Welcome to Issue 66 of the FSC Policy Update.
Financial services is emerging as a priority policy area for the new Government as it implements a range of election commitments early in its first term.
The Quality of Advice Review handed down its proposals paper in recent weeks, outlining a vision of a more affordable and accessible advice industry free of unnecessary regulation. The FSC has embraced the proposals paper and will be providing the industry’s feedback to the review shortly, but broadly supports the direction taken by lead reviewer, Michelle Levy.
I had the pleasure of being joined by Michelle in a free-for-member Q&A to discuss her proposals and provide insight into how she has taken a consumer-focused approach to designing the alternate regulatory framework.
The Government has also introduced legislation to finalise the Financial Accountability Regime and the Compensation Scheme of Last Resort, two of the remaining pieces of the Royal Commission left unimplemented by the previous parliament. The FSC has concerns with the principles underpinning a Compensation Scheme, which introduces significant moral hazard to the financial services sector, but recognises the Government’s mandate to deliver on its commitment.
Thank you also to members for their detailed engagement on the current Your Future, Your Super review. The review takes into account a range of complex issues, such as potential performance metrics, the distinction between choice and Trustee Directed Products, and the design and implementation of stapling. These issues are all critical to FSC members, so detailed consultation and careful consideration of the issues will be key to delivering good outcomes for consumers.
I hope you enjoy this issue of the FSC Policy Update that covers these issues and more in detail. Please feel free to contact the relevant policy manager for more information.
Blake Briggs, CEO, Financial Services Council
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Click on the topic of interest below to read more
Financial Accountability Regime Bill introduced into Parliament
Compensation Scheme of Last Resort
Design and Distribution Obligations
Consultation Paper released on Your Future, Your Super Review
Draft regulations to support the adjustment of the performance test for faith-based products
Preparing a New FSC Standard on Claims Handling in Super
Funds management marketing of fund performance and risk surveillance by ASIC underway
FSC Feedback to ASIC Information Sheet 271 (Greenwashing)
Corporate Collective Investment Vehicle
Financial Adviser Education Standards
FSC submits on Quality of Advice Review proposals paper
FSC clarifies underwriting governance protocols with respect to mental health
New Life Insurance Code of Practice updates
ASIC/FSC Roundtable on breach reporting
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PARLIAMENT, LEGISLATION AND REGULATION
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Financial Accountability Regime Bill introduced into Parliament
The Government introduced the Financial Accountability Regime (FAR) Bill into Parliament in early September. The Bill is unchanged from the draft introduced in October 2021 by the Coalition.
The Bill does not contain 'direct' civil penalties for breaches by accountable persons, but it does contain ancillary civil penalties on individuals involved in a contravention by the accountable entity.
The FAR will apply to the banking industry six months after the commencement of the Act. The Banking Executive Accountability Regime will be repealed as the obligations under the Financial Accountability Regime apply to the banking industry. The Financial Accountability Regime will apply to the insurance and superannuation industries 18 months after commencement of the Act.
Shortly after the Bill was issued, draft Minister Rules and an explanatory statement were also issued which provide further detail and a framework for the operation of certain aspects of the FAR (the Minister Rules set out the Government’s proposal regarding the responsibilities and positions that should result in a person being an Accountable Person). Treasury has opened a public consultation on the Minister Rules with submissions due by 7 October. The FSC is working with members to prepare a short submission.
Looking ahead, the Regulators are expected to issue guidance on how they will jointly administer FAR. The FSC will be liaising with ASIC and APRA on this.
Please contact Ashley Davies for more information.
Compensation Scheme of Last Resort
Legislation establishing a Compensation Scheme of Last Resort (CSLR) was introduced into Parliament on 8 September. The design of the scheme remains largely unchanged from what was introduced in the previous parliament however the subsector cap has been increased from $10m to $20m. The key features of the proposed scheme include:
- Claims caps - $150,000 cap on eligible claims
- Coverage of four sectors - financial advice, credit provision, credit intermediation and securities dealing. Managed investment schemes are not included in the proposed scheme
- Subsector caps are $20m a year – for amounts above this the Minister will make a determination as to how to fund claims above this amount
- Once subsector cap is invoked what happens – the scheme operator needs to notify the Minister who can make a determination in relation to the unpaid claims. There are a number of considerations the Minister can take into account (which is set out in the Bill) – for example the Minister can decide to pass on the shortfall to the relevant sector or the Minister can issue a levy on other scheme sub-sectors or go to other sectors outside the scheme
- One-off Levy for backlog of claims payable by 10 largest firms for the 2019/20 year based on ATO Data.
To support the CSLR Bill, two exposure draft regulations have been released by Treasury for consultation:
- CSLR operator reporting requirements - draft regulations specify matters relating to the CSLR operator's reporting requirements and identify persons upon whom a levy will be imposed
- Levy approach - draft regulations also outline the methods that underpin the calculation for the amount of levy payable and how they differ based on the type of levy being imposed.
Submissions to the consultation are due on 7 October. The FSC is preparing a submission to the exposure draft regulations through the CSLR Working Group.
Please contact 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
The FSC and members met with ASIC to discuss the recent public review of Target Market Determinations (TMDs) in superannuation. Members of the DDO superannuation working group are being provided with more detailed feedback from the ASIC meeting.
FSC members will consider ASIC’s feedback on TMDs and the need for appropriate changes to the FSC’s template TMDs for superannuation. While ASIC stated that they consider TMD review triggers needed to be specific and measurable, FSC members indicated significant concerns with this approach, including because it will introduce inflexibility and impracticality into DDO.
Many of the observations ASIC made about superannuation are relevant to other products, and so FSC will work with members to consider appropriate changes to TMD templates in response, including non-super TMDs.
The FSC conducted a survey of businesses about their experience of the DDO and the FSC’s templates. The survey was sent both to FSC members and to non-members that are licensing the FSC’s TMD templates. All survey respondents have been sent a summary of the survey results.
A key finding of the survey is that the FSC’s template TMDs are of substantial value to the industry. The more detailed results of the survey will feed into consideration of the TMD templates.
Please contact Michael Potter or Ashley Davies for more information.
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The FSC met with ASIC to discuss the forthcoming updated ASIC guidance on remediation (RG 256), with ASIC noting they expect the guidance to be released before the end of September.
The FSC expects that the FSC Remediation Working Group will be convened once the guidance is released to work through the details and the implications of the new guidance. Members who are interested in joining this Working Group should contact Michael Potter or Ashley Davies for more information.
SUPERANNUATION
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Consultation Paper released on Your Future, Your Super Review
Treasury has issued a consultation paper seeking feedback on any unintended consequences and implementation issues of the Your Future, Your Super (YFYS) measures.
The consultation paper covers all aspects of the YFYS measures, with a strong focus on how to improve the current performance test framework for MySuper products, how the performance test should best be extended for trustee-directed products from 2023, and whether the test should extend beyond trustee directed products (including in the retirement phase).
Some specific call-outs include:
- Stated focus of the review is on, “ensuring that Australian superannuation funds perform better, delivering dignity in retirement, and avoiding perverse outcomes for members”
- There is a preference for an evidence-based approach is prominent, with the consultation paper providing data on each YFYS measure where possible
- There is an emphasis on retaining the benchmark performance testing approach for MySuper, and the Government is interested in understanding distortions to date and in the longer-term
- Questions on how to extend performance testing to Choice products, including for single-sector products, Externally Directed Products (EDPs – a new acronym) and retirement income products.
Treasury has also established a Technical Working Group to work alongside Treasury to evaluate the YFYS performance test.
Please contact Aidan Nguyen for more information.
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Draft regulations to support the adjustment of the performance test for faith-based products
The Government has released for consultation exposure draft regulations to support recently introduced legislation to allow super funds of a religious affiliation with a MySuper product to be subject to a supplementary annual performance test. We note the legislation introduced to Parliament contained no material changes from the exposure draft.
The draft regulations cover three aspects relating to the eligibility and operation of the supplementary test:
- Applications to APRA for faith-based status would be required to contain:
- Information that demonstrates the product’s investment strategy accords with faith-based principles; and
- Specified information to support the trustee’s declaration that it has disclosed the product’s faith-based investment strategy to members (PDS, TMD, Annual Report or Website Info)
- The supplementary test would continue to use a benchmark approach to assess product performance, but the asset class indices used to determine the original benchmark would be substituted for alternative asset class indices (provided APRA considers the alternative asset class indices suitable)
- APRA would conduct the supplementary performance test and notify the trustee(s) in the same timeframe as the original performance test (that is by 1 September each year).
Please contact Aidan Nguyen for more information.
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FSC raises issue with the interaction between the Retirement Income Covenant and the anti-hawking regime
The FSC has written to Treasury, on behalf of superannuation members, to raise the issue of how the anti-hawking regime interacts unfavourably with trustees’ implementation of the Retirement Income Covenant.
The Retirement Income Covenant from 1 July 2022 introduced obligations for superannuation trustees to formulate and give effect to a retirement income strategy for beneficiaries of the superannuation fund who are retired or are approaching retirement.
It is common for superannuation funds to have real-time interactions (for example, outbound and inbound phone calls and in-person meetings) with their accumulation fund members. While we do not support pressure-selling of retirement products, it is important that funds can have conversations and prompt members to consider their retirement options including any retirement income product offerings without inadvertently being caught by the Hawking Prohibition.
The Hawking Prohibition as it currently stands is an impediment for funds that are aiming to promote member interests and comply with the Covenant to enable their retirement income strategy. This is because the boundary between provision of information or a PDS and an offer or invitation to apply for the product is unclear, given the legal interpretation of those terms and regulatory guidance.
There are common scenarios where the giving of information such as a PDS for a retirement income product containing an application form, is likely to constitute an actual or implied offer or invitation at law and therefore breach the Hawking Prohibition.
Please contact Aidan Nguyen for more information.
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Preparing a New FSC Standard on Claims Handling in Super
The FSC has started discussions with consumer groups on the draft FSC Standard to replace Guidance Note 42 on Claims Handling in Super and consumer groups will be provided feedback during September.
Please contact Ashley Davies for more information
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INVESTMENTS
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Funds management marketing of fund performance and risk surveillance by ASIC underway
Following on from ASIC’s 2020 ‘True to Label’ initiative, ASIC has been undertaking surveillance of managed funds' marketing of fund performance and risk. Whilst the review is ongoing ASIC has recently provided an update on some of the findings from ASIC’s surveillance (more information available at: 22-249MR Managed funds amend their marketing following ASIC surveillance | ASIC).
As part of the surveillance of managed fund’s marketing material, ASIC identified a number of concerns which include inadequate warnings or disclaimers about past or future performance, comparing the product to lower-risk products, indices or benchmarks and downplaying of other risks when promoting fund benefits.
Thirteen responsible entities, or trustees of investment funds, have voluntarily amened or arranged their investment managers to amend, marketing materials or practices across 18 funds (which represent a broad cross-section of investment strategies and asset classes, including nine registered and nine unregistered funds). At the date of the ASIC media release ASIC noted that, neither ASIC nor a court has made any findings that the marketing by the 13 entities listed, or other persons associated with the products, are in breach of the law and the entities have not made any admissions of guilt or liability.
Responsible entities, trustees and investment managers are expected to be familiar with the principles and regulatory guidance in relation to marketing of managed funds and other financial products, including that:
- Marketing must give balanced messages about returns, features, benefits and significant risks
- Risk disclosure needs to be clear and prominent
- The safety, reliability or security of an investment should not be overstated
- Comparisons with other products or benchmarks must be appropriate and reasonable
- Any reliance on past performance must explain that it is not indicative of future performance
- Care must be taken with the use of images, graphs and tables to ensure they are not confusing.
For information on good practice and compliance related to marketing, ASIC has included links to relevant regulatory guidance in the 8 September media release.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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FSC Feedback to ASIC Information Sheet 271 (Greenwashing)
The FSC has previously provided written feedback to ASIC on its Information Sheet 271 on how to avoid greenwashing when offering or promoting sustainability-related products. The FSC’s feedback raised concerns about the information sheet creating uncertainty around the level of disclosure required for sustainability-related products.
On September 5, the FSC and members met with ASIC. At the meeting, ASIC provided verbal feedback to the points raised in the FSC. ASIC emphasised that they have deliberately chosen not to be prescriptive about the level of detail required and to include examples of good disclosure. The information sheet is focussed on misleading and deceptive conduct obligations (s12DA of the ASIC Act 2021) and the obligation under s1013D of the Corporations Act 2001 to disclose in the PDS how ESG considerations are taken into account in selecting, retaining or realising an investment. How heavily a product is promoted as having particular sustainability/ESG features impacts how much disclosure is required. The more a product is promoted as having sustainability related features, the more disclosure there should be.
In terms of more prescriptive labelling rules, ASIC see that as a role for Government or Parliament if the Government or Parliament thinks it desirable. In the current regulatory context, ASIC stated they want to encourage best practice to develop, and they see a role for financial services entities and the FSC to developing best practice.
A written summary of ASIC’s response to each of the points raised in the FSC written feedback was provided to members of the ESG Working Group. A sub-group of the FSC ESG Working Group is being formed to consider industry guidance around ESG disclosure and labelling.
ASIC Consultation Paper 356 - Exchange Traded Product (ETP) naming conventions released earlier this year sought feedback on proposals to update guidance in Information Sheet (INFO) 230 on ETP naming conventions. The FSC provided a consultation to this submission.
By way of update, we understand that ASIC is still working through the update to Information Sheet 230 and the intention is to finalise this in Q3.
We will provide a further update on this as it becomes available.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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Home Affairs Minister Senator Clare O’Neil recently provided public comments suggesting that the Significant Investor Visa program was not providing value to Australia. A Grattan Institute report from May 2021 entitled Rethinking Permanent Skilled Migration After The Pandemic has also been cited in media reports. The report proposes the abolition of the Business Investment and Innovation Program and argues that the program is a net drag on Australia’s fiscal position.
In response, the FSC CEO Blake Briggs recently published an opinion piece in The Australian, demonstrating the benefits that the Significant Investor Visa has for growing Australia’s financial services export capability and providing much needed venture capital for Australian start-ups.
The Government recently announced that the migration cap for this year’s budget will be increased to 195,000. We anticipate that changes will be announced to the allocation of visa numbers for the Business Investment and Innovation Program.
The FSC is engaging closely with the Government on the importance of a migration system that encourages skilled entrepreneurs and investment into Australia, as well as the importance of continuing to encourage Australia as a financial services hub. The SIV Working Group is providing feedback on a letter to be sent to the Government on the Significant Investor Visa, which responds in further detail to claims made in the media and in the Grattan report.
The Government will be reviewing Australia’s migration system via a consultation process that will be led by three eminent Australians. The review consultation is anticipated before the end of the year and will provide another opportunity for the FSC to advocate for the benefits of the Significant Investor Visa.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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Corporate Collective Investment Vehicle
A new member working group has been formed to work on preparing a template Corporate Collective Investment Vehicle (CCIV) Constitution for industry. The initial task will be to prepare a template that can be used by unlisted retail and wholesale funds, with drafting alternatives built in to cater for the differences between the two types. The working group is considering issues such as:
- Form of CCIV constitution
- CCIV constitution 'term sheet' of key points
- Input from regulators on draft constitution
- Timetable for preparation of CCIV constitution term sheet, draft CCIV constitution and consultation with working group.
Once the template is at an advanced stage, the FSC anticipates sharing this with ASIC for further discussion and comment, although it is not expected that ASIC will provide formal approval of the template.
FSC and ASIC meeting. The FSC met with ASIC in September to discuss the status of revised regulatory guidance relevant to CCIVs and take-up of the new CCIV regime. ASIC confirmed that revised RG134 (Constitutions) is expected to be released during September and they are continuing to progress work on further RGs. ASIC also noted that there have been a small number of applications for AFSLs to act as a corporate director of a CCIV.
CCIV Survey. The FSC has received some feedback on its CCIV Survey. If members want to complete this there is still time to do so.
Please contact Michael Potter or Ashley Davies for more information.
ADVICE
Financial Adviser Education Standards
The FSC this month provided its submission to Treasury on financial adviser education standards making a number of recommendations to ensure to effective implementation of the Government’s 10-year experienced pathway for financial advisers with a clean record. The FSC has also advocated several improvements to the process around the Financial Adviser Exam. The FSC’s recommendations include:
- Application of the pathway to financial advisers providing personal advice between 2004 and 2022 requiring the minimum of an ethics subject, with a preference for a requirement of a 2-4 subjects and a recognised historical qualification
- Experienced financial advisers should not be required to undertake a professional year where they have completed the Financial Adviser Exam
- The scope, application and thresholds for determining a ‘clean record’ for the purposes of the pathway should be clearly defined
- Universities and registered training organisations (RTOs) should be more deeply integrated with the delivery of financial adviser qualifications and the experienced pathways and complements existing Recognised Prior Learning (RPL) requirements
- The FSC supports a principles-based approach to the Professional Year. The Professional Year Australian Qualifications Framework 8 module should be left to the new entrant or AFSL-holder to determine and not prescribed in the Education Standard. The Government should adopt the FSC’s proposed improvements to the Professional Year supported a number of changes to support professional year candidates and new entrants that it has engaged Treasury
- Treasury should consider whether industry developed courses and qualifications meet the financial adviser standards for education and continuing professional development (CPD) standard offered by tertiary institutions and provide clarity on how the requirements apply to new entrants to the industry versus existing participants.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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FSC submits on Quality of Advice Review proposals paper
The FSC has participated in several roundtables over the past month advocating the position of members in relation to the proposals paper. The FSC’s submission has been developed with input from the Quality of Advice Working Group.
In this video Policy Director for Advice, Zach Castles, provides an overview of the Review’s paper and talks about the opportunity industry and consumers have to make advice more affordable and accessible.
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
FSC clarifies underwriting governance protocols with respect to mental health
The FSC has written to ASIC to outline industry approaches to underwriting with respect to mental health. Key topics covered include:
- How life insurers ensure underwriting manuals are applied consistently and correctly when used by underwriters, including outlining how delegated authorities and quality assurance processes operate
- The role of board oversight and underwriting manuals
- The availability and use of data.
Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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New Life Insurance Code of Practice updates
The FSC continues to progress key elements of the new Life Code which was published in June 2022, including:
- Developing a set of guidelines to guide code subscribers to develop their own family and domestic policy that will benefit consumers and consumer groups
- Developing a set of materials to help explain how life insurance premiums work, including considering the appropriateness of current labelling
- Developing a guide to consumer law, to assist consumers with aspects of the law which are not covered in the Code of Practice.
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 made a submission to the Government’s multinational tax proposals, proposing a full exclusion from the measures for all collective investment vehicles (including ETFs and CCIVs), and a permanent exclusion for life insurers from the proposed limits on interest deductibility. The full submission has been provided to relevant members
- In the lead up to the submission, the FSC met with Treasury to discuss the proposals and how they would apply to life insurers, super funds and fund managers.
- The FSC coordinated meetings of members with the ATO to discuss the ATO’s draft requests for information (RFIs) that will shortly be sent to the largest Australian superannuation funds for completion. FSC members provided separate feedback to the ATO on the income tax and GST aspects of the draft RFIs
- Members were provided with summary of the ATO meeting on the upcoming review of superannuation funds.
- The FSC is finalising feedback on an ATO proposals paper outlining how managed funds and super funds should treat foreign capital gains and foreign income tax offsets (FITOs) after the Burton decision
- A new legislative instrument has been made that provides an exemption from requirements to report to the ATO on certain transactions, including errors. The FSC provided comments on the draft of this instrument, and the final instrument reflects the FSC’s comments
- The FSC has been working with the Australian Custodial Services Association (ACSA) on an agreed tax data standard, which will be jointly managed/owned by ACSA and FSC. ACSA and FSC will be meeting with the ATO to ensure the ATO is up to date with the development of the data standard
- The Board of Tax has issued a discussion paper on the tax treatment of digital assets (including crypto assets). The FSC is developing a submission on this issue based on member feedback
- The Government is consulting on proposed legislation that would prevent the franking of dividends to the extent the dividends are funded by new capital raisings. Members will consider if the FSC will make a submission on this consultation.
- The FSC finalised a paper on the proposal for tax withholding to apply to individual Income Protection (IP) benefit payments, and has provided the paper to ATO and Treasury.
- A meeting of the GST Expert Group was held, covering the GST component of upcoming ATO reviews of large super funds (see above); proposed ATO changes to the main GST ruling on financial services; and GST issues with Protecting Your Super, remediation, IT outsourcing, and the GST reverse charge.
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
ASIC/FSC Roundtable on breach reporting
The FSC recently asked ASIC if it would be willing to participate in another meeting with the FSC and some of our members to discuss breach reporting concerns.
ASIC has now come back to us to propose a Roundtable involving ASIC, the FSC and some of our members. ASIC has said the Roundtable would focus on potential solutions to some of the priority issues which have emerged within the breach reporting/reportable situations regime, which might be achieved in a shorter timeframe. The Roundtable is scheduled for early October.
The FSC is working with members on preparatory materials and key messaging prior to the October meeting.
Please contact David McGlynn or Ashley Davies for more information.
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