Welcome to Issue 23 of the FSC Update – a fortnightly member briefing on the main legislative and regulatory changes right across the financial services industry. In this issue, the FSC team analyses APRA's Superannuation Heatmap, Tax Practitioner’s Board activities and Enforceable Code Provisions.
To share any relevant feedback with the FSC about this issue, please This email address is being protected from spambots. You need JavaScript enabled to view it. the team.
Sally Loane, FSC CEO
Click on the topic of interest below to read more
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ASIC and the Dutch Authority for Financial Markets (AFM) Report
Design and Distribution Obligations (DDO)
FASEA’s Guidance on the Code of Ethics
APRA Heatmap methodology released
Putting Members Interests First (PMIF) FAQ
RG 270: ASIC releases guidance on whistleblower policies
Advisor Compliance Scheme: ASIC Relief
ASIC Deputy Chair speech at FINSIA: The Regulators
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REGULATION UPDATE
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ASIC and the Dutch Authority for Financial Markets (AFM) Report
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ASIC and the Dutch Authority for Financial Markets (AFM) have jointly co-published a report, Disclosure: Why it shouldn’t be the default.
A ‘must read’ for all financial firms, the report shares important implications including the need for firms, governments and regulators to move away from over-reliance on disclosure, and for firms to share responsibility for good consumer outcomes. These shifts are considered to be in the best interests of consumers, and also the long term interests of consumer-centric firms looking to manage non-financial risk and prepare for their design and distribution obligations.
Read the report here.
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Design and Distribution Obligations (DDO)
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- Treasury has confirmed that it is working towards the DDO regulations being made this year; and ASIC has confirmed that it is working towards the release of a draft DDO regulatory guide this year.
- The DDO life insurance subgroup met to consider the DDO approach taken by general insurers, the comments on the life insurance template Target Market Determination (TMD) from the platforms/super subgroup, and whether to share industry template TMDs with ASIC.
- An upcoming meeting of the life insurance subgroup will consider whether template TMDs are required for insurance bonds and annuities (and whether this issue should be referred to other DDO subgroups).
- The DDO fund managers subgroup met and agreed to request their businesses to consider the TMD template further and provide comments by the next meeting.
- A meeting of the DDO information requirements subgroup has been scheduled for Friday 6 December. The meeting will consider a draft paper on the information flow requirements, the comments/questions from the platforms/super group that relate to information requirements, the work agenda for the group, and the timetable for meetings.
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Policy Briefing: Global regulatory trends with Jonathan Herbst, Norton Rose Fulbright's Global Head of Financial Services
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Join the FSC for an exclusive member only session where he will discuss emerging global regulatory themes for financial services.
The presentation will cover issues including:
- The global equivalents of the Australian DDO, PIP and BEAR regimes and financial compensation schemes.
- Changes in regulation of advice, commissions and other conflicted remuneration, the Consumer Data Right, and dealing with the wholesale/retail distinction.
- Regulatory trends for managed funds, particularly ETFs.
These themes occurring in Australia have their roots in other jurisdictions and the Australian regulators are looking to other regulators to learn about their regimes, and how they tackled the issues.
The presentation will look at how these changes have been addressed in the United Kingdom, Europe, Asia-Pacific and the United States and reflect on any challenges they created and any opportunities they may present
The seminar also will include partners from the global NRF financial services practice including Hong Kong, Singapore and Australia
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EVENT DETAILS - SYDNEY
- Thursday 28 November
- 4:00pm - 5:30pm
- Financial Services Council, King Room - Level 24, 44 Market St Sydney
- Cost: Free
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EVENT DETAILS - MELBOURNE
- Friday 29 November
- 10:00am - 11:30am
- Norton Rose Fulbright, Level 15, RACV Tower, 485 Bourke St, Melbourne
- Cost: Free
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ADVICE
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FASEA’s Guidance on the Code of Ethics
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The FSC, with adviser associations, are urgently engaging government to register our major concerns with FASEA’s Guidance on the Code of Ethics. The FSC has provided feedback to the regulator raising these issues so that industry can adequately prepare business structures and compliance systems. The Code of Ethics will apply from 1 January 2020.
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The FSC represented at the Tax Practitioner Board Combined Consultative Forum and recently submitted to the Review of the Tax Practitioner’s board. The report of that review has been presented to government.
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The FSC is pleased to announce that Stephen Glenfield, CEO, FASEA, has joined the line-up of speakers on the webinar. Stephen and Dante De Gori, CEO, FPA, will be sharing their insights in an 'Industry Overview' session.
We invite you to join them, and our other industry leading speakers for in-depth discussions that will explore both the critical issues and vast opportunities currently on the horizon for the Australian market:
Marcus O'Sullivan | Head | Affinia
Phil Kewin | Chief Executive Officer | Association of Financial Advisers
Nerida Cole | Managing Director – Head of Advice | Dixon Advisory
Jason Andriessen | Managing Director | CoreData
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EVENT DETAILS
- Wednesday 4 December
- 12:30pm - 2:30pm
- Online
- Cost: Member Rate: $150.00pp.
See the program here.
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SUPERANNUATION
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APRA Heatmap methodology released
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APRA has released an information paper detailing their methodology for the soon to be released heatmaps for MySuper products. The heatmaps will indicate which MySuper products are performing below average in relation to fees, net returns, and sustainability. The net return heatmap will present both the standard (unadjusted) net returns and returns compared against two different product-specific benchmarks.
The APRA press release and the information paper are available here.
The FSC issued a media release urging caution on over-simplification of analysis of the heatmapping results, and expressing disappointment that APRA did not consult on the heatmapping methodology.
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Putting Members Interests First (PMIF) FAQ
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APRA has written to RSE licensees regarding implementation of the PMIF changes, which require insurance to be provided on an opt-out basis for members with an account balance below $6,000, and new members under the age of 25.
APRA has also released an FAQ in relation to PMIF issues and additional templates to assist funds in complying with the hazardous occupations exemption.
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LIFE INSURANCE
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The FSC met with Treasury to discuss Enforceable Code Provisions. The FSC now expects the Exposure Draft Legislation in Q1 2020 which will take effect by 30 June 2020. Engagement continues.
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TAX
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- The FSC made a submission to the ATO raising concerns with a draft Tax Determination on issues relating to gross and net foreign capital gains. The final submission has been circulated to interested members.
- The Treasury has released a draft ‘guidance note’ explaining the application processes to the Treasurer for concessional MIT taxation relating to economic infrastructure. The concession allows the Treasurer to approve applications for a 15 year concessional withholding tax rate for economic infrastructure projects in certain circumstances. The FSC will consider making a submission on the draft.
- Interested members have been provided with briefing documents relating to tax changes for foreign investors into India, and will consider whether a special briefing is needed on the changes.
- The FSC will request a meeting with the ATO to discuss current issues including the Justified Trust reviews and the tax treatment of rebates under Protecting Your Super (PYS).
- The ATO has advised that it is preparing new guidance on the payment of remediation. This is in addition to the guidance it has already released on the receipt of remediation by individuals and the receipt of remediation by super funds.
- The ATO has indicated it will keep the FSC informed about this new guidance.
- The FSC has informed the ATO that their guidance on the receipt of remediation does not cover important scenarios for FSC members (such as where a super account or a super fund no longer exists). The ATO has indicated that further guidance on these additional scenarios is not planned at this stage.
- The FSC has been discussing OECD proposals on tax issues relating to the ‘digitalising economy’. Pillar 1 involves major changes to the allocation of taxing rights between countries, and the OECD has floated a partial financial services exemption from this pillar and an exemption for businesses that are not ‘consumer facing’. Pillar 2 involves a global minimum tax rate, and would not have any exemptions except for a turnover threshold that would ensure it captures large businesses only (eg >$1bn turnover).
- FSC has been involved in Treasury meetings on this issue.
- A summary of the issues from a funds management perspective has been provided to interested members.
- The FSC will monitor developments in this area and will collaborate with global responses by fund managers and life insurers if needed.
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- A meeting of the GST Expert Group considered the GST treatment of remediation, rebates of conflicted remuneration, and rebates of excess superannuation fees under Protecting Your Super (PYS).
- It was agreed that the FSC would write to the ATO seeking guidance on the GST and income tax treatment of rebates of excess fees under PYS (a meeting will also be sought with the ATO on this issue, see above).
- The meeting also discussed the ATO’s justified trust program, the ATO’s examination of differences between accounting and GST results, and how existing approaches do not work for input taxed businesses such as financial services.
- The FSC hosted a meeting with Revenue NSW to discuss the payroll tax treatment of financial advisers. As follow up from the meeting, the FSC proposed to draft a document containing the specific situations/transactions that raise concerns, including the industry’s recommended approach to these issues.
- The FSC is coordinating the drafting of submissions to the NSW Government and to the NSW Productivity Commission recommending:
- The removal of payroll tax on payments from advice licensees to authorised representatives
- The Federal Government’s Board of Tax to broaden its remit to cover State taxes.
- The NSW Government to consider handing over the administration and collection of payroll taxes to the ATO.
- Insurance stamp duties be removed.
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LEGAL
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RG 270: ASIC releases guidance on whistleblower policies
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On 15 November, ASIC released RG 270 Whistleblower policies. The release follows the enactment of the Treasury Laws Amendment (Enhancing Whistleblower Protections) Act 2019 and ASIC consultation. Please see here.
The legislation requires public companies, large proprietary companies, and proprietary companies that are trustees of RSEs to have a whistleblower policy in place and available to their officers and employees by 1 January 2020. This is subject to relief provided by ASIC to public companies that are not-for-profits or charities with annual revenue of less than $1 million.
Some relevant points to note in the RG-
- Although an entity's whistleblower policy may refer to or include a link to other documents outlining more detailed processes and procedures, the policy itself must cover all the prescribed information under the Corporations Act;
- ASIC has provided some further guidance on the following -
(I) 'improper state of affairs or circumstances' (RG 270.52);
(II) types of wrongdoing that can be specified in a policy (RG 270.55)
(iii) ways to protect confidentiality (RG 270.108)
(iv) prevention of victimisation (RG 270.109)
(v) good practice risk assessment framework (RG 270.110).
(vi) the role of the Board and senior management in relation to a company's whistleblowing program (RG 270.14, 270.141).
ASIC also indicated that it will be conducting surveillance activities to ensure compliance with the obligations under the legislation and the RG and will pursue non-compliance in accordance with its enforcement approach and operational priorities.
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Advisor Compliance Scheme: ASIC Relief
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ASIC has granted a three-year exemption, until 21 October 2022, to all Australian financial services licensees from the obligation under s 921H of the Corporations Act 2001 (Cth) to ensure that their financial advisors are registered with an ASIC-approved compliance scheme. See here.
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ASIC Deputy Chair speech at FINSIA: The Regulators
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On 15 November, the ASIC Deputy Chair, Ms Karen Chester gave an address at The Regulators 2019. See here.
In the address, Ms Chester noted that s912A is now front and centre on ASIC’s ‘why not litigate’ radar, as distinct to the enforceable undertaking territory of the past. Section 912A requires that financial services licensees act efficiently, honestly and fairly. There now are significant civil penalties for breach of this provision. The published address goes on to state:
And why? Before 13 March 2019 a breach of this provision would attract a penalty of zero. Today it attracts maximum civil penalties of up to $1.05 million for an individual, or up to $525 million for a corporation.
ASIC proposes to publish its work on what we think fairness in the provision of financial services and products should look like … and not look like.
Ms Chester also highlighted that ASIC will continue to use public hearings. Ms Chester also referred to the limitations of disclosure:
... it’s time to call time on disclosure as the default ‘go to’ for consumer protection. Perhaps one of the fundamental shifts in regulatory policy, is the move to a world beyond disclosure. The evidence now unavoidably reveals that disclosure is not the ‘silver bullet’ it was once thought to be for consumer protection.
Our recent report, Disclosure: Why it shouldn’t be the default, prepared jointly with the Dutch Authority for the Financial Markets, draws on well-established (some 3 decades) of behavioural economics research alongside 10 years of case studies. It reveals that mandated disclosure and warnings have often failed to deliver intended consumer outcomes or even worse, have backfired, contributing to consumer harm.
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Inquiry into the Anti-Money Laundering and Counter-Terrorism Financing and Other Legislation Amendment Bill 2019 (Bill)
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The Senate has referred the Bill to the Senate Legal and Constitutional Affairs Legislation Committee (Committee) for inquiry and report by 7 February 2020. Information in relation to this inquiry and a copy of the Bill may be found here.
The Committee has invited the FSC to make a submission, to be received by 13 December, 2019.
Representatives from our AML-CTF and Financial Crimes Working Group and the Investment Board Committee are meeting at 4pm on 25 November at the FSC to discuss a proposed submission.
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