Issue 866, 30 August 2022
In this issue:
Quality of Advice Review: consultation
The Quality of Advice Review has released a proposals paper seeking views on proposed reforms to simplify the regulatory framework to better enable to provision of high quality, accessible and affordable financial advice for retail clients.
The paper raises a number of questions around these themes:
- what should be regulated?
- how should personal advice be regulated?
- intra-fund advice and paying for advice through superannuation
- disclosure documents
- Design and distribution obligations
- transition period and enforcement.
If you have any feedback you would like ASFA to consider in relation to the proposals paper, please forward it to Helena Gibson by close of business 7 September.
The Review, established by the former Government, is due to provide its final report and recommendations by 16 December (see ASFA Action issues 857, 847, 845, 838 for background).
Improving financial services laws: consultations
The Government has launched consultation on two packages of draft legislation to reduce the complexity of Australia’s corporations and financial services law and improve its navigability.
The first package of draft legislation and regulations relates to implementation of recommendations from the Australian Law Reform Commission’s Interim Report A from its ongoing Review of the Legislative Framework for Corporations and Financial Services Regulation (see ASFA Action issue 836 for background). The proposed reforms are intended to reduce the complexity of Australia’s corporations and financial services laws by making these laws more adaptive, efficient and navigable within existing policy settings.
The second package of draft legislation and regulations will move nominal modifications of the law currently in legislative instruments made by ASIC directly into the primary Acts and Regulations. This will provide greater certainty making it easier for stakeholders to identify their rights and obligations under the financial services law. This second package includes the draft Treasury Laws Amendment (Rationalising ASIC Instruments) Regulations 2022.
Specifically, these draft regulations concern the existing relief granted for all registrable superannuation entities from the requirement to have an Australian Financial Services licence authorising conduct related to investment activity on behalf of fund members (commonly referred to as the ‘dealing exemption’). This is provided by section 5 of ASIC Corporations (Superannuation and Schemes: Underlying Investments) Instrument 2016/378, which was extended by ASIC in June 2021 for a period of 18 months, ending 31 December 2022. The proposed regulations will move the existing exemption into the Corporations Regulations 2001 to provide ongoing relief for superannuation trustees and are intended to commence on 1 January 2023.
ASIC has indicated to ASFA that:
- it will not consult separately on the operation of section 5 of Instrument 2016/378 prior to its expiry on 31 December 2022
- trustees should not be taking active steps in the interim period, such as preparing AFS licence variation applications, or seeking individual relief from the obligations currently exempted for the industry.
The Government has indicated that, following consultation, it will introduce legislation later this year to simplify and improve Treasury portfolio laws. This legislation represents the first tranche of improvements the Government will progress to simplify corporations and financial services legislation.
Treasury is seeking comments on both consultation packages by close of business Tuesday 20 September.
Financial adviser professional standards: consultation
As reported in ASFA Action issue 864, in early August the Government flagged some upcoming consultations and reviews relating to aspects of the professional standards applicable to financial advisers.
Treasury has now released a paper in relation to one of these consultations. Treasury is seeking feedback on how best to implement the Government’s pre-election commitment to remove the tertiary education requirements for financial advisers who have passed the exam, have 10 years’ experience in Australia and have a clean disciplinary record of financial practice.
The consultation paper also seeks feedback on how education standards for new entrants could be improved, allowing financial advice to continue to develop into a career of choice. The paper proposes options to streamline the core knowledge areas for degrees, and to simplify the degree approval process and professional year.
Treasury is seeking comments by close of business Friday 16 September.
Modern Slavery Act: consultation
The Government is undertaking a statutory review of the Modern Slavery Act 2018 now it has been in operation for three years.
The Act requires large businesses and other entities operating in Australia– including many superannuation funds to report annually on how they are addressing modern slavery risks in their domestic and global operations and supply chains. (See ASFA Action issue 753, 723 and 706 for background.)
The review has released an issues paper that raises consultation questions on matters including the impact of the Act and the appropriateness of the reporting requirements and the Modern Slavery Statements Register.
If you have any feedback you would like ASFA to consider in relation to the consultation paper, please forward it to Maggie Kaczmarska by close of business Tuesday 25 October.
Treasury portfolio regulators – virtual hearings and examinations: consultation
Treasury has released a consultation package seeking views on exposure draft legislation and regulations to clarify that relevant Treasury portfolio regulators can hold hearings and examinations virtually.
The proposed amendments are part of an ongoing process to modernise business communications across Treasury portfolio laws and aim to ensure that hearings and examinations can be held quickly and efficiently for the benefit of all parties.
Treasury is seeking comments by close of business Friday 23 September.
Superannuation Data Transformation Project phase 2: APRA response to consultation
APRA has released a response paper emphasising the timelines and scope for Phase 2 of the Superannuation Data Transformation (SDT) project.
The SDT project aims to drive better industry practices and improve member outcomes through heightened transparency. Phase 2 “Depth” will explore new and better approaches to data reporting, across all areas of superannuation fund operations.
APRA’s response paper notes that:
- it will bring forward some aspects of Phase 3 of the project (“Quality”) that relate to Phase 1 reporting standards, with consultation on Phase 1 minor amendments to be completed by year end 2022
- as a result of the prioritisation of Phase 1 minor amendments, informal engagement on Phase 2 will begin in September, with the first formal consultation on Phase 2 reporting standards to be delayed to February 2023
- APRA has also reviewed the sequencing to prioritise migration of pre-SDT reporting standards and to meet APRA’s commitment that the superannuation industry will not have to report on D2A by 2025
- when sequencing topics, APRA has further prioritised redesign and implementation of pre-SDT reporting standards where Phase 1 reporting standards capture only part of data to enable the entire reporting standard to be decommissioned.
In response to feedback, APRA will now consult over four releases (rather than three), with the overall consultation timeline extended from 9 months (ending in June 2023) to 14 months (ending in April 2024), as follows:
- RSE licensee profile, RSE profile, investments – March 2023 to April 2023
- RSE licensee operations, governance, financial data, non-financial risk – May 2023 to June 2023
- Membership, insurance, defined benefits – October 2023 to December 2023
- Disclosure, retirement income strategy – March 2024 to April 2024.
APRA will release final reporting standards together with the response to each topic’s consultation. In response to stakeholder feedback, APRA has allowed for 12 months for industry to implement the new reporting requirements before the first due date in the adjusted timetable. The paper provides a detailed implementation deadline for releases of reporting standards from July 2023 through to July 2024.
DDO target market determinations: ASIC urges improvements by super funds
ASIC has called on trustees of superannuation funds to review and (if necessary) improve the effectiveness of target market determinations (TMDs) for their products.
Under the design and distribution obligations (DDO) regime, firms are required to design financial products to meet the needs of consumers and to distribute their products in a more targeted manner. The obligations apply to choice superannuation products, but not to MySuper products, defined benefit interests, or superannuation products that are no longer for issue or sale. Trustees are required to produce TMDs for choice superannuation products offered after the DDO regime commenced on 5 October 2021. TMDs are an important requirement for all financial products under the DDO regime. A TMD is a mandatory public document that sets out the class of consumers a financial product is likely to be appropriate for (the target market), and settings relevant to the product’s distribution, monitoring and review.
ASIC has reviewed a sample of 55 TMDs prepared by 27 superannuation trustees across the industry, retail, corporate and public sectors for both accumulation and retirement products. ASIC Commissioner Danielle Press said “Some of the target market determinations that we looked at gave us comfort that they may be part of a well-designed and comprehensive governance program. However, others by their lack of specificity, raised questions about the underlying arrangements that trustees have in place to ensure their products reach the right consumers”.
ASIC has made observations about the TMDs and TMD processes it reviewed, in terms of how they defined target markets, described investment sub-markets, set review triggers and periods, and dealt with distributor complaint reporting.
Commissioner Press said:
“We expect all trustees to consider these observations when reviewing their target market determinations. Trustees are strongly encouraged to focus on clarity and specificity to ensure these documents are fit-for-purpose.
Trustees must not adopt a ‘set and forget’ approach to their target market determinations. Failure to review them regularly and take corrective action can result in harm if the product is inconsistent with the objectives, financial situation and needs of consumers in the target market. ASIC is now focussing on compliance with the design and distribution obligations, and we will move to enforce the obligations where necessary”.
‘.au’ Domain names: ASIC encouraging funds to urgently consider applying for priority access
ASIC has asked ASFA to highlight to our members the 20 September deadline to apply for priority access to the new ‘.au’ domain names.
In March this year, the (non-Government) regulator, .au Domain Administration (auDA), released its new ‘.au’ direct namespaces. As part of this release, the auDA announced a priority allocation process to allow entities to apply for priority status through an auDA accredited registrar to register the exact match of their existing domain name at the .au direct level. More information about the new namespace and allocation process can be accessed from the auDA website.
After 20 September, owners of .com.au, .net.au and similar domain names will lose priority access to the .au namespace. This raises the risk that impersonators, domain squatters or cyber criminals may take up domain names almost identical to existing .com.au, .net.au and similar names.
ASIC has asked ASFA to highlight to our members the importance of superannuation funds participating in the auDA’s priority allocation process for .au domains, to safeguard their brand and identity on the internet.
For further assistance or advice on continuing cyber security matters, ASIC indicates that trustees should consider contacting the Australian Cyber Security Centre.
FRAA review of ASIC: report tabled
The Government has tabled in Parliament the review by the Financial Regulator Assessment Authority (FRAA) of the effectiveness and capability of ASIC.
The FRAA was established in response to recommendations from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (see ASFA Action issues 811 and 807 for background) and is tasked with reviewing and reporting on the effectiveness and capability of ASIC and APRA.
The FRAA’s first review was a targeted assessment of ASIC’s effectiveness and capability in strategic prioritisation, planning and decision making, ASIC’s surveillance function, and ASIC’s licensing function. The review also examined ASIC’s use of data and technology in each of these areas of focus. The FRAA concluded that ASIC is “generally effective and capable in the areas reviewed, although there are important opportunities to enhance its performance”. The FRAA’s recommendations are that ASIC:
- requires a substantial uplift in its data and technology capability, which will involve cultural change
- should have a stronger focus across the organisation on enhancing the quality of its engagement with stakeholders
- should enhance its ability to measure its own effectiveness and capability and communicate the outcomes of such assessment transparently, both internally and externally
- should continue to broaden its mix of skill sets to ensure it can meet the current and future needs of the organisation.
ASIC has welcomed the report and the FRAA’s acknowledgment that ASIC has several initiatives underway that align to the recommendations. ASIC Chair Joe Longo said ASIC “will continue to implement the FRAA’s findings in our future work. We will always be committed to ongoing improvement of our effectiveness and capability to become an even stronger regulator, trusted by the community and always looking ahead”.
ASFA REGULATORY WATCHLIST
ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations
and other regulatory announcements relevant to superannuation.
