence |
Advice Licensing and Compliance Working Group |
ABC |
Zach Castles |
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Office of the Trustee WG Legal and Compliance Expert Group SBC members |
SBC |
Jane Macnamara/ Paul Callaghan |
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Recommendation 4.2 - Restricting use of the term ‘Insurance’ and ‘Insurer’ |
Life Reg Affairs Working Group (questionable value in making a submission) |
LBC |
Nick Kirwan |
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Recommendation 3.4 and 4.1 - No hawking of financial products |
Superannuation Technical Working Group Distribution Working Group Life Reg Affairs Working Group |
SBC, LBC |
Jane Macnamara/Nick Kirwan/Aidan Nguyen. Assisted by Paul Callaghan |
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Super and Advice Working Group |
ABC, SBC |
Zach Castles/ Jane Macnamara |
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Recommendation 1.15 - Enforceability of financial services industry codes |
Code of Practice Working Group |
LBC, SBC |
Nick Kirwan/ Jamie Kennedy |
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Recommendation 4.5 and 4.6 - Duty to take reasonable care not to make a misrepresentation to an insurer and anti-avoidance provisions |
Underwriting and Claims Working Group Life Reg Affairs Working Group |
LBC |
Nick Kirwan/ Jamie Kennedy |
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Recommendation 4.3 - Deferred sales model for add-on insurance |
Distribution Working Group Life Reg Affairs Working Group |
LBC |
Nick Kirwan/ Jamie Kennedy |
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Recommendation 3.8, 6.3, 6.4 and 6.5 - Superannuation regulator roles |
Office of the Trustee WG Legal and Compliance Expert Group Superannuation Technical Working Group |
SBC |
Jane Macnamara/ Paul Callaghan |
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Recommendations 1.6, 2.7, 2.8, 2.9 and 7.2 Strengthening breach reporting |
Advice Licensing and Compliance Working Group Legal and Compliance Expert Group |
ABC, Board |
Zach Castles/ Paul Callaghan |
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Recommendation 6.14 - Financial Regulator Oversight Authority |
Legal and Compliance Expert Group |
Board |
Paul Callaghan |
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Please contact the FSC contact for more information.
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MEDIA RELEASE
31 JANUARY 2020: FINANCIAL REGULATOR REFORM
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SUPERANNUATION
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Winding up Eligible Rollover Funds (ERFs)
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The Treasury Laws Amendment (Reuniting More Superannuation) Bill 2020 was introduced into the House of Representatives on 6 February.
This legislation will facilitate the closure of ERFs and transfer of remaining accounts to the ATO for reunification.
The FSC has raised concerns that the Bill does not provide a mechanism for amounts which funds currently would transfer to an ERF, and which cannot otherwise be reunited with a member, to instead be sent directly to the ATO.
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Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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MEDIA RELEASE
04 FEBRUARY 2020: FSC SUBMISSION TO DRAFT SPS 250 - INSURANCE IN SUPER
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LIFE INSURANCE
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The legislation on Unfair Contract Terms has passed unchanged through Parliament on 7 February as part of the Protecting Consumers bill. This extends unfair contract terms to insurance, gives protections for consumers for funeral expenses insurance and introduces a best interest duty for mortgage brokers.
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The FSC has issued a statement on behalf of the life insurance industry in response to recent developments of the Coronavirus. The statement can be found on the homepage of the FSC website here.
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Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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Australian Bushfires Assistance
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SuperFriend has issued a Resource Support Kit to help industry partners navigate the bushfire crisis. The kit was developed with the sector firmly in mind, and has been tested by hands-on users throughout its development.
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Note: The Life Insurance Policy Team will be coordinating with the relevant Working Groups to respond to the relevant recommendations by 28 February.
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MEDIA RELEASE
04 FEBRUARY 2020: LIFE INSURANCE CANCER CLAIMS DATA
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MEDIA COVERAGE
FSC sheds light on cancer impact
$1.55b a year in cancer life insurance claims
World Cancer Day: life insurance claims data released
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TUESDAY 5 MAY: LIFE INSURANCE SUMMIT 2020 - Program now available here.
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ADVICE
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Advice solutions for the Government’s Royal Commission Roadmap
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Exposure draft legislation implementing the Royal Commission’s recommendations for advice has been announced by the Treasurer. Through the working group process, the FSC is developing submissions on this exposure draft legislation that implements the following recommendations:
- Ongoing fee arrangements and disclosure of lack of independence (implementing recommendations 2.1 and 2.2),
- Strengthening breach reporting (implementing RC Recommendations 1.6, 2.7, 2.8, 2.9 and 7.2 of the Royal Commission).
The FSC wants financial advice to be affordable and accessible. Its input into the submission process will offer solutions that allow for effective and practical implementation of the Government’s Royal Commission roadmap to achieve this objective. The Government has committed to introducing this legislation by June.
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FASEA releases legislative instrument on financial adviser qualifications
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FASEA has released the Corporations (Relevant Provider Degrees, Courses and Qualifications Standard) Determination 2020. This is the legislative Instrument giving effect to the courses FASEA has approved for financial advisers.
Access the determination here.
The FSC, with the support of the Adviser Competency Working Group, provided input into FASEA’s consultation on the legislative instrument and most of this feedback was taken up by the regulator.
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Survey: Nearly 50% of Australians receiving financial advice say their mental health has benefited
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A recent survey of 2000 people from Fidelity International on the value of financial advice shows Australians are concerned about their finances and wellbeing overall but lack awareness of how financial advice can reduce this concern. The research also outlined four different categories of consumer who engage financial advisers to navigate financial services.
Read the report here.
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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’s pre-Budget submission has been finalised and submitted to the Treasury. The FSC will release the submission shortly. The submission reiterates the FSC’s argument for a comprehensive product modernisation (rationalisation) scheme for financial services, along with numerous technical changes that will improve the operation of the financial services system (many of these technical changes are existing Government policy – so the FSC is arguing for the Government to prioritise the implementation of existing policy).
- A summary of the recommendations of the submission were in the previous FSC Update, see here.
- The submission recommended that if the Government implements an investment allowance, it be designed so it does not disadvantage flow-through structures used by fund managers (MITs and AMITs).
- The FSC hosted a meeting with the ABA to discuss the tax and superannuation issues relating to remediation, then participated in a joint meeting with the ATO and the ABA to discuss this issue.
- Members of the Tax Expert Group have been provided with questions from the ATO about remediation scenarios for comment.
- The FSC lodged a submission on corporate tax residency with the Board of Tax. The submission argues that tax residency for companies, as well as flow-through structures used by fund managers (MITs and AMITs), use a place of incorporation test only.
- The FSC issued a press release announcing the submission had been publicly released, see here.
- The ATO’s proposed changes to the AMMA (attribution MIT member annual statement) and SDS (standard distribution statement), including guidance notes, were circulated to FSC members for comment. FSC members are requested to respond to the draft by Wednesday 12 February.
- FSC members were provided with a submission by the Property Council raising issues that the hybrid mismatch rules cause for managed funds. The FSC tax expert group will consider whether to raise similar issues with the Government.
- The Government release the proposed program of legislation to be introduced in the Autumn sitting 2020 (the period from now until March 26). The list does not contain tax measures – for example, there is no mention of legislation relating to the permanent removal of CGT on merging super funds. This is despite the Government indicating the legislation to implement this commitment is imminent.
- The FSC provided a paper to Treasury discussing the issues with legislation currently before Parliament that purports to remove the tax on rollover of death benefits. The paper explains how the legislation does not meet the Government’s policy intent. The FSC also provided commentary from several FSC members stating most APRA regulated funds would not be able to administer accounts that received rollovers of death benefits.
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- The meetings with the ABA and ATO on remediation discussed the GST treatment of remediation (see details under income tax above).
- The FSC is preparing a paper for the ATO on the GST issues relating to rebates of excess fees required by the Protecting Your Super fee caps.
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- The FSC provided comments on draft legislation from the South Australian Government’s rewrite of the South Australian Stamp Duties Act.
- The Insurance Duty Expert Group has been considering the stamp duty issues relating to remediation payments.
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Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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INVESTMENTS
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Compensation Scheme of Last Resort (CSLR)
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The FSC has recently participated in two Treasury roundtable discussions considering the scope of the Compensation Scheme of Last Resort (CSLR) and funding options. The FSC is advocating for a sustainable and equitable (as far as is possible) CSLR.
The FSC is close to finalising its submission to the Treasury consultation on the establishment of a Compensation Scheme of Last Resort.
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Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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On 7 February, the FSC lodged its submission to The Department of Home Affairs (DHA) regarding the Business Innovation and Investment program.
The FSC recommended to the Government:
- That a material increase in the investment threshold will significantly reduce the flow of long-term capital into Australia that is available under the SIV program (and the follow-on capital from SIV investors outside the program) which will certainly not be the best outcome for Australia.
- That the investment threshold for the Investor Visa (IV) be increased from the current level of $1.5m to $2.5m.
- That the IV investment allocation should be amended to proportionally mirror the asset allocations under the SIV.
- That no material changes should occur to the SIV complying investment framework (“CIF”) which would further complicate the process and result in a loss of confidence in the program and significant reduction in demand.
- That given the lengthy consultation process which was undertaken to enhance the SIV CIF and the undoubted benefits it is now delivering to the Australian economy the SIV CIF should also be proportionally applied to the IV.
- That these three visa subclasses should be discontinued: “188D” Business Innovation and Investment (provisional) visa (subclass 188) - Premium Investor stream; “188E” Business Innovation and Investment (Provisional) visa (subclass 188) - Entrepreneur stream; and “132B” Business Talent (Permanent) visa (subclass 132) - Venture Capital Entrepreneur stream.
- That the DHA should allocate additional resources to the processing of the SIV and IV. The return on such investment would be significant. If it were certain that an increase in application fees would be used to hire additional processing resources and reduce processing times, this would be supported by our members.
- Should the Government seek to increase the threshold amount for the SIV any increase should not only be modest (our preference would be for no increase) but it should also be phased in over at least a two-year period. This will allow the industry to adjust and for the DHA to closely asses the elasticity of demand for this visa.
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The FSC will be in Canberra to advocate these key issues on 12 February.
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Treasury is undertaking a four week targeted public consultation on the merits of the current stamping fee exemption in relation to listed investment entities. Listed investment entities comprise listed investment companies and trusts, including real estate investment trusts.
Stamping fees are an upfront one-off commission paid to financial services licensees for their role in capital raisings associated with the initial public offerings of shares.
The FSC will be lodging a submission and has organised a round table with fund managers and Treasury on 10 February.
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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
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Financial Accountability Regime (FAR)
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As mentioned in Issue 25, the FSC is considering the Treasury FAR Proposal Paper, with a view to lodging a submission by the deadline of close of business 14 February. The FSC is being assisted in this by the FAR Working Group.
Treasury held a Sydney roundtable on FAR on 4 February, which was attended by the FSC and members.
At this stage, by necessity, the FAR proposal is cast in very general terms. The FSC anticipate that there will be much detailed work to be done over the coming months in understanding the impact of the proposals.
The FAR proposal made headlines last week with CEO Sally Loane telling the AFT, the FSC supported the principles of the proposal but expressed concern the government was bolting new laws on top of old laws and would ultimately create bureaucratic complexity and considerable compliance cost. Read more here: Super funds say new laws are overkill.
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Fees and Costs Disclosure: RG 97
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The FSC’s RG 97 Working Group met on 5 February to discuss the issues mentioned in Issue 25, that is:
- The precise meaning and practical impact of the transitional provisions;
- Disclosure of performance fees individually for interposed entities, rather than our preferred model of disclosing an aggregate figure (on the basis that the actual aggregate is what the consumer is interested in);
- Operation of the derivatives provisions;
- Other matters such as whether two builds are necessary to meet current and new requirements for periodic statements.
In addition, the cross-industry Industry Working Group reconvened on 6 February. The FSC is a member of this Group along with other industry bodies such as ASFA and AIST. This Group is working to issue a revised Industry Guidance Note on RG97.
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The AML Financial Crimes and Sanctions Working Group met recently. A major topic discussed was the ATO interpretation of the Common Reporting Standards in relation to identification of “Settlors” of Unregulated Trusts and whether the current identification form for these trusts requires revision.
Given that the latest raft of AML rule changes is due to be released shortly, the proposed review of the current forms will be deferred until the time at which the revised rules are available.
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The Privacy Working Group met recently and discussed the following topical matters:
- Latest developments in Consumer Data Rights (CDR)– noting that CDR programs have been launched by the big four banks; to be followed by the smaller banks as well as the energy and telecommunications industries;
- The Office of the Australian Information Commissioner (OAIC) continues to be actively engaged on global privacy issues;
- The following key items in the recent Government response to the final report of the ACCC Digital Platforms Inquiry (Inquiry):
- Additional funding of $26.9 million would be made available to establish a Digital Platforms Branch within the ACCC responsible for monitoring and enforcement;
- An inquiry into online advertising and ad-tech services;
- Proposed reforms to privacy laws recommended in the ACCC final report would be likely to receive bi-partisan support as they protect customer data and promote security of personal information.
- The OAIC publication following the Attorney-General’s release of the Privacy (Australian Bushfires Disaster) Emergency Declaration (No. 1) 2020 (Declaration). This declaration provides relief in relation to use and disclosure of personal information (PI) regarding individuals impacted by bushfires. the Declaration does not provide relief for PI security, so if a third-party PI request is received it would be still necessary to conduct the appropriate due diligence on identifying the third party making the request.
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Australian Financial Complaints Authority (AFCA)
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As mentioned to members previously in a number of contexts, AFCA is undertaking a Fairness Project and is seeking to engage with industry bodies such as the FSC in terms of presenting its work. The FSC has suggested to AFCA that it would be useful for there to be separate streams for proposed roundtables dealing with the different industry sectors.
The AFCA Working Group met recently and agreed to prepare submissions concerning the following topics:
- the Fairness Project;
- key determination of cases; and
- discrimination complaints.
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