Welcome to Issue 46 of the FSC Policy Update – a fortnightly member briefing on the main legislative and regulatory changes across the financial services industry.
Parliament resumes next Monday 30 November for the final two-week sitting of the year.
In addition to the political debate around the Retirement Income Review, which is covered in more detail below, Parliament will also have to consider:
- Recently introduced Royal Commission bills covering life insurance and superannuation; and
- The Royal Commission bills dealing with the deduction of advice fees that are scheduled to be introduced in this sitting.
The ‘Your Future, Your Super’ reforms will also continue to be a hot topic and are a continued focus on FSC engagement with the Government given their impact on fund managers, life insurers and superannuation funds.
Details on these topics, and more, can be found below.
Blake Briggs, FSC Deputy CEO
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Click on the topic of interest below to read more
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Design and Distribution Obligations (DDO) update
Hayne Royal Commission Legislation – recommendations relevant to life insurance
Productivity Commission inquiry final report on mental health
Deadline for compliance for FSC Standard 26 has been set at 1 July 2021
Announcement of upcoming enhancements to Unfair Contract Term Protections
ASIC consultation on reference checking and information sharing protocol
ASIC consultation on limited and personal advice now open
Your views on financial advice are needed
New online registration form for new entrant advisers undertaking their Professional Year (PY)
Global Investment Performance Standards (GIPS) Handbook for Firms and Asset Owners
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PARLIAMENT, LEGISLATION AND REGULATION
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Design and Distribution Obligations (DDO) update
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The FSC is continuing to consider a potential Request for Proposal (RFP) to send to potential vendors of a technology solution that will deliver messages between industry participants, as required by the DDO regime. The RFP proposal is being considered by FSC Board Committees.
A smaller group of fund managers will meet to finalise the fund manager guidance for the DDO Target Market Determinations (TMDs), including how financial advisers would implement the TMD.
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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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SUPERANNUATION
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The Government release the report of the independent retirement income review last Friday.
Whilst the Government did not release any policies off the back of the report, and the report made no recommendations, the early focus has been on:
- The report’s conclusion that the retirement income system is ‘effective, sound and its costs are broadly sustainable’, however it is complex and an objective for the system should be legislated;
- More efficient use of savings in retirement can have a bigger impact on improving retirement income than increasing the SG, such as the introduction of a retirement income covenant, and raising the SG to 12% will have a material impact on income over a working life;
- Expenditure on the Age Pension as a proportion of GDP is projected to fall over the next 40 years to around 2.3 per cent, and whilst higher superannuation balances reduce Age Pension costs, the cost of superannuation itself is growing; and
- Pointed analysis on the sustainability and equity of the tax concessions on earnings on assets in retirement phase.
The FSC’s media release following the review can be found here.
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The FSC is stepping up its engagement with the Government on the Your Future, Your Super reforms.
The Government has not yet released draft legislation for consultation, however at this stage we expect the focus will be on improving the design of the benchmarking methodology, how stapling will impact life insurance policies and determining how the benchmarking process is applied to life cycle products.
The FSC is closely consulting with members and will consult further once the draft legislation has been released.
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The FSC is finalising a submission to Treasury on technical amendments, including proposals relating to:
- The tax treatment of superannuation assets in pension phase where the assets were previously subject to a Successor Fund Transfer (SFT).
- A retrospective change to deny deductions for temporary incapacity (i.e. income protection insurance) benefits paid from a superannuation fund
- A change to permit superannuation funds to charge different investment fees to different cohorts of a lifecycle MySuper product – requesting the change be extended to permit the charging of different buy-sell spreads to different cohorts.
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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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LIFE INSURANCE
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Hayne Royal Commission Legislation – recommendations relevant to life insurance
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The Financial Sector Reform (Hayne Royal Commission Response) Bill 2020 (Bill) was introduced into Parliament on 12 November. The Bill covers a significant number of recommendations of the Financial Services Royal Commission, of which the following recommendations are particularly relevant for life insurers:
- Rec 1.15 - Enforceable code provisions
- Rec 4.1 - No hawking of insurance
- Rec 4.3 - Deferred sales model for add-on insurance
- Rec 4.5 - Duty to take reasonable care not to make a misrepresentation
- Rec 4.6 - Avoidance of life insurance contracts
- Rec 4. 8 - Removal of claims handling exemption
The FSC is not expecting there to be much, if any, movement in the final legislation. The relevant FSC working groups will be working through the details of the final legislation, including assessing the relevant areas of change from the draft legislation and draft explanatory memorandum.
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Productivity Commission inquiry final report on mental health
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The Government has released the Productivity Commission’s final report on its Inquiry into Mental Health. The report discusses some key influences on people’s mental health, examines the effect of mental health on people’s ability to participate and prosper in the community and workplace, and implications more generally for our economy and productivity.
The final report recommends a number of actions relevant to the life insurance industry including:
- The Australian Government should permit life insurers to fund mental health treatments for their income protections and total and permanent disability insureds on a discretionary basis
- Update FSC Standard 21 covering mental health education program and training for employees working in the industry
- Ensuring that the Life Insurance Industry Code of Practice is operative effectively as it relates to the provision of services to people with mental illness
- Ensuring that protocols for insurer access (through FSC Standard 26) to clinical records have resulted in more targeted requests for clinical information, and whether they give sufficient protections to people with histories that include seeking psychological treatment or counselling
The FSC has issued a media release and video supporting the final Report, particularly the recommendation to allow life insurers to fund mental health treatments.
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Deadline for compliance for FSC Standard 26 has been set at 1 July 2021
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The purpose of this Standard is to ensure that, when obtaining information from health practitioners about customers, FSC members use a standardised consent wording, developed in agreement with the Royal Australian College of General Practitioners (RACGP), as well as a process to inform customers as to when this consent will be used.
The implementation of FSC standard 26 was previously placed on-hold given the events of COVID-19 and the resulting impact reported by GPs. Given recent events, the Standards, Oversights and Disciplinary Committee (SODC) has agreed to resume implementation of FSC Standard 26 to commence on 1 July 2021.
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Announcement of upcoming enhancements to Unfair Contract Term Protections
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The Government has recently agreed to strengthen the existing unfair contract term protections in the Australian Consumer Law. Key reforms include:
- making unfair contract terms unlawful and giving courts the power to impose a civil penalty
- increasing eligibility for the protections by expanding the definition of small business and removing the requirement for a contract to be below a certain threshold
- improving clarity on when the protections apply, including on what is a ‘standard form contract’.
This follows Treasury’s public consultation paper released earlier this year and signals the release of exposure draft legislation to occur soon. The link to the Government announcement is available here.
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Miscellaneous amendments to Treasury portfolio laws 2020
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The FSC has lodged a submission on the exposure draft legislation Miscellaneous amendments to Treasury portfolio laws 2020 focused specifically on the changes proposed for the Life Insurance Act. The three recommendations made by the FSC were:
- Repeal requirement for the memorandum of transfer to be “endorsed” on the policy document (Section 200(2)(b))
- A slightly higher threshold (of say $200,000) to the payment limits without probate or administration (Section 211(1)(b) and Section 212(1)(b))
- A slightly higher threshold (of say $100,000) to the sum insured limit for the transfer of policy ownership without probate or administration, if the original policy owner has died. (Section 213)
A copy of the FSC submission is available here.
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Please contact Aidan Nguyen for more information.
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ADVICE
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ASIC consultation on reference checking and information sharing protocol
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ASIC last week released the draft ASIC Protocol and the accompanying information sheet for public consultation through Consultation Paper 333 Implementing the Royal Commission recommendations: Reference checking and information sharing (CP 333). Read more via ASIC’s media release here.
The consultation will end on 29 January 2021. The FSC’s submission will be developed with input from the Advice Licensing and Compliance Working Group.
If you would like to discuss any aspects of the draft ASIC Protocol during the consultation period, please let us know.
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ASIC consultation on limited and personal advice now open
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ASIC has released Consultation Paper 332: Promoting access to affordable advice for consumers. Read more via ASIC’s media release here.
This is part of ASIC’s project on unmet advice need and the focus of its consultation includes:
- the provision of scaled or “limited advice”
- terminology of scaled advice
- Regulatory Guide 244 Giving information, general advice and scaled advice and Regulatory Guide 90 Example Statement of Advice: Scaled advice for a new client and how these instruments can be updated and better communicated
- Personal advice
- Digital advice
The Industry Design Working Group will provide input into the FSC’s submission to this consultation. Submissions close on 18 January 2021.
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ASIC advised the FSC that it will shortly be publishing a minor and technical update to RG 246 Conflicted and other banned remuneration in the next few weeks to reflect recent changes in the law:
- extending the ban on conflicted remuneration to stamping fees paid in relation to listed invested companies and listed investment trusts that took effect on 1 July 2020; and
- ending the grandfathering of arrangements for conflicted and other banned remuneration in relation to financial product advice from 1 January 2021, subsequent to recommendation 2.4 of the Financial Services Royal Commission. The updated RG 246 will also clarify that the ban on conflicted and other banned remuneration still applies where the legal obligation to give grandfathered benefits accrued before 1 January 2021 if the benefits are given or accepted on or after this date, consistent with what we have said in our COVID-19 FAQs (see question 14).
ASIC indicated that in RG 246 it will clarify that:
- there is nothing in the law which prescribes the time period for repayment of life insurance commissions under claw-back, consistent what we have said in our COVID-19 FAQs (see question 13); and
- ASIC’s no-action position in relation to intra-fund advice applies unless a trustee of a registrable superannuation entity breaches the law other than the conflicted remuneration provisions.
ASIC advised it did not consult externally in relation to the amendments to RG 246 given the minor and technical nature of the update.
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Your views on financial advice are needed
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The FSC is leading a new policy debate on financial advice and internally consulting members on the development of its Green Paper of policy asks it will release next year. This will be informed by Rice Warner’s Future of Advice report released last month (available here). The FSC welcomes any feedback members have on the report and proposals for changing financial advice regulation before 30 November.
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New online registration form for new entrant advisers undertaking their Professional Year (PY)
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FASEA has released an online registration form for new entrants doing their PY. A new entrant may commence their PY while they are in the final stages of their degree, however the degree must be completed before registering for the Exam and commencing Quarter 3 of the PY.
From 16 November 2020 FASEA has indicated it will only be accepting new registrations online. Existing manual applications will continue to be processed.
The new entrant online registration form is available on the Professional Year and Exam pages on the FASEA website.
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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 is finalising a submission to Treasury on technical changes (including tax changes) relating to superannuation funds, see the superannuation section above.
- The FSC Tax Experts met with the tax committee of the Australian Custodial Services Association (ACSA) to discuss issues including a draft FSC submission to the ATO about problems FSC members have with making Swiss tax treaty claims; a draft ACSA submission to the ATO about how to treat foreign capital gains and Foreign Income Tax Offsets; ATO information requests; and ATO proposed guidance about reliance on third party data.
- The ATO is requesting feedback from superannuation funds on how the organisation can improve its services to superannuation funds. The survey was provided to the FSC Tax Expert Group.
- The FSC joined with a global coalition of other fund management associations to support proposed tax changes in the United Kingdom to provide a de minimis exemption for capital gains for non-UK collective investments that hold small interests in UK property.
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GST update
- A meeting of the FSC GST expert group is being held on Tuesday 24 November. The meeting will cover GST issues relating to remediation, the fee cap under Protecting Your Super (PYS), the ending of grandfathered remuneration, and RG 97.
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State taxes updates
- The New South Wales Government released the 2020-21 Budget which announced consultation on a proposal to allow purchasers of certain properties the option of paying a new additional property tax instead of stamp duty on the purchase. The FSC Tax Experts Group will consider the proposal and the FSC’s response.
- The NSW Government also released the final Report of the NSW Review of Federal Financial Relations which, in addition to the reform to property stamp duty, also recommended the abolition of stamp duties on all insurance.
- The FSC has received responses from several State Governments indicating, in response to FSC requests, that they are willing to allow special arrangements for stamp duty relating to the waivers that life insurers are providing to customers relating to COVID-19. The FSC has followed up with several states on their approach.
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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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Global Investment Performance Standards (GIPS) Handbook for Firms and Asset Owners
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Following the release of the GIPS 2020 edition, the CFA Institute has released consolidated guidance for firms and asset owners. Click on the link here for the GIPS Standards Handbook for Firms and GIPS Standards Handbook for Asset Owners.
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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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