Welcome to Issue 49 of the FSC Policy Update. In 2021, this member briefing on the main legislative and regulatory changes across the financial services industry will be issued monthly.
Parliament resumed for the last two weeks of February and there was progress on a range of outstanding policy issues. The Parliament passed the Royal Commission bill implementing the annual renewal recommendations, the Government introduced its ‘Your Future, Your Super’ reforms to the House of Representatives, but had not yet released the crucial Regulations, and a review into AFCA was commenced.
The FSC has continued our advocacy on the Your Super reforms, and met with a range of political stakeholders over the past two weeks. Now the Bill has been referred to a Senate Committee for review the FSC will commence preparing a submission, and we intend to appear to give evidence. Member input in the submission will be sought shortly.
Parliament will resume the week of 15 March, and we expect more visibility on the final design of the Your Super reforms, as well as potential progress on outstanding Royal Commission recommendations, including the framework for the Compensation Scheme of Last Resort.
This will be the last sitting period before a break in the lead up to the May budget, an important document as it will likely be the last Budget before a federal election. The FSC is pressing the Government to consider proposals to stimulate growth as Australia recovers from the COVID-19 induced downturn, including a product modernisation regime, allowing early intervention under life policies and implementing outstanding tax reforms for funds management.
Blake Briggs, FSC Deputy CEO
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Click on the topic of interest below to read more
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Life Insurance Summit and Industry Awards
Standard wording proposal for the duty to take reasonable care
Licensing process for claims handling reforms
Design and Distribution Obligations (DDO) update
Your Future, Your Super legislation introduced
Portfolio Holdings Disclosure scheme to be amended
Legislation to wind up Eligible Rollover Funds passes Parliament
Annual renewal legislation now law
ASIC Competition in Funds Management Review
Co-Design Process for the Security Legislation Amendment (Critical Infrastructure) Bill 2020
FSC Modern Slavery Guidance Note
ASIC Consultation Paper 336 - Financial requirements: Treatment of lease assets
Anti-Money Laundering Rules Changes
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LIFE INSURANCE
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Life Insurance Summit and Industry Awards
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Wednesday 21 April is when the life insurance industry will come together for the Summit and the annual Industry Awards dinner! But FSC members must hurry, as Award nominations close in just over 2 weeks on Wednesday 24 March (no extensions to be granted). See more here.
Now in its 12th year, the Life Insurance Summit will be delivered as a hybrid event – with in person and virtual ticket options available.
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DATE: Wednesday 21 April 2021
TIME: 8.30am - 5.30pm / Awards Dinner: 6.30pm - 10.00pm
VENUE: The Hilton, 488 George St, Sydney / Online
COST: Standard rates finish on Wednesday 7 April!
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In person Summit + Awards Dinner
Member rate: $1,400 + GST per person
Non-member rate: $1,850 + GST per person
Virtual Summit
Member rate: $600 + GST per person
Non-member rate: $750 + GST per person
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The FSC has also welcomed some new industry leaders as speakers at the Summit: James Carey, Head of Group Insurance, MetLife; Sean Williamson, Chief Group Insurance Officer, MLC Life Insurance and John Price, Lead Ombudsman Insurance, AFCA. See the program here. This event is not to be missed!
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Reinstatements and replacements of life insurance contracts under the Unfair Contract Terms (UCT) regime
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Treasury has confirmed it has no current intentions to make any legislative amendments to exclude reinstated and replaced policies from being caught under the incoming UCT regime. The FSC understands this will have significant implications for customers who have cover attached to contracts that were originally entered into prior to 5 April 2021, and who subsequently request to reinstate or replace their cover. The FSC will continue to advocate on this issue.
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Standard wording proposal for the duty to take reasonable care
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The FSC is in the process of developing standard wording for the new duty to take reasonable care not to make a misrepresentation. The purpose behind the initiative is to facilitate greater consistency for how the new duty is described by insurers and provide for a common understanding for how the new duty operates for consumers. As the new duty applies to both general and life insurance contracts, the FSC is also in discussions with the Insurance Council of Australia on the possibility of also having similar wording between the life and general insurance industries. This new regime will come into effect for all contracts deemed consumer insurance contracts from 5 October 2021.
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Licensing process for claims handling reforms
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ASIC has advised the FSC that its online portal for license applications is open and that they are starting to receive some applications for new or variations to existing AFSLs in relation to claims handling reforms. The FSC understands that ASIC will shortly be issuing an industry letter encouraging life insurers to get their applications in as soon as possible to avoid potential backlog issues with incomplete and/or late applications around the 30 June 2021 deadline.
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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 plain English draft of Life Code 2.0 has been provided to the FSC. Significant drafting progress has been made to ensure that nothing has been lost in translation during the rewrite process. The FSC has also commenced targeted consultation with key stakeholders including Life Code Compliance Committee, ASIC and consumer groups on this iteration. Once this progress has been completed, it is expected that a full public consultation process will be undertaken in April.
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Please contact Jamie This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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PARLIAMENT, LEGISLATION AND REGULATION
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Design and Distribution Obligations (DDO) update
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FSC working groups continue to develop template Target Market Determinations (TMDs).
- The life insurance templates are being amended to reflect ASIC feedback.
- The funds management, wrap/platform, and superannuation templates have been provided to ASIC and meetings to discuss the templates are being organised.
The templates have been provided to advice licensees for discussion and feedback from the licensees has been provided to product issuers. The FSC will hold ongoing meetings with licensees to discuss DDO implementation issues.
ASIC has also agreed to meet with FSC members to discuss DDO implementation issues. These meetings will be set up once ASIC has provided feedback on the TMD templates.
FSC members are progressing well in the development of data standards for the DDO. There are three standards currently being developed:
- Target Market Determination data standard
- Transactions (Dealings) data standard
- Complaints data standard
These standards will be available for member use, and will be licensed to non-members.
The FSC recently hosted a briefing with EY on the DDO, focusing on the information, data and technology needs of businesses affected by the DDO.
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The FSC made a submission to ASIC on Consultation Paper 335, proposing updates to ASIC’s existing guidance on consumer remediation, which argued:
- There should be a whole-of-government approach to remediation, so that actions of other agencies (eg APRA, ATO) do not work against ASIC’s approach.
- Remediation is warranted where a customer suffers loss because business breached a legal or regulatory obligation or a contract with the customer. However, there should not be an additional expectation that remediation be paid when a business fails to meet ‘community expectations’.
- Limitation periods for remediation are legitimate, particularly due to document retention periods.
- Beneficial assumptions should be able to be used but should not be mandated.
- Further guidance is warranted on how remediation payments into superannuation should work.
- ASIC should not remove the low-value compensation threshold.
- Further guidance is requested on how remediation can make use of unclaimed money systems.
The submission is being shared with the FSC consumer remediation working group.
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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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Your Future, Your Super legislation introduced
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The Treasury Laws Amendment (Your Future, Your Super) Bill 2021 was introduced into the House of Representatives on 17 February, and referred to the Senate Economics Committee. The Committee is due to report on 22 April.
While a number of drafting changes have been made to the Bill and some issues clarified, there is little substantive change in relation to the main content.
Draft regulations are still expected to be released for consultation shortly.
The FSC issued a media release in response to the introduction of the legislation, and will make a submission to the Senate Committee process.
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Portfolio Holdings Disclosure scheme to be amended
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As part of the Your Future, Your Super legislation, the Government has introduced an amendment to the Portfolio Holdings Disclosure (PHD) regime, removing the 5 per cent threshold for non-disclosure of commercially sensitive investments.
Regulations for the PHD regime, which is currently scheduled to commence on 31 December 2021, have not yet been released.
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Legislation to wind up Eligible Rollover Funds passes Parliament
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The Treasury Laws Amendment (Reuniting More Superannuation) Bill 2020, which sets out the process for winding up ERFs, was passed by the Senate on 25 February 2021.
The Bill was amended as per the Government’s announcement in last July’s economic and fiscal update, to:
- defer by 12 months the start date of the measure that prevents superannuation funds transferring new amounts to ERFs (to 1 May 2020)
- defer the date by which ERFs are required to transfer accounts below $6,000 to the ATO (to 30 June 2021)
- defer the date by which ERFs are required to transfer remaining accounts to the ATO (to 31 January 2022)
- allow all superannuation funds to voluntarily transfer amounts to the ATO in circumstances where the trustee believes it is in the best interests of that member, such as amounts that would otherwise have been transferred to an ERF (with commencement linked to Royal Assent).
The FSC will continue to engage with the ATO in relation to operationalising the changes flagged in the Bill, including facilitating the voluntary transfer of amounts.
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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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ADVICE
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Annual renewal legislation now law
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The Financial Sector Reform (Hayne Royal Commission Response No 2) Bill has passed in the Senate. The legislation implements Royal Commission Recommendations 2.1, 2.2, 3.2 and 3.3. The legislation commences on 1 July 2021. It empowers ASIC to issue a Legislative Instrument relating to the format of advice fee consent and independence disclosure. How this format is prescribed is an issue for members preparing compliance systems so that they can meet the new obligations on 1 July. The FSC is engaging ASIC on this issue regarding the timing and nature of when the Legislative Instrument will be issued.
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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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ASIC Competition in Funds Management Review
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Deloitte was retained by ASIC last year to undertake a review and develop a report on competition in funds management. A draft Interim report (Draft Interim Report) is expected to be issued publicly very shortly.
The Draft Interim Report will be open to public consultation, with one month provided to industry to respond and prepare a response.
The FSC is establishing a new discrete working group, the Competition in Funds Management Working Group, to develop a submission and respond to Deloitte’s Draft Interim Report.
Fund manager members have been invited to put forward representatives for this working group. If you haven’t nominated someone and would like to please send relevant nominee details to This email address is being protected from spambots. You need JavaScript enabled to view it.. The working group will promptly be convened once the draft report is released.
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Co-Design Process for the Security Legislation Amendment (Critical Infrastructure) Bill 2020
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The Department of Home Affairs is currently engaging stakeholders on the co-design rules that will underpin the positive security obligations under the Security Legislation Amendment (Critical Infrastructure) Bill 2020. The Bill is currently before the Joint Committee, but Home Affairs is moving ahead with the design of the regulations. A round of workshops will be held between 2 - 15 March where participants can provide input for the development of common rules for risk management. To participate you can register with the Department of Home Affairs webpage here.
Following this, Home Affairs will design sector specific rules in consultation with stakeholders. They will start with electricity and gas in March 2021, then other sectors will follow over the next 12 to 18 months. Further information on this process with be provided by Home Affairs shortly (interested members may wish to read more info on the webpage link provided above).
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Department of Home Affairs consultation on the Complying Investment Framework for the Business Innovation and Investment Program
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The FSC provided a submission to the Department of Home Affairs on the settings of the Complying Investment Framework (CIF). The submission supports the Significant Investor Visa (SIV) as supporting the economic recovery by providing needed foreign capital. It also supports the current settings of the CIF.
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FSC Modern Slavery Guidance Note
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The FSC’s Modern Slavery working group is continuing its development of a guidance note to support fund managers receiving due diligence questionnaires from stakeholders reporting under the Act. The guidance note will also aim to help funds who might want to report in their role as suppliers of financial services.
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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 met with the ATO to discuss the ATO’s consultation paper on the controls on use of third party data (including data from custodians).
- The FSC Tax Experts Group (TEG) met with the Australian Custodial Services Association (ACSA) to discuss a common approach to the ATO’s consultation on use of third party data. ACSA and FSC agreed to work together on a joint proposal to the ATO to address the ATO’s concerns.
- The FSC TEG is compiling a list of countries where managed funds have difficulty in obtaining tax treaty benefits they are legally entitled to. The FSC is working with ACSA to develop the list of problems and will share this with ATO and Treasury.
- The FSC met with the ATO to discuss the tax treatment of income protection benefits (IP) received by superannuation funds. The ATO is not planning to issue a public ruling clarifying that the receipt of IP benefits by a super fund would not be taxable, but suggested other ways to provide clarity to super funds about this issue.
- The FSC made a submission to the Board of Tax requesting that a comprehensive Capital Gains Tax (CGT) rollover relief proposal be available to Managed Investment Trusts (MITs) and Attribution MITs.
- The life insurance TEG is discussing requests from the ATO for detailed data about the premiums and benefits relating to IP products. Life insurers are also considering a proposal to require insurers to withhold tax on IP benefits.
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GST update
- The GST Expert Group met in preparation for a meeting with the ATO on 11 March. The GST issues discussed included the GST treatment of the fee cap on low balance super accounts (under Protecting Your Super); the GST treatment of remediation; GST issues with the redirection of conflicted remuneration; and the ATO Justified Trust reviews relating to GST.
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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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As provided for in the establishing legislation of the Australian Financial Complaints Authority (AFCA), an independent review of the performance of AFCA is being conducted. On 19 February, Treasury announced the Terms of Reference and targeted review questions. The details of the review can be found here. The FSC intends to make a submission spanning all portfolio areas.
Treasury will be holding a number of roundtables to seek initial feedback from stakeholders. The FSC will be attending these and will keep members appraised of the outcomes.
Submissions are due 26 March 2021.
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Please contact David McGlynn or Jamie This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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ASIC Consultation Paper 336 - Financial requirements: Treatment of lease assets
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In line with member feedback to CP 336, an expression of support of the key proposal was sent to ASIC. That is, to amend the ‘excluded assets’ definition in the ASIC instruments to provide that a right-of-use asset is not an excluded asset. This amendment avoids the otherwise adverse and unfair financial outcome for Australian Financial Services Licencees or committing more assets than would otherwise be necessary to comply with the minimum Net Tangible Asset and related prudential requirements. Submissions were due early March 2021.
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ASIC Consultation Paper 334 - Proposed changes to simplify the ASIC Derivative Transaction Rules (Reporting): First consultation (CP 334)
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The members of the Derivatives Working Group are currently working on producing a submission in relation to CP 334. The key objectives of CP 334 are to simplify current rules as well as to further alignment with international derivative requirements.
Submissions are due 15 March 2021.
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Anti-Money Laundering Rules Changes
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The members of the Anti-Money Laundering and Financial Sanctions Working Group are currently working on producing a submission in relation to the above rule changes to support the “Phase 1.5” reforms of the AML Act which were introduced in December 2020. These reforms are designed to will help to streamline compliance for businesses while also strengthening Australia’s financial system against criminal threats. The draft rules can be accessed via the following link:
Review the draft rules and make a submission here.
Consultation on the draft Rules is now open and will end on 11 March 2021.
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Please contact David McGlynn for more information.
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