Welcome to Issue 77 of the FSC Policy Update. This article outlines legislative and regulatory developments in the superannuation, investments, financial advice, tax, technology and innovation sectors, plus more. Learn about what’s impacting the financial services industry below.
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Superannuation Bills Referred to Senate Committee
Digital ID Legislation Referred to Senate Economics Committee
Government Closes Consultation on Retirement Phase of Superannuation
Expected Consultation on Your Future Your Super
Consultation on Philanthropy in Australia
APRA Commences Work on Unlisted Asset Valuations
Climate-related Financial Disclosures
Managed Investment Scheme Review
Compensation Scheme of Last Resort
Financial Adviser Registration Extended
Changes to the Financial Adviser Exam Legislated
Webinar on Financial Adviser Registration
Government Responds to Regulating Artificial Intelligence Consultation
Government Consults on Ending Cheques in Australia
Government Consults on Updated Payments Licensing Framework
Australian Law Reform Commission Final Report
AFCA Approach to Determining Compensation in Complaints Against Financial Advice Firms
Design and Distribution Obligations (DDO)
Anti-Money Laundering and Counter-Terrorism Financing Laws (AML/CTF)
Foreign Financial Service Providers
Tax Deductions and Financial Advice Fees
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PARLIAMENT, LEGISLATION AND REGULATION
Superannuation Bills Referred to Senate Committee
The Treasury Law Amendment (Better targeted Superannuation Concessions and Other Measures) Bill 2023 to the Senate Economics Legislation Committee for inquiry and report by 19 April 2024 with submissions due on 23 February 2024.
The FSC is preparing a submission focusing on concerns around lack of indexation and the approach to taxing unrealised gains, as submitted to the Treasury on the exposure draft of the legislation. Other bill components that will be addressed include:
- changes to the Financial Regulator Assessment Authority;
- the need for safeguards and consultation to be legislated in the updates to the payments system regulatory framework; and
- moving foreign financial service provider class order relief into primary law.
The FSC has also made a submission to the committee’s inquiry on the Superannuation (Objective) Bill 2023 in support of the Bill. The committee is due to report on the inquiry by 28 March 2024.
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Digital ID Legislation Referred to Senate Economics Committee
The Digital ID Bill has been referred to the Senate Economics Legislation Committee. The Legislation, introduced in November, expands the use of the Government's Digital Verification Service allowing private companies to begin offering ID verification services, known as Digital ID.
The FSC’s submission to the Senate Economics Committee consultation, emphasises the importance of providing certainty for parties that rely on a Digital ID if that ID is later found to be fraudulent, and ensuring that it consistently meets legislative and prudential requirements such as for the purposes of AML/CTF checks.
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The Senate Economics Legislation Committee is considering Government amendments to the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share – Integrity and Transparency) Bill 2023.
The FSC recognises some improvements to the amendments but emphasises further unadopted recommendations, as a result of consultation by Treasury in October 2023.
Since the previous round of consultation conducted by Treasury in October 2023, changes have been made to the amendments that improve technical application of the third-party debt test and tax EBITDA provisions to trusts and partnerships, as well as more closely targeting the proposed new debt deduction creation rules (DDCR) to specific activities.
The FSC reiterated support for recommendations that have not been adopted, including introduction of an overarching purpose test to the DDCR provisions, and ensuring equal treatment between superannuation and investment funds under the associated entity test.
The Committee is due to released its final report on 5 February, which recommended the amendments be passed with no additional changes. A dissenting report by Coalition Senators included adopting the purpose test among its recommendations. and The Bill is expected to be considered by the Senate in the next Parliamentary session.
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In November 2023, Treasury commenced consultation on regulatory approaches to the use of genetic test results in life insurance underwriting. The consultation paper explores potential future regulatory approaches on genetic tests, including introduction of legislation and
The FSC has made a submission to the process to provide information on the current industry-led moratorium.
Further information on the consultation is available from the Treasury website.
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SUPERANNUATION
Government Closes Consultation on Retirement Phase of Superannuation
The Government has concluded its first consultation on the retirement phase of superannuation.
The Discussion Paper, released in December 2023, outlined a wide range of issues and potential solutions to create better outcomes for superannuation consumers in retirement.
Many of the issues outlined in the paper were aligned in the FSC’s Retirement Income Roadmap, which highlighted the issue of superannuation consumers viewing their superannuation as a nest egg, rather than an income source, and the need for better regulatory settings to encourage product modernisation, rationalisation, and innovation.
The FSC looks forward to working constructively with Government on improving retirement outcomes for Australians.
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Expected Consultation on Your Future Your Super
The consultation, announced at the end of last year by the Treasurer, will formally begin with a Treasury consultation paper, which as of writing has yet to be released.
The review is in light of feedback provided to the Government in relation to the performance test making it difficult for trustees to make socially conscious investments and to contribute to ‘nation building’.
The FSC held preliminary discussions with the Your Future Your Super Working Group where members supported the basic principles of no expansion of the test (to platforms or retirement products) and for there to be a high bar for change, noting the regulatory burden that would come with any significant changes.
If you are not on this working group and would like to be included, please reach out to This email address is being protected from spambots. You need JavaScript enabled to view it. who can provide you with further information.
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Consultation on Philanthropy in Australia
The Productivity Commission's draft report on philanthropic giving recommends changes to allow superannuation bequests to charitable organisations, including ways in which bequeathing of superannuation to charitable organisations can be encouraged.
The draft report includes recommendations that laws be changed to allow trustees to accept members’ death benefit nominations for charitable organisations. This process can become very difficult and time consuming for trustees, which could also lead to disputes with financially dependent beneficiaries among others.
The FSC made a submission recommending that superannuation be released to a person’s estate where funds can then be bequeathed to a charitable organisation of a member’s choosing. This process takes the burden away from trustees and allows for experts in estates, who are best placed to work through people’s affairs, to ensure funds are paid where the person wants after all obligations to financial dependents are fulfilled.
The FSC also made suggestions of including tax concessions when bequeathing assets from superannuation through an estate to further encourage giving of this nature.
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APRA Commences Work on Unlisted Asset Valuations
APRA is currently undertaking a review into trustee’s unlisted asset valuation governance where multiple trustees have reported having information requested from APRA. The scope of the review covers commercial property, private equity and credit as well as potential liquidity risks associated with exposure to unlisted assets.
The thematic review comes after the updated SPS 530 Investment Governance Prudential Standard came into effect on 1 January 2023 which includes several new requirements in relation to valuation governance and practices.
The FSC will continue regular engagement with APRA and raise any concerns that members may have in relation to this review.
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INVESTMENTS
Climate-related Financial Disclosures
Treasury has released exposure draft legislation for the introduction of the climate-related financial disclosure regime. The draft legislation, explanatory memorandum and policy statement can be found here. Separately, the Australian Accounting Standards Board (AASB) is consulting on the detailed requirements for climate related financial disclosures, drawing on the International Sustainability Standards Board (ISSB) sustainability disclosure standards. The exposure draft standards can be found here.
Some key elements of the disclosure regime include:
- The first annual reporting period for group 1 commences on 1 July 2024 for entities with a consolidated revenue of $500 million or more, consolidated gross assets of $1 billion or more of employees of 500 or more. (Treasury is open to feedback as to whether a 1 Jan 2025 commencement date would improve the quality of reporting during the transition year);
- The draft thresholds for reporting entities now include a special category for “asset owners” which is defined as registrable superannuation entities and registered schemes, with the threshold set at funds under management of over $5 billion. This begins in phase 2 (from 1 July 2026);
- Scope 3 emissions reporting is required from the second year of reporting. The expectation is for disclosure of scope 3 information that is available at the reporting date without undue cost or effort; and
- There will be a modified liability framework provided with a three-year relief period (from 1 July 2025 to 30 June 2028), with regulator only action allowed for breaches relating to scope 3 emissions and certain climate-related forward-looking statements for the fixed three-year period.
The FSC ESG working group has been providing input into the FSC submission. A key issue being worked through is where the reporting obligation lies (at the Responsible Entity or superannuation licensee entity level and the Managed Investment Scheme or Registrable Superannuation Entity fund level) and the interpretation of the new asset owners threshold.
Final submissions were due on 9 February 2024 for the Treasury exposure draft consultation. The AASB exposure draft consultation is due on 1 March 2024.
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Managed Investment Scheme Review
Treasury is looking to finalise its advice to the Government by early February 2024 on the review of the regulatory framework for managed investment schemes. The FSC met with Treasury in December 2023 and provided supplementary written feedback in January to further inform Treasury’s deliberations.
The FSC’s advocacy has emphasised the Australian funds management industry has been underpinned by a robust regulatory regime that has worked well, and major scheme collapses have been extremely rare. As such, we do not consider that large changes to the regulatory regime are necessary.
The FSC has provided support for an increase to the wholesale investor asset test threshold to $5 million including the family home, or a $2.5 million excluding the family home. We think the current level of the income test ($250,000) and the product value test ($500,000) remains appropriate. We support making the sophisticated investor test more objective so that funds and advisors have greater regulatory certainty in applying the test to individuals who have the requisite experience and knowledge to investment in wholesale products such as financial professionals or angel investors. Any changes to the wholesale investor test thresholds should be grandfathered.
Importantly, the FSC has emphasised that any changes to the wholesale investor test threshold should work hand in hand with ASIC’s consumer protection role. ASIC should use its existing powerful regulatory toolkit in the form of the Product Intervention Power and Design and Distribution Obligation stop orders to protect consumers from products that are likely to cause significant consumer detriment. We have argued that ASIC’s ability to protect consumers can be enhanced by collecting the right information at registration or using the information it already collects at registration, such as the proposed scheme’s investment strategy and personnel, so that it can identify potential risks early on and devote sufficient surveillance resources.
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The FSC ETP working group will continue to meet in 2024 and consider technical issues of importance to ETP product issuers including the introduction of T+1 settlement times and implications of the CHESS replacement project for issuers.
Treasury is currently consulting on the financial market infrastructure regulatory reforms, which seeks to implement the recommendations of the Council of Financial Regulators to reform the financial market infrastructure regulatory regime. The intent of the legislation is to empower the RBA to maintain the overall stability of the financial system and provide for the continuity of clearing and settlement facility services that are critical to the functioning of the financial system. The consultation can be found here.
Treasury is also consulting on a Corporations and Competition (Clearing and Settlement Services) Ministerial Instrument. Treasury is inviting feedback from stakeholders on the proposed definition of ‘cash equities’ contained in this instrument and on whether there is competition in any of the clearing and settlement services proposed to be covered by the draft instrument. The consultation can be found here.
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Compensation Scheme of Last Resort
Compensation Scheme of Last Resort (CSLR) Limited has been established as the operator of the scheme, which will commence from 1 April 2024. Appointments have been made to the operator, with David Berry as inaugural CEO. The Board of Directors will be comprised of Jo-Anne Bloch as an independent Chair, with Delia Rickard from AFCA and Kevin O’Sullivan, former UniSuper CEO, as non-executive directors.
The operator has released its initial estimate for matters related to the backlog of pre-CSLR complaints registered with AFCA prior to 8 September 2022. The estimated amount of $240.86 million is to be funded by a one-off levy on the ten largest financial firms by total income in 2021-22.
Other matters will be funded by the Government until 30 June 2024, after which the scheme will be funded by industry levies.
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ADVICE
Financial Adviser Registration Extended
ASIC has announced it is extending the date of compliance with new registration obligations for advisers to 16 February 2024. In an update ASIC noted a significant number of financial advisers are unregistered following recent legislative changes to the requirement to be registered on the financial adviser register.
No further extensions will be granted. After this date advisers who are unregistered and giving personal advice risk breaching the civil penalty provisions.
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Changes to the Financial Adviser Exam Legislated
The Government has legislated changes to the Financial Adviser Exam that will:
- Remove the short answer questions from the exam and increase the number of multiple-choice questions; and
- Remove the requirement that only provisional relevant providers and existing advisers can sit the exam (this means potential new entrants undertaking their studies can sit the Financial Adviser Exam rather than after completing their studies).
The legislation follows FSC advocacy to improve the administration of education requirements for the profession. The changes were subject to a consultation by Treasury over the course of December 2023 and January 2024.
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Webinar on Financial Adviser Registration
Following ASIC’s recent webinars on the registration requirement, recordings are now available on the ASIC website. A consolidated version of the questions asked during the course of the webinars will soon be published on the same webpage.
ASIC has also temporarily made available a dataset for AFS licensees to determine if a relevant provider is registered. This is a one-off, point-in-time dataset, as at 9:00am, 18 December 2023. This information will be made available as part of the Financial Advisers Dataset on data.gov.au in due course.
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TECHNOLOGY AND INNOVATION
Government Begins Consultation on Legislative Changes to Give Effect to National Cybersecurity Strategy
As foreshadowed at the end of last year, the Government has commenced consultation on legislative changes necessary to give effect to the National Cybersecurity Strategy.
Within the scope of the consultation is proposed new cyber security legislation including:
- Secure-by-design standards for Internet of Things devices;
- Ransomware reporting;
- Limited use obligation for information provided to the Australian Signals Directorate and the National Cyber Security Coordinator; and
- Establishing a Cyber Incident Review Board.
Also, within scope are changes to the Security of Critical Infrastructure (SOCI) Act including:
- Data storage systems and business critical data;
- Consequence management powers;
- Simplifying protected information provisions;
- Review and remedy powers; and
- Consolidation of telecommunications security requirements under the SOCI Act.
The FSC will be making a submission to the consultation highlighting the importance of consistency between existing frameworks and regulatory actions that would result in better information sharing.
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Government Responds to Regulating Artificial Intelligence Consultation
The Government has released its interim response to its consultation on Responsible Use of AI in Australia.
The response includes:
- Consideration of mandatory guardrails for AI development and deployment in high-risk settings;
- Working with industry to develop a voluntary AI Safety Standard;
- Working with industry to develop options for voluntary labelling and watermarking of AI-generated materials; and
- Establishing an expert advisory group to support the development of options for mandatory guardrails.
The FSC made a submission to the consultation last year outlining the importance of balancing regulation and innovation and ensuring that regulation is technology neutral so that there isn't a need for AI specific rules.
The FSC understands the Government intends to consult further throughout the year on the commitments in the response and will continue to engage constructively on this issue.
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Government Consults on Ending Cheques in Australia
In December 2023, the Government commenced consultation on the winding down of cheque use in Australia. It is proposed that Government use of cheques will be phased out by 2028 with the whole system wound down by 2030.
The consultation highlighted four key actions to achieve this:
- Reducing Commonwealth usage of cheques by working with agencies and departments with high cheque usage to develop a transition plan away from reliance on cheques;
- Supporting industry in promoting the use of, and removing barriers to, the adoption of alternatives to cheque products;
- Changing Commonwealth legislation that entrenches the use and acceptance of cheques with a view to amending legislation; and
- Working with state and territory counterparts to encourage a coordinated approach to transitioning away from the cheques system.
The FSC did not make a submission to the consultation but will continue to monitor developments and update members with relevant details.
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Government Consults on Updated Payments Licensing Framework
The Government has continued with its agenda to reform the payments system in Australia following the Farrell Review.
In December 2023, the Government commenced consultation on proposed changes to the licensing framework that would require payment service providers to hold and AFSL. Payment service providers (PSP) include providers of stored-value facilities, payment initiation services (such as direct debit providers), and payment facilitation services (such as clearing houses). In addition to general AFSL requirements, it is proposed that PSPs will also have additional financial requirements, including holding surplus liquid funds, and the application of client money rules for PSPs that hold client funds.
The consultation also proposed to make the currently voluntary e-payments code mandatory. The code binds subscribed payment providers to minimum standards, including consumer protections, in relation to electronic payments such as EFTPOS, credit card, and BPAY transactions.
The FSC will continue to monitor the ongoing consultations in relation to the payments system and provide relevant updates to members.
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LEGAL, TAX AND CROSS-PORTFOLIO
Australian Law Reform Commission Final Report
The Australian Law Reform Commission Final Report, Confronting Complexity: Reforming Corporations and Financial Services Legislation (Report 141, 2023), was tabled in Parliament on 18 January 2024.
The Final Report contains 58 recommendations, building on the three Interim Reports published during the inquiry, which contained 23 of the 58 recommendations.
As expected, the majority of the proposals contained in Interim Reports B and C (but to a lesser extent, Interim Report A, which has been overtaken to some extent by the Quality of Advice Review) have been converted into final recommendations, many of them word for word. The FSC made detailed submissions on these (then) proposals when they were tabled in the interim Reports, whereas a general comment, FSC noted it had concerns about the cost, time and regulatory burden involved with a number of the proposals.
The recommendations canvas a broad spread of potential changes. Some of the recommendations would appear to be relatively sensible and achievable, while others are seemingly more ambitious, in particular those under the categories of “restructuring and reframing financial services legislation” and “a legislative model for financial services”.
The FSC will convene a meeting of the LCEG WG to discuss the Final Report in early February with a view to preparing a letter to send to the relevant Government contacts.
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AFCA Approach to Determining Compensation in Complaints Against Financial Advice Firms
AFCA recently consulted on its draft approach to determining compensation in complaints against Financial Advice Firms where the Responsible Entity of a Managed Investment Scheme (MIS) has become insolvent. AFCA have now published the finalised approach document.
AFCA noted that during the consultation, stakeholders sought clarity on a number of matters, including:
- How AFCA assesses complaints and apportions loss in the event a MIS (that was the subject of the advice) had failed;
- How AFCA determines complaints and calculates loss in relation to financial advice complaints; and
- Further explanation in the case studies to make it clear that advice providers would not be held liable for client losses relating to an insolvent MIS, if the advice provider demonstrates they were not involved in or could not have reasonably known about the MIS’s failure, when the advice was provided.
AFCA have noted their objective is to align the approach with relevant laws and to clarify existing AFCA practices and they do not intend to create new obligations.
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Design and Distribution Obligations (DDO)
The FSC is discussing with members priorities for DDO policy advocacy work for 2024, members who are interested in joining in this discussion should note these discussions will be led through the DDO and PIP WG.
Separately, the FSC and members have finalised a revised DDO due diligence questionnaire to address recent ASIC commentary including Report 762 and updated Data Standards, these documents are going through final internal approvals.
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Anti-Money Laundering and Counter-Terrorism Financing Laws (AML/CTF) Privacy Report
There has still not been any firm indication of when a further consultation round will commence, while it had been promised for late 2023 there is no update from the AGD. The FSC is continuing to monitor the situation.
The FSC is also separately continuing to update its suite of AML/CTF forms and discussing changes and updates with the FAAA and members.
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The timing for the release of the final Minister, Regulator and Transitional rules remains uncertain.
Following the release of the Minister Rules, the Regulators have indicated they will publish further information packages to assist industry to implement the FAR.
A package focused on the superannuation and insurance industries, which will include consultation on key functions, is planned to be released in Q1 2024.
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Foreign Financial Service Providers
Late last year the Treasury Law Amendment (Better targeted Superannuation Concessions and Other Measures) Bill 2023 (TLAB), which contained the proposed new FFSP provisions, was referred to the Senate Economics Legislation Committee for inquiry. Their report is due on 19 April 2024.
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Tax Deductions and Financial Advice Fees
GST guidance
The ATO has released guidance on eligibility for GST credits on financial advice fees paid from superannuation funds and investor-directed portfolio services. It considers circumstances in which relevant funds are not considered by the ATO to be the recipient of the supply of advice and cannot claim a reduced income tax credit for the payment.
The FSC requested the ATO consider extending commencement from 1 April 2024 to a later date, considering the need for impact assessment, system change and communication requirements to be met to ensure compliance. The guidance has since been amended to provide for a three-month extension to this timeframe until 1 July 2024.
Income tax determination
The ATO has also released a draft tax determination (TD2023/D4) on deductions for financial advice fees claimable by individuals in their income tax return. A consultation period on this instrument was closed on 2 February 2024.
The FSC has made a submission to this consultation to seek further clarification of the circumstances in which these deductions can be claimed in the finalised instrument. The submission can be found here.
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The Government released its Migration Strategy on 11 December 2023. As part of the strategy, a new Talent and Innovation visa stream will be developed. Intended to grow sectors of national importance and the venture capital industry, the new visa will provide a more targeted, streamlined process to attract a small number of applicants capable of making outsized contributions to Australia.
Consultation on the new visa stream is expected to commence in early to mid 2024.
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