Welcome to Issue 79 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.
Click on the topic of interest below to read more.
Digital ID Legislation Passes Parliament
FSC responds to Government's performance test consultation
Government confirms superannuation on paid parental leave
FSC recommends an industry-led approach to ORFR Management
ASIC releases results of desktop survey on death benefit nominations
ASIC releases report on the monitoring of advice fees by trustees
FSC submits to Senate Inquiry on Tranche 1 Advice Legislation
Government continues commitment to fighting scams
Government continues push to regulate AI
Made in Australia - Incentives for Investors
Streamlining Foreign Investment Requirements
Sustainable Finance Agenda - climate-related financial disclosures, product labelling and sustainable finance taxonomy
Climate-related Financial Disclosures Inquiry - Committee Report
Managed Investment Scheme Review and Wholesale Investor Test
Anti-Money Laundering and Counter-Terrorism Financing Laws (AML-CTF)
AUSTRAC consultation on industry contribution levy
AUSTRAC consultation on outsourcing
Financial Accountability Regime
Breach Reporting (Reportable Situations)
Design and Distribution Obligations (DDO)
Government Commits Funding to the Regulatory Grid
PARLIAMENT, LEGISLATION AND REGULATION
Digital ID Legislation Passes Parliament
Digital ID legislation allowing the current verification service to be expanded to state and territory based identification, such as drivers’ licenses and allow private companies to create verified IDs using the verification service.
In the Budget, the Government will provide $288.1 million over four years to support the initial delivery of the Digital ID system and support more Australians to realise Digital ID’s economic and privacy benefits.
SUPERANNUATION
FSC responds to Government's performance test consultation
In March 2024, the Government released a consultation covering several alternative design options for the annual performance test driven by the Government’s recent policy objective of using superannuation to fund government initiatives. The consultation was an initial sounding of different methodologies for the performance test as well as potential changes to key aspects of the test including how fees are incorporated and the scope of the test.
The FSC made a submission recommending that the status quo remains, with a few technical tweaks, with the largest tweak being to give the Government the option to add a benchmark that addresses emerging asset classes, such as around housing and the energy transition. The FSC also recommended a review of benchmarks, that current fees remain in the calculation, the test is not expanded, and that a product modernisation regime be brought in, to address barriers to consolidation.
The FSC will continue to engage with the Treasury and other stakeholders as they develop their response to submissions. It is unlikely that any major changes will be made for the 2024 performance test.
Please contact Aidan Johnson if you would like further information.
Government confirms superannuation no paid parental leave
One of the centrepieces of the Budget was $1.1 billion over four years from 2024-25 (and $0.6 billion per year ongoing) to pay superannuation on Commonwealth Government-funded paid parental leave (PPL) for births and adoptions on or after 1 July 2025. Eligible parents will receive an additional payment based on the Superannuation Guarantee (12 per cent of their PPL payments), as a contribution to their superannuation fund.
FSC recommends an industry-led approach for ORFR Management
APRA released draft SPS 114 and SPG 114 as part of the next stage in their consultation series on trustee financial resilience. As the FSC had requested in our previous submission, APRA have moved away from their Baseline+ model, which would have seen trustees have two levels of funding held, and returned to the original requirement. APRA also included guidance with an explicit disallowance of using the ORFR to pay fines, also in line with the FSC’s previous submission.
The FSC has now made a submission on the draft standard and guidance which recommends giving trustees more responsibility with choosing target amounts and managing the associated financial resources. The draft guidance still strongly sticks to the 25 basis points requirement and only allows a move away from this in exceptional circumstances. The FSC recommends that this should be more permissive for trustees that can model and demonstrate a more suitable target amount. Our submission also focuses on removing red tape and processes, such as removing the investment strategy requirement in the cases the ORFR is made up of trustee capital.
The FSC will continue to engage with APRA as they finalise the standard and guidance, which is planned to be released in July 2024, with a commencement date of 1 July 2025.
Please contact Aidan Johnson if you would like further information.
ASIC releases results of desktop survey on death benefit nominations
Over the last several months, ASIC has been conducting a review into the death benefit claims and payments practices of superannuation funds. The early phase of this review involved an analysis of ASIC captured data through internal dispute resolution reporting as well as a desktop review of superannuation fund websites.
ASIC commented that the IDR data set showed that there had been a steady rise in complaints over 2023 and that the number of complaints about death benefit claims handling was high. The desktop review also found many websites to be lacking critical or well explained information about the death benefit process.
ASIC intends to continue its work on death benefits by conducting further, in depth surveillance of select Trustees, incorporating different corporate types as well as insourced and outsourced administration arrangements.
The FSC will continue to monitor ASIC’s work in this area and provide input where appropriate.
INVESTMENTS
Made in Australia - Incentives for Investors
The Federal Budget announced that a ‘single front door’ for investors will be established to encourage and facilitate private sector investment into areas of national strategic importance identified by the government. This ‘front door’ will be developed via a Treasury led consultation with industry and other stakeholders over the course of 2024.
The front door is intended to:
- Provide a single point of contact for investors and companies with major investment proposals,
- Deliver a joined-up approach to investment attraction and facilitation,
- Identify priority projects related to the Government’s Future Made in Australia agenda,
- Support accelerated and coordinated approvals decisions, and,
- Connect investors with the Government’s specialist investment vehicles.
Streamlining Foreign Investment Requirements
The Federal Budget allocated $182.7 million over eight years from 2023–24 (and $4.5 million ongoing from 2031–32) to strengthen approval processes to support the Future Made in Australia agenda and the transition to net zero. This includes $15.7 million over four years from 2024–25 (and $4.1 million per year ongoing from 2028–29) for Treasury to streamline Australia’s foreign investment framework, including for investors with a proven track record.
For investors with a proven track record, FIRB will streamline application and administrative processes by taking a risk-based approach in fast tracking investment applications and avoiding duplication of application paperwork.
The consultation for the exemption of interfunding applications is currently underway and was a Budget measure announced in the 23/24 Budget. The FSC will provide a submission reiterating proposals we have previously provided to Treasury.
The Budget also announced:
- 75 per cent of fees for foreign investment applications that do not proceed will be refunded where the applicant was unsuccessful in a competitive bid process.
- Treasury will adopt a new target processing 50 per cent of foreign investment applications within the 30-day statutory timeframe from 1 January 2025.
The Budget has provided $17.3 million over four years from 2024–25 (and $3.1 million per year ongoing) for promoting sustainable finance markets in Australia. Funding will also be met through ASIC and APRA industry levies. This includes:
- $10.0 million over four years from 2024–25 (and $1.9 million per year ongoing) in additional funding for ASIC to undertake enforcement against greenwashing and sustainability-related misconduct.
- $5.3 million over four years from 2024–25 (and $1.2 million per year ongoing) for Treasury, ASIC and APRA to deliver the sustainable finance framework, including issuing green bonds, improving data and engaging in the development of international regulatory regimes.
- $1.6 million over two years from 2024–25 for ASIC and Treasury to consult on the development of a retail investment product labelling regime.
- $0.5 million in 2024–25 to continue development of an Australia’s sustainable finance taxonomy including expanding its coverage to the agriculture sector.
- An additional $1.3 million to develop guidance on best practices for disclosing net zero transition plans.
Climate-related Financial Disclosures Inquiry - Committee Report
The Senate Economics Legislation Committee has handed down its report on the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024, which includes the Bill to implement climate-related financial disclosures. The Coalition will oppose the Bill if it is not amended to address its concerns around cost to small and medium sized businesses and the burden that scope 3 emissions reporting may have on small business who, it is argued, may have to report as part of the supply chain. The Greens and Senator Pocock have also proposed amendments, with the Greens expressing reservation about supporting the Bill if the government does not address the Greens’ concerns about Labor’s gas policy.
Managed Investment Scheme Review and Wholesale Investor Test
The FSC has provided a submission to the Parliamentary Joint Committee on Corporations and Financial Services on the wholesale investor and wholesale client tests.
The FSC awaits the Government’s final response to the Treasury review into the regulatory framework of managed investment schemes, which are expected to be made soon. Recent media reporting suggesting the Government intends to hold over changes to the wholesale investor test until the next parliament.
Please contact Chaneg Torres if you would like further information.
The Budget contained a measure to implement a new National Innovation Visa from 2024. This visa aims to attract exceptionally talented migrants and replace the Global Talent visa and the Business Innovation and Investment visa. The FSC will remain engaged with the Government on retaining the benefits to Australia provided by the Significant Investor Visa by retaining a component for highly successful entrepreneurs and investors as part of the new visa.
Please contact James Young if you would like further information.
ADVICE
ASIC releases report on the monitoring of advice fees by trustees
ASIC released a report with its findings from a review into how superannuation trustees are monitoring fee deductions for financial advice, largely driven by concerns around fees for no service, cold-calling and online baiting tactics by some advisers and licensees. The FSC is currently working through issues identified with ASIC’s review as outlined further below.
ASIC’s review was conducted over a 12-month period from a sample of 10 trustees and covered 476,000 member accounts that were charged a total of $990 million in advice fees. The key findings of its review included:
- Some trustees that did not check any samples of advice documents, either on a random or risk basis;
- Fee caps were not set to what ASIC deems reasonable with some being as high as $20,000 or 5% of a member’s balances;
- Varied processes of onboarding advisers and licensees. ASIC determined better practices to include higher levels of engagement and processes for advice documents and policies on complaints; and
- Increasing standards for monitoring of advisers and licensees to better stamp out practices such as cold-calling. Better practices were those who maintained intelligence and used watchlists.
As a result of these findings ASIC has highlighted several areas where they are expecting trustees to be more active in monitoring and having checks and balances including:
- Proactive Checks - Trustees should conduct proactive checks of advice documents to ensure services are delivered and comply with legal standards. This should include both risk-based and random checks;
- Fee Caps - Fee caps should be carefully set to prevent balance erosion, especially for members with low balances. These caps should reflect the actual cost of providing advice and the specific needs of members;
- Robust Onboarding - The onboarding process for advisers and licensees should include comprehensive background checks to understand their business models and prevent enabling unscrupulous practices;
- Active Monitoring - Regular monitoring should be conducted through checks against the Financial Advisers Register and maintaining watchlists to identify risky behaviours among advisers and licensees; and
- Clear Fee Communication - Fee labels should be clear and understandable to members, accurately reflecting the nature and frequency of charges.
- Complaints Handling - Trustees should promptly investigate member complaints about advice fees, as these can indicate broader systemic issues.
ASIC has said it would publish an Information Sheet in the coming weeks that would set out how financial services laws apply to cold calling operators, financial advisers, and financial advice licensees.
While the FSC supports reducing the harm caused by instances of tactics by some advisers and licensees, it is important that the data is presented accurately and does not tarnish the reputation of the industry as a whole.
Please contact Zach Castles if you would like further information.
FSC submits to Senate Inquiry on Tranche 1 Advice Legislation
The FSC has submitted to the Senate Economics Committee’s inquiry into the Treasury Laws Amendment (2023 Measures No. 1) Bill. The first tranche in the Government’s reforms to financial advice aims to provide superannuation funds legal certainty when deducting advice fees, revised fee consent requirements, and simplify requirements around the provision of Financial Services Guides and insurance commissions arrangements.
The FSC provided detailed concerns regarding the ultimate implications of Schedule 1 of the Bill on trustees that would very likely increase and limit provision of financial advice further when the Governments intent is to increase access to financial advice. The submission noted concerns with:
- The requirements going beyond the risk-based practices of trustees leading to individual SOA checking
- Drafting that could likely see funds rejecting the deduction of advice fees where a client requests it.
The Senate Economics Committee is expected to hold public hearings over the coming weeks. Members will be kept updated on developments. The Tranche 2 legislation on the Best Interests Duty and introducing advice records along with other reforms to advice disclosure is expected to also be released over the next month.
TECHNOLOGY AND INNOVATION
Government continues commitment to fighting scams
In the 2024 Budget, the Government committed $67.5 million over four years from 2024–25 (and $8.6 million per year ongoing), partially funded from ASIC industry levies, to continue to combat scams and online fraud through the introduction of mandatory industry codes, to be established under a Scams Code Framework, and increase use of the secure eInvoicing network.
The Codes, consulted on earlier this year, will apply initially to banks, telcos, and digital platforms. The Minister intends to extend the codes to other industries, including superannuation, within the medium term.
Government continues push to regulate AI
The Government committed $39.9 million over five years in the 2024 Budget for the development of policies and capability to support the adoption and use of artificial intelligence (AI) technology in a safe and responsible manner, including the establishment of a reshaped National AI Centre and an AI advisory body.
The Government will provide $288.1 million over four years from 2024–25 to support the initial delivery of the Digital ID system and support more Australians to realise Digital ID’s economic and privacy benefits.
Please contact Kirsten Samuels if you would like further information.
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LEGAL, TAX AND CROSS-PORTFOLIO
Anti-Money Laundering and Counter-Terrorism Financing Laws (AML-CTF)
AGD Consultation on proposed reforms of Australia’s anti-money laundering and counter-terrorism financing
In April 2023 the Attorney-General’s Department (AGD) announced Part 1 of its public consultation on proposed reforms of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime. Part 2 of the consultation (which goes into more detail on the proposed reforms) was announced on 2 May 2024.
The consultation includes potential reforms to simplify, clarify and modernise the regime, including as follows:
AML/CTF program reforms: the AGD proposes to streamline the separate parts of an AML/CTF program into a single obligation and reinforce the requirement for regulated entities to take a risk-based approach to their AML/CTF program. The revised AML/CTF programs obligations would include the following key elements:
- An overarching risk assessment obligation
- Proportionate risk mitigation measures
- A simplified business group concept (replacing the ‘designated business group’ (DBG) concept)
- Specific internal controls (to clarify the roles and responsibilities of a reporting entity’s board or equivalent senior management and its AML/CTF Compliance Officer)
- Simplified obligations for foreign branches and subsidiaries
New customer due diligence framework: the AGD proposes to replace the existing CDD framework and outline the following core obligations of CDD:
- assign each customer a risk rating
- carry out Initial CDD (replacing “Applicable Customer Identification Procedures”, or ACIP)
- apply ongoing CDD measures to each customer proportionate to risk, including transaction monitoring and re-verifying Know Your Customer (KYC) information when appropriate. The customer risk rating will determine what type of initial CDD and ongoing CDD is required:
- Enhanced CDD: Reporting entities must apply additional CDD measures to customers rated as higher risk, and to some specified relationships
- Simplified CDD: Reporting entities may apply simplified CDD measures to customers rated as low risk
- Standard CDD: In circumstances outside of enhanced CDD and simplified CDD, reporting entities may conduct standard CDD in line with requirements set out in the Rules.
Exception for assisting an investigation of a serious offence: eligible law enforcement agencies will be able to issue a ‘keep open notice’ directly to a reporting entity to enable them to continue to provide a designated service to a customer notwithstanding the entity is unable to fully comply with the AML regime if this would assist with the investigation of a serious offence.
New tipping off offence: will focus on preventing the disclosure of SMR information or section 49 related information where it is likely to prejudice an investigation or potential investigation. The new framework would clarify that reporting entities can disclose information for legitimate purposes.
Further changes were also announced relevant to digital currency exchange providers (DCEPs), remittance service providers and financial institutions.
The consultation will close on 13 June 2024. The AGD is holding a series of sector-specific roundtables to have detailed discussions and seek feedback on particular elements of the reforms. An FSC submission is being developed through the AML WG.
The FSC is also separately continuing to update its suite of AML/CTF forms and discussing changes and updates with the FAAA and members.
AUSTRAC consultation on industry contribution levy
AUSTRAC has asked for submissions on the proposed arrangements for the 2023-24 industry contribution levy. AUSTRAC funds its activities as Australia’s AML/CTF regulator and financial intelligence unit through an industry contribution levy. The legislative authority for the levy is the Australian Transaction Reports and Analysis Centre Industry Contribution Act 2011 and Australian Transaction Reports and Analysis Centre Industry Contribution (Collection) Act 2011.
The industry contribution consultation paper provides further detail on the levy, the individual levy factors for the financial year and the proposed calculation model for determining the levy amount.
The FSC is working with members to prepare a submission. The FSC will be advocating for a calculation method which is more correlated to the earnings of an individual entity that are generated from regulated activity.
AUSTRAC consultation on outsourcing
AUSTRAC asked for submissions on draft guidance on outsourcing. This guidance is intended to help reporting entities:
- comply with AML/CTF obligations when outsourcing
- identify, mitigate and manage money laundering and terrorism financing (ML/TF) risks that could arise from outsourcing
- take steps to ensure providers tailor outsourcing arrangements to their business and its specific ML/TF risks.
The FSC made a submission through the AML/CTF WG noting that the draft guidance should be more specific and detailed.
Financial Accountability Regime
ASIC and APRA released a new information package and consultation on FAR on 14 March 2024. This follows finalisation of the Minister Rules (on 6 March) and Regulator Rules for ADIs (on 8 March).
The FSC made a submission to the consultation providing feedback on the proposed list of key functions for the insurance and superannuation industries and the supporting key functions descriptions. The FSC has requested clarity on timing of release of the final Regulator Rules that would apply to insurance and superannuation and has advocated for a facilitative compliance period to apply.
Breach Reporting (Reportable Situations)
The FSC has reached out to ASIC to arrange a meeting to discuss ongoing concerns with the implementation of the reportable situations regime, notably with regard to deficiencies with the ASIC Portal and available regulatory guidance.
The meeting will also involve the participation of selected members of the Breach Reporting WG..
Design and Distribution Obligations (DDO)
The FSC met with Treasury recently to discuss member concerns about the DDO regime. The meeting touched on concerns raised in the DDO and Product Intervention Power (PIP) working groups, notably the rules surrounding reporting significant transactions by distributors to issuers.
FSC will continue to liaise with Treasury.
The FSC DDO and PIPS WG continues to meet on an ad hoc basis where members wish to raise new issues or concerns.
Please contact Ashley Davies if you would like any further information.
Government Commits Funding to the Regulatory Grid
The Government will provide $13.9 million over five years to progress competition reforms, including developing a Regulatory Initiatives Grid for the financial sector to provide greater transparency of announced regulatory reforms and planned regulator initiatives and activities to promote better collaboration and engagement with industry and reduce regulatory burden.
The Regulatory Grid is something that the FSC has long advocated for to provide regulatory certainty to the financial services sector and ensure that different Government Departments coordinate before conducting reforms.
The Government has announced that the measure to deny deductions for payments relating to intangibles in certain jurisdictions outlined in the October 2022-23 Budget will be discontinued, as current measures to implement Pillar Two of the OECD/G20 global and domestic minimum tax framework will address the tax integrity issues that were the focus of this measure.