Welcome to Issue 28 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 Life Code 2.0, the ASIC investigation related to the end of grandfathered commissions and draft legislation on improving flexibility for older Australians.
The FSC team recently lodged with Treasury a number of submissions in response to the Royal Commission related Exposure Draft Bills released on 31 January 2020. A summary of each submission and a link to the relevant submission and media release can be found further below.
To share any relevant feedback with the FSC about this issue, please email the team.
Sally Loane, FSC CEO
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Click on the topic of interest below to read more
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Design and Distribution Obligations (DDO)
Draft legislation – Improving flexibility for older Australians
Enhancements to Unfair Contract Term Protections
Increased transparency of general and life insurance APRA data
Add on insurance – ASIC consultation on exemptions
ASIC Report 633: Holes in the safety net: a review of TPD insurance claims
CPE requirements for tax practitioners
Reminder – Expressions of Interest sought to join the Performance Analytics Expert Group
ASIC update on the investigation related to the end of grandfathered commissions
Australian Financial Complaints Authority (AFCA): Fairness Project
Australian Financial Services Licence (AFSL) Framework: Changes
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PARLIAMENT, LEGISLATION AND REGULATION
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The FSC team recently lodged with Treasury a number of submissions in response to the Royal Commission related Exposure Draft Bills released on 31 January 2020. A summary of each submission and a link to the relevant submission are listed below.
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LEGISLATION |
SUBMISSION |
MEDIA RELEASE |
FSC CONTACT |
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Recommendation 1.15 - Enforceability of financial services industry codes. FSC CEO Sally Loane said the FSC believes industry codes are sound consumer protections and can help set positive industry behaviours. |
Nick Kirwan/ Jamie Kennedy |
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Recommendations 2.1 and 2.2 - Ongoing fee arrangement and disclosure of lack of independence. The FSC has offered solutions to ensure the legislation is practical and effective. This aligns with the FSC’s broader vision of affordable and accessible financial advice. |
Zach Castles |
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Recommendations 1.6, 2.7, 2.8, 2.9 and 7.2 Strengthening breach reporting.
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Zach Castles/ Paul Callaghan |
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Recommendation 3.1, 3.8, 6.3, 6.4 and 6.5 - Registrable superannuation entity licence condition - no other duty and ASIC regulation of superannuation. FSC CEO Sally Loane said while the FSC supports the intent of both pieces of legislation, the organisation has identified several concerns where short timeframes and lack of clarity in drafting may make it difficult for superannuation funds to comply while acting in the best interests of their members. |
Jane Macnamara/ Paul Callaghan |
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Recommendations 3.2 and 3.3 - Advice fees in superannuation. FSC CEO Sally Loane said while the intent is to protect consumers, in practice implementing this recommendation will create a two-speed system that charges only some members out-of-pocket fees and will distort consumer behaviours. |
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Zach Castles/ Jane Macnamara |
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Recommendation 3.4, 4.1 and 4.3 - Hawking of financial products and deferred sales model for add-on insurance. The FSC and its members have always said there is no place for pressure selling and we continue to stand by that. However, we have serious concerns that the draft legislation goes beyond the objective of the Royal Commission recommendations and restricts conversations with consumers. |
Jane Macnamara/Nick Kirwan/Aidan Nguyen/ Jamie Kennedy Assisted by Paul Callaghan |
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Recommendation 4.5 and 4.6 - Duty to take reasonable care not to make a misrepresentation and limiting avoidance of life insurance contracts. CEO Sally Loane said the FSC supports the recommendations and believes that the changes will result in better overall consumer protections. However, the FSC has used the opportunity to submit a few minor changes to strengthen the proposed regime and avoid any unintended consequences. |
Nick Kirwan/ Jamie Kennedy |
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Recommendation 6.14 - New oversight authority - Stronger Regulators (2020 Measures) Bill. FSC CEO Sally Loane said the FSC supports Commissioner Hayne’s recommendation to establish a new oversight authority for APRA and ASIC, however highlighted a few areas that could be improved to more clearly reflect the underlying principles of the Recommendation. The FSC also has suggested that the new authority oversee AFCA and FASEA, given the important work these bodies do in the financial services sector. |
Paul Callaghan |
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FSC responds to Recommendation 7.2 - ASIC Directions Power. FSC CEO Sally Loane said the FSC supports Commissioner Hayne’s recommendation, however highlighted a few recommendations to ensure full transparency. |
Zach Castles/ Paul Callaghan |
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Parliament will sit in the week commencing 23 March. This will be the last sitting week before the Federal Budget is handed down on Tuesday 12 May.
Legislation currently before Parliament:
- Treasury Laws Amendment (2020 Measures No 1) Bill, currently before the House of Representatives. This legislation will provide permanent CGT relief for merging superannuation funds and expand the definition of Significant Global Entity (SGE) to include investment entities The FSC has strongly supported the CGT change but expressed concerns about the SGE change – see tax section below.
- Treasury Laws Amendment (2019 Measures No 3) Bill, currently before the Senate. This Bill contains changes to the tax treatment of the rollover of death benefits. The FSC has discussed with Treasury and the ATO our concerns this legislation does not meet the policy intent – see tax section below.
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Design and Distribution Obligations (DDO)
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The FSC is developing a submission to ASIC on the draft DDO regulatory guide. A revised draft is being circulated to the relevant working groups and board committees.
On 2 March, the FSC hosted a roundtable for issuers and distributors where over 50 members participated. Key takeaways from this meeting were:
- Minimising duplication
- Members noted a desire to create a de facto industry standard for TMDs and definitions to reduce the administrative burden.
- The importance for TMDs and information flowing between issuers and distributers to be machine readable.
- The urgent requirement for an IT solution. Some of our members have offered to assist with running test pilots to aid this process.
- TMDs
- Members discussed the need for distributors to test the TMDs and provide feedback to issuers as to what does and does not work efficiently from their perspective so that the TMDs can be improved to address this feedback. The FSC will be testing the fund manager TMD with distributors on 9 March.
The FSC met with ASIC to discuss concerns about its DDO draft RG and to seek clarification on issues impacting across multiple member sectors. In attendance were representatives from fund managers, superannuation funds and life insurers.
On 5 and 6 March ASIC hosted DDO industry roundtables split into 3 categories – wealth and investments; general and life insurance; and superannuation. The FSC participated in these roundtables and secured multiple positions for its members to also attend. It was useful to have a second follow up with ASIC after our recent meeting, providing members a chance to pursue further issues with the regulator.
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SUPERANNUATION
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Draft legislation – Improving flexibility for older Australians
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On 5 March, Treasury released exposure draft legislation and regulations intended to implement changes announced in the 2019-20 Federal Budget.
The changes include:
- Increasing the age at which the work test starts to apply for voluntary concessional and non-concessional superannuation contributions from 65 to 67;
- Increasing the cut-off age for spouse contributions from 69 to 74; and
- Allowing individuals aged 65 and 66 to make up to three years of non-concessional superannuation contributions under the bring-forward rule.
Consultation closes on 3 April. The FSC’s Superannuation Technical Working Group and Retirement Policy Working Group will consider the changes.
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Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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LIFE INSURANCE
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Enhancements to Unfair Contract Term Protections
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Consultations are currently open for a review of these new protections for small business contracts (UCT Review). Treasury is also seeking views on whether any enhanced UCT protections for small business contracts should also be extended to consumer and insurance contracts. The FSC is attending a Round Table meeting at Treasury on 11 March to discuss the extension of Unfair Contract Terms to small business. Feedback following the Round Table will be relayed to the Life Regulatory Affairs Working Group. The deadline for submissions is 16 March
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Increased transparency of general and life insurance APRA data
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Consultations are currently open for APRA’s proposal to determine class of business and product group data to be non-confidential. APRA also proposes to begin publishing explanations from individual GIs/LIs in relation to material revisions to, or large movements in, their data, including whether or not APRA requested the revision. The FSC is considering whether to make a short submission to APRA’s proposal and welcomes any feedback from its members.
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Add on insurance – ASIC consultation on exemptions
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ASIC has commenced discussions with insurers in the interests in developing an efficient and streamlined exemption process from the deferred sales model. ASIC will be running a teleconference with ICA and FSC members on 11 March. The purpose of this meeting would be for ASIC to outline its initial views on the exemptions process and get an early indication of products/sales channels where members are contemplating exemptions. All members with a material interest are encouraged to contact the FSC to receive further details on the teleconference.
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ASIC Report 633: Holes in the safety net: a review of TPD insurance claims
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ASIC has issued a letter to the FSC which clarifies further on ASIC’s expectations post the publication of ASIC REP 633. Members who wish to receive a copy of this letter are encouraged to contact the FSC.
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Please contact Aidan Nguyen or This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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Having now seen the draft of the legislation relating to enforceable industry codes and finalising the FSC response, work has resumed on considering the responses to the consultation on Life Code 2.0. A number of sub-working groups have been formed to take this work forward and this work will continue over the next few months. This work will culminate in the release of a public response document outlining the industry’s response to the matters raised during the public consultation.
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Please contact Jamie Kennedy or This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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FSC LIFE INSURANCE SUMMIT - TUESDAY 5 MAY: The Early Bird ticket period ends tomorrow (Tuesday 10 March). Don't miss out! REGISTER HERE. See the PROGRAM HERE.
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ADVICE
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CPE requirements for tax practitioners
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The Tax Practitioner’s Board is consulting on continuing professional education (CPE) requirements for tax practitioners. The outcomes of this will impact financial advice, and the FSC will be developing a submission through the Adviser Competency Working Group. The consultation includes proposals that will increase the annual CPE requirement.
You can read the consultation’s discussion document 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 Tax Expert Group (TEG) discussed the Treasury Laws Amendment (2020 Measures No 1) Bill, which will provide permanent CGT relief for merging superannuation funds and expand the definition of Significant Global Entity (SGE) to include investment entities. The FSC has strongly supported the CGT change but expressed concerns about the SGE change. At this stage, the FSC is not planning on raising concerns with the legislation as the worst aspects of the SGE change can be dealt with by administrative processes (which are however cumbersome and arguably unnecessary).
- The FSC circulated to members a view from the ATO and Treasury on legislation that purports to remove the tax on death benefit rollovers (Treasury Laws Amendment (2019 Measures No 3) Bill, currently before the Senate). The FSC also organised a discussion with the ATO and Treasury to discuss this view.
- Treasury and ATO consider the legislation removes the tax on the rollover of death benefits, and the ATO will consider providing this view in public guidance. The FSC will provide further information to the ATO about the remaining administrative complexities of the legislation and the FSC’s suggestions about how the ATO could administer the law in a simplified way.
- The FSC made a submission on the Royal Commission recommendation 3.1 that RSEs have a licence condition that they exercise no other duties. The submission argued that the mandatory separation of RSEs may have tax issues as a result of potential resettlements, and the Government should ensure that the changes are tax neutral (including for this purpose, stamp duties).
- The ATO is hosting a meeting to discuss the tax issues relating to replacing LIBOR with the FSC, ABA and AFMA. Interested FSC members have volunteered to participate in the meeting.
- The ATO has agreed to meet with the FSC about the potentially widespread impacts of the recent Burton v Commissioner decision, which denied the ability of a taxpayer to claim Foreign Income Tax Offsets.
- The ATO has publicly stated the decision should have retrospective impact which is particularly problematic.
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- The GST Expert Group met and considered:
- The GST issues with the Protecting Your Super fee cap. It was agreed that the draft paper on this issue would be revised and sent to the ATO for consideration.
- An ATO consultation paper on the tax issues relating to remediation. It was agreed that a draft initial response to the paper would be circulated for member comment
- The GST issues relating to rebates of conflicted remuneration. No action on this issue is needed at the moment, but the group would continue to discuss this issue.
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- The insurance duty expert group met and discussed potential NSW Practice Guidance Notes for insurance duty, including prioritisation and drafting; changes to the SA Duties Act; audit issues; the NSW report into Federal-State relations; and issues with insurance duty relating to remediation.
- The SA Government has requested a meeting with FSC members to discuss the outcomes of its consultation on the SA Stamp Duty Rewrite Project.
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INVESTMENTS
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Reminder – Expressions of Interest sought to join the Performance Analytics Expert Group
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The Performance Analytics Expert Group (PEG) is a small group consisting of performance analytics experts which meets approximately 6 times a year to discuss investment performance analytics related matters, GIPS and contributes to the review and evolution of relevant FSC Standards.
The PEG is seeking expressions of interest from individuals interested in joining the PEG. This would suit those:
- Who have day to day involvement in performance measurement and analysis; e.g. this could be an investment performance analyst, a custodian or a GIPS verifier; and
- Who would like to contribute to the evolution of relevant FSC standards and GIPS.
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If you are interested in joining the PEG please confirm your expression of interest by coming back to This email address is being protected from spambots. You need JavaScript enabled to view it. by COB Friday 13 March.
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ASIC update on the investigation related to the End of Grandfathered Commissions
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ASIC has provided an update on the quantitative and qualitative review it is undertaken in relation to the Treasurer's direction that ASIC investigate the extent to which;
- Grandfathering is being voluntarily ended before 1 January 2021; and
- Benefits are being passed onto to affected clients.
Under the quantitative review:
“ASIC is surveying entities known to pay grandfathered conflicted remuneration to AFS licensees or their representatives and requiring them under notice to provide data initially for a 12-month period (from 1 July 2018 to 30 June 2019), and thereafter on a quarterly basis for the review period (for example, reporting for the period from 1 July to 30 September 2019 will be in October 2019).”
The qualitative review:
“will include a smaller sample of entities that pay and receive grandfathered remuneration and will involve more detailed engagement and analysis during the review period. ASIC will analyse the information from both reviews and report to the Treasurer by 30 June 2021.
The report will also be released publicly.
ASIC expects to provide an update on its investigation to the Treasurer and industry as appropriate during the review period.”
For more information see page 18 of ASIC update: September 2019 to February 2020 which is available here.
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LEGAL
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Australian Financial Complaints Authority (AFCA): Fairness Project
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AFCA has been holding round tables in relation to its Fairness project in the following streams:
- Superannuation
- General and life insurance
- Advice and investments
By fairness, AFCA means both substantive fairness between the parties and procedural fairness. For this purpose, AFCA is developing a Fairness Framework and a Fairness Tool. AFCA also is developing an AFCA Engagement Charter.
A Consultation Paper will be released 10 March. There will be a four week consultation period.
Further information may be found here.
The FSC has attended the roundtables and will be making a submission on the Consultation Paper.
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Australian Financial Services Licence (AFSL) Framework: Changes
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There has been a fundamental alteration in the AFSL framework. This follows from the Financial Sector Reform (Hayne Royal Commission Response — Stronger Regulators (2019 Measures) Act 2020 (Cth.) being passed by the Parliament and receiving Royal Assent. The Act made the following changes:
- Applicants for the grant or variation of an AFSL must satisfy the Australian Securities and Investments Commission (ASIC) that they meet a higher threshold set by a ‘fit and proper person test’ (compared with the former ‘good fame and character’ test);
- This new test applies beyond the AFSL applicant and extends to “controllers” of the applicant and their officers, partners or trustees, as applicable;
- ASIC now has several AFSL-related powers including;
- a) power to direct an AFSL holder to provide a statement for the purposes of considering whether the fit and proper person test is satisfied in relation to the AFSL holder and the AFSL;
- b) power to make a banning order or apply to the Court for a disqualification order against a person who is not a ‘fit and proper’ person; and
- c) power to cancel an AFSL if the holder does not provide a financial service before the end of 6 months after the grant of the AFSL.
There are some important points to note here:
(i) When applying the fit and proper person test, additional to the matters ASIC has had regard to when applying the ‘good fame and character’ test, ASIC now also must have regard to additional matters when considering whether there is a reason to believe that a person is not ‘fit and proper'. These additional matters include matters such as
(a) prior disqualifications and bans;
(b) whether the person has ever been linked to a refusal or failure to give effect to a determination by AFCA;
(c) and whether in the last 10 years, the person has been convicted of an offence (CF: formerly an offence that involves dishonesty and is punishable by imprisonment for at least 3 months);
(ii) The controller requirements mean that apart from other checks such as police and bankruptcy checks, a 17-question “Statement of Personal Information” is required to be completed. Formerly, this type of statement was required only to be completed by “responsible managers” nominated by an applicant. This adds to the complexity, cost and time involved in making application to ASIC, particularly for larger entities or global groups;
(iii) In relation to item c) above, the transitional provisions have the effect that this change was effective on 18 February including in relation to AFSLs granted before that date.
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Australian Financial Services Licence (AFSL) holders: Net Tangible Assets (NTA), Australian Accounting Standards Board (AASB) and ASIC
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Many AFSL holders need to apply AASB 16: Leases in preparation of their accounts in accordance with Australian Accounting Standards. AFSL holders also need to satisfy the Australian Securities and Investments Commission (ASIC) that solvency requirements are met. This includes calculating NTA. These are referred to in the Corporations Regulations as adjusted assets less adjusted liabilities.
Adjusted assets are the total assets according to normal accounting standards, less certain excluded assets including intangible assets. We understand that ASIC views right-of-use assets recognised under the lease standard as intangible assets for regulatory purposes. This means that the net tangible assets would include lease liabilities but that a lease right-of-use asset – an intangible asset – would be excluded. Hence, the outcome seems to be that AFSL holders must include the lease liability in the calculation but cannot include the corresponding intangible asset in the NTA calculations.
In a practical sense, this is a book entry and there is no change to actual cash flows. There seems to be no good policy reason for the adoption of AASB 16 having this effect.
ASIC is aware of the issue and in recent discussions with the FSC indicated that it is considering a change the NTA requirements following a consultation period (to continue the position prior to the AASB change). It is anticipated that this will occur within the next two months.
ASIC also is considering whether some form of relief might be provided in the interim period.
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