Welcome to Issue 39 of the FSC Policy Update – a fortnightly member briefing on the main legislative and regulatory changes across the financial services industry.
COVID-19 has again dominated the political landscape, with the most recent sitting of Parliament cancelled. It appears likely the next sitting period, scheduled to commence 24 August, will proceed, with Victorian-based MPs and Senators asked to quarantine for 14 days beforehand if they wish to attend.
The FSC responded to announced Stage 4 Restrictions in metropolitan Melbourne by assisting impacted members liaise with the Victorian Government to understand the impact it would have on their businesses and how to comply.
The FSC continues to monitor developments and learn from the experience so that we can assist members further should new restrictions be imposed in other states.
This issue examines a range of new and ongoing policy issues, including our upcoming pre-Budget submission, work towards a resolution of the SuperMatch issue, and the extension of temporary measures for e-signing and virtual Annual General Meetings (AGMs).
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
SuperMatch Terms and Conditions updated
Early Release design and implementation information updated
Research released from the Choice and Access to Life Insurance (CALI) campaign
Life Insurance COVID initiatives extended
ASIC Unfair Contract Terms (UCT) Roundtable
APRA Review of SPS 250 Insurance in Superannuation
ASIC proposes product intervention for the sale of add-on financial products with motor vehicles
Amendments to Australian Accounting Standards - Insurance Contracts
APRA updates guidance on capital management for banks and insurers
FSC Life Insurance Summit 2020
FASEA Exam June sitting pass rate increases to 85 per cent
FSC pushes scaled advice model minus Statement of Advice (SOA) requirement
International income tax issues
Environmental, Social and Governance (ESG) Working Group Engagement with FSC New Zealand
Deadlines for the Annual Compliance Sign-off for year ended 30 June 2020
Temporary measures for e-signing and virtual Annual General Meetings (AGMs) extended
Internal Dispute Resolution (IDR): ASIC releases new regulatory guide on complaints handling
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PARLIAMENT, LEGISLATION AND REGULATION
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The Federal Government is seeking further pre-Budget submissions.
The FSC has already lodged a submission earlier this year but will make a second submission enclosing the recently released report Accelerating Australia’s Economic Recovery.
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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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The first meeting of the re-constituted Remediation Working Group was held. Members discussed issues including difficulties in obtaining needed information from third parties; the difficulties members faced with ATO rules resulting in remediation being easily classified as a superannuation contribution; the difficulties in applying simplified approaches; AFCA re-hearing issues; and issues with paying remediation to uncontactable recipients (noting this issue is likely to be addressed with superannuation). The meeting also discussed some specific issues with the current RG 256 on remediation.
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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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Design and Distribution Obligations (DDO) update
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The development of template DDO products is continuing:
- The FSC held a workshop with members to develop a template Target Market Determination (TMD) for retirement products. A template is now well developed and will be circulated to members for further discussion and development.
- Development of a template for superannuation wraps is well underway and continues.
- The template TMD for life was shared with ASIC, and the Working Group will now consider sharing the template with financial advisers.
- The DDO information Working Group is continuing to develop a template issuer and distributor protocol and template definitions of key DDO terms.
Through the FSC, ASIC is conducting a speedy and targeted consultation with issuers of Exchange Traded Products (ETPs) on ASIC’s proposals as to how the DDO regime will apply to ETPs. A member meeting on this issue was convened on Friday 7 August and agreed to raise various issues with ASIC at a separate meeting that has been organised on this issue. The meeting with ASIC will assist the FSC in developing its submission on the proposal.
ASIC is consulting on the use of the Product Intervention Powers (PIP) for financial products sold as add-on products with the sale of motor vehicles, please see the life insurance section for details.
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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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SuperMatch Terms and Conditions updated
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The ATO has released updated terms and conditions of use for the SuperMatch service, after removing access for all trustees in May. Trustees will be able to reconnect with the SuperMatch service from 31 August, if they are compliant with the new conditions.
The new conditions include the following updates:
- Customer verification must be undertaken prior to SuperMatch being used.
- Further clarity on ensuring only trustees access SuperMatch and are accountable for any use of the service by their administrator/service provider on their behalf.
- Ongoing obligations for trustees to ensure their connections remain complaint and periodically attest to that.
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Early Release design and implementation information updated
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The ATO has updated its information for trustees on implementing the COVID-19 early release of super package.
The updates include information on members changing their mind about an application.
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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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Research released from the Choice and Access to Life Insurance (CALI) campaign
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New research has been released by the CALI group to better understand community expectations about life cover, trends in the Australian market, overseas experience, and the impacts of recent regulatory changes. The CALI campaign is backed by Australian insurers Zurich, TAL, AIA Australia, and MLC Life Insurance, as well as peak bodies the FSC, Financial Planning Association of Australia (FPA), and Association of Financial Advisers (AFA).
Further information on the CALI campaign including access to the Whitepaper and Report can be found here.
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Life Insurance COVID initiatives extended
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The FSC has announced the extension of both the Commitment to Frontline Healthcare Workers and the Total and Permanent Disability (TPD) claims initiative.
- The frontline healthcare workers initiative ensures that frontline healthcare workers are not prevented from obtaining life insurance cover purely because of their exposure, or potential exposure, to COVID-19 through the crucial work they are doing on the frontline.
- The TPD claims initiative ensures that if people lose their job, are stood down or have reduced working hours due to COVID-19, this will not affect their TPD cover.
More information on these initiatives can be found here.
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ASIC Unfair Contract Terms (UCT) Roundtable
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ASIC recently held a roundtable to cover the extension of the UCT regime to life insurance contracts. ASIC intend to engage with selected life insurers on their desktop UCT review initially in September, allowing three weeks for insurers’ response and then continue an ongoing conversation. ASIC proposed to publish its findings from the review around the end of the year.
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In response to the ABC News article published on 29 July entitled ‘Superannuation’s default disability insurance highlights trustee failings’ (which relied heavily on ASIC Report 633), the FSC has responded to the ABC journalist to correct the record on the following points:
- Incorrectly presenting out-of-date findings as current
- Activities of Daily Living (ADL) decline rate
- Default insurance in superannuation
- Estimated number of Australians with Group TPD cover based on an Activities of Daily Living (ADL) definition
The FSC has published a statement here.
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APRA Review of SPS 250 Insurance in Superannuation
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As part of its update to the House of Representatives standing committee, APRA now expects to finalise its review of Prudential Standard SPS 250 Insurance in Superannuation in the first half of 2021. More information on APRA’s update can be found here.
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ASIC proposes product intervention for the sale of add-on financial products with motor vehicles
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ASIC is considering using its product intervention powers to address significant consumer detriment in the sale of add-on insurance and warranty products sold with motor vehicles. Before making a product intervention order, ASIC must consult persons who are reasonably likely to be affected by the order. ASIC invites stakeholder feedback on the changes that ASIC has made to the proposed product intervention order as originally set out in CP 324, published in October 2019.
Further information on ASIC’s consultation is available here.
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Amendments to Australian Accounting Standards - Insurance Contracts
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The Australian Accounting Standards Board (AASB) has released the Australian version of the amendments to AASB 17 Insurance Contracts. The link to the Amending Standard AASB 2020-5 Amendments to Australian Accounting Standards - Insurance Contracts, which combines the amendments to AASB 4 and AASB 17 is available here.
This follows on from the International Accounting Standards Board’s (IASB) earlier issue in June of amendments to IFRS 17 Insurance Contracts aimed at helping companies implement the Standard and making it easier for these businesses to explain financial performance. The IASB has published a new version of IFRS 17 that incorporates the June amendments. The Standard can be accessed here.
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APRA updates guidance on capital management for banks and insurers
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The Australian Prudential Regulation Authority (APRA) has updated its capital management guidance for banks and insurers, in particular easing restrictions around paying dividends as institutions continue to manage the disruption caused by COVID-19. Given uncertainty in the economic outlook has reduced somewhat since initial guidance issued in April, APRA has written to banks and insurers advising they should maintain caution in planning capital distributions, including dividend payments.
Further information on APRA’s guidance including a link to a copy of the letter is available here.
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Please contact any members of your life insurance policy team (This email address is being protected from spambots. You need JavaScript enabled to view it., This email address is being protected from spambots. You need JavaScript enabled to view it. or Aidan Nguyen) for more information.
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FSC Life Insurance Summit 2020
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From 27 - 31 July, the FSC held the ninth annual Life Insurance Summit in webinar format with huge success. The event attracted 35+ industry leading speakers who gave their time to discuss today's biggest sector issues together. Panel conversations spanned group, direct, retail insurance, reinsurance, mental health, the state of the industry and much more.
The FSC's inaugural Life Insurance Awareness Week (LIAW) ran across the week too. Strong media, digital and social presence was gained, raising awareness of the vital role life insurance plays in protecting the community, with the release of exclusive data and insights from the FSC - KPMG world leading data project elevating the dialogue.
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For news, key insights, partner videos and more, take a look at the FSC's LinkedIn page.
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ADVICE
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FASEA Exam June sitting pass rate increases to 85 per cent
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FASEA has released analysis of the June sitting of its exam. The pass rate was up to 85 per cent - in April it was at 79 per cent. Analysis of the pass rate and areas for improvement is available here.
FASEA also recently updated its exam preparation information on its website also available here.
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FSC proposes scaled advice model minus Statement of Advice (SOA) requirement
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The FSC has a plan to unshackle scalable advice from the requirement for an SOA, by enabling a Record of Advice (ROA) to be trialled over two years. This is one way of building a less costly and simpler advice system to meet the needs of consumers.
The proposal was first mooted in the FSC’s Accelerating Australia’s Economic Recovery report. See more 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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- FSC members have been provided with the ATO’s standard Request for Information (RFI) for the Streamlined Assurance Reviews (SARs) for managed funds.
- The FSC Tax Expert Group is meeting in coming weeks with Andrew Mills (former Second Commissioner of Taxation) and Karen Payne (Inspector-General of Taxation) to discuss ongoing tax administration issues.
- The FSC is collecting member concerns about issues with existing Capital Gains Tax (CGT) rollover relief provisions to provide to the Board of Taxation which is conducting a review into this issue.
- The FSC met with the ATO to discuss the proposed ATO guidance on the tax treatment of death benefit rollovers. The feedback provided by members should assist the ATO in developing its views. FSC members are considering how to deal with the retrospective nature of the recent legislative change on this issue.
- Members of the Life Insurance Tax Expert Group (Life TEG) are considering a proposal to request a change to the income tax treatment of loss recognition.
- With the recent changes to the definition of Significant Global Entity (SGE) and changes to Country by Country (CBC) reporting requirements, the FSC will be corresponding with the ATO about the application of these rules to managed funds, and the compliance issues with managed funds obtaining exemptions from the CBC reporting requirements.
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International income tax issues
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- The FSC is planning on joining a global coalition of funds management associations to support proposed changes to the United Nations Model Tax Convention relating to the treatment of collective investment vehicles under tax treaties.
- The draft Organisation for Economic Co-operation and Development (OECD) proposals for Pillar 1 of its international tax reform project indicate that both funds management vehicles and the activities of fund managers are outside the scope of the Pillar 1 profit allocation rules. This is welcome news for funds management.
- The FSC is in discussion with funds management associations in other countries about difficulties that managed funds are having with detailed requests for information from Swiss tax authorities.
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- The FSC met with the Insurance Council of Australia (ICA) to discuss the two associations working together on tax issues that are common to both life and general insurance, including income tax, GST and stamp duties. The FSC and ICA are now working together to put a proposal for joint work to members of both associations.
- The FSC made a submission to the draft report of the New South Wales Review of Federal Financial Relations. The submission strongly supported the draft report’s proposal to abolish stamp duty on insurance, and argued the final report specifically should call out the adverse effects of this stamp duty, while considering more targeted reforms to payroll tax. The FSC submission also supported the review’s argument that major state tax reforms should not be discouraged by the GST distribution formula and recommended some changes to the Review’s economic modelling of tax changes.
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INVESTMENTS
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Environmental, Social and Governance (ESG) Working Group Engagement with FSC New Zealand
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The ESG Working Group recently met to discuss the next areas of focus, being two pieces of work; developing further FSC guidance to assist members meet Modern Slavery requirements with respect to due diligence questionnaires; and developing climate change priorities.
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A small cohort of members from the ESG Working Group participated in a video conference meeting with the FSC New Zealand team last week. This was a great opportunity to share Australian developments, the FSC’s current focus on creating a consistent reporting framework for Modern Slavery reporting requirements and hearing about the sustainability focuses of the FSC New Zealand team.
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LEGAL
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Deadlines for the Annual Compliance Sign-off for year ended 30 June 2020
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By way of reminder to FSC Full Members, please note the following important dates:
- Signed Compliance Statements (attaching a completed Standards Compliance Checklist, as well as a completed Compliance Manager’s Survey) are due by close of business on 30 September 2020; and
- Exemption Requests (if required) are due by 21 August 2020.
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Temporary measures for e-signing and virtual Annual General Meetings (AGMs) extended
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Earlier Relief now extended to 2021
Readers will recall that the FSC previously outlined changes for electronic signing and virtual AGMs. In recognition of the unprecedented circumstances presented by the COVID-19 pandemic and resulting lock-downs, the Commonwealth Government introduced temporary amendments to the Corporations Act 2001 (Cth) (Act) to provide regulatory relief and flexibility for companies and other regulated entities in the conduct of their business and meeting legal obligations in light of the pandemic. In summary, these changes, made under the instrument-making power inserted into the Act as part of the Government’s response to the pandemic:
- allowed meetings (including Annual General Meetings) to be held electronically, rather than by a traditional physical meeting.
- extended the application of section 127 of the Act to allow electronic and split (counterpart) execution of documents by company officers.
These were originally scheduled to expire in November 2020.The relevant modifications now will continue to 21 March 2021. In his announcement of 31 July, the Treasurer noted the extension was intended to provide certainty to businesses, and to give them the flexibility to continue operating in circumstances where travel restrictions and social distancing would otherwise make it difficult.
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Other possible changes?
The FSC understands that the Commonwealth Government may be considering whether to make the changes permanent. In addition, a Commonwealth deregulation taskforce will be reviewing the implications of various exemptions under the Commonwealth’s electronics transactions legislation and interaction with State and Territory legislation. Further, the FSC and a number of other industry associations will be making a joint submission to the Commonwealth (copying in the States and Territories) as to the benefits of legislation accommodating insofar as is possible, electronic transactions and witnessing.
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Internal Dispute Resolution (IDR): ASIC releases new regulatory guide on complaints handling
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On 30 July 2020, ASIC released Regulatory Guide 271: Internal dispute resolution (RG 271) and see 20-171MR.
RG 271 outlines new requirements for financial firms to deal with consumer and small business complaints under IDR procedures. These include:
- reducing the timeframe for responding to complaints.
- outlining information that firms must provide in written IDR responses.
- setting new timeframes for customer advocate reviews of appeals against IDR decisions.
- detailing a process of how firms can deal with representatives who are not acting in consumers’ best interests.
The new rules will apply from 5 October 2021 (which is the same start date as the new design and distribution obligations). However, the previous regulatory guide, Regulatory Guide 165: Licensing: Internal and external dispute resolution, continues to apply until that time.
ASIC notes that the release of RG 271 follows extensive industry consultation, the publication of ASIC Report 603 on the existing IDR process and ASIC Report 665 responding to submissions on IDR reform. ASIC will publish a legislative instrument which clarifies the enforceable standards and requirements.
Going forward, ASIC will consult on the IDR data reporting regime, which was recommended by the Ramsay Review into dispute resolution and complaints framework and passed into legislation in 2018.
The FSC’s AFCA Working Group will consider the implications of RG 271 and be engaged in the further ASIC consultation on the IDR data reporting regime.
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