Issue 871, 5 October 2022
In this issue:
Bills referred to Senate Economics Committee: FAR, CSLR, YFYS faith-based performance test
As reported in ASFA Action issue 868, in early September the Government introduced into Parliament Bills to:
- implement the Financial Accountability Regime (FAR): Financial Accountability Regime Bill 2022 and Financial Sector Reform Bill 2022
- establish a financial services Compensation Scheme of Last Resort (CSLR): Financial Sector Reform Bill 2022, Financial Services Compensation Scheme of Last Resort Levy Bill 2022 and Financial Services Compensation Scheme of Last Resort Levy (Collection) Bill 2022
- modify the Your Future, Your Super (YFYS) performance test for faith-based superannuation products: Treasury Laws Amendment (2022 Measures No 3) Bill 2022.
Each of these Bills has now been referred to the Senate Economics Legislation Committee for inquiry and report:
- by 20 October in relation to the FAR and CSLR Bills – submissions close 7 October
- by 17 November in relation to Treasury Laws Amendment (2022 Measures No 3) Bill 2022 – submissions close 12 October.
This is despite the Committee already having considered substantially similar Bills to establish the FAR and CSLR that were introduced by the previous Government and lapsed when Parliament was dissolved for the election.
Review of ASIC industry funding model: consultation
Treasury has released a discussion paper as part of the review of the ASIC industry funding model (IFM) announced by the Government in August (see ASFA Action issue 863).
The purpose of the Review is to identify any refinements to the IFM that may be required to ensure its settings remain appropriate in the longer-term. The Review will consider:
- the design, legislative framework and flexibility of the IFM
- the types of costs and activities that are recovered from industry and how these costs are allocated and recovered
- changes in levy amounts since the commencement of the IFM
- the suitability of transparency and consultation mechanisms.
The Review will also have regard to the temporary levies relief provided to personal financial advice licensees in respect of 2020-21 and 2021-22 (see ASFA Action issue 822).
ASIC’s role and regulatory remit, its performance and its independence to allocate resources to deliver on its mandate are not within the scope of the Review. Additionally, the Review will not assess or make recommendations on the appropriate aggregate level of funding provided to ASIC.
If you have any feedback you would like ASFA to consider in relation to the discussion paper, please forward it to Andrew Craston by close of business Friday 14 October.
Reportable situations regime: ASIC discussion paper
As reported in ASFA Action 864, ASIC has announced that, as part of its 2022-23 Core Strategic Priorities, it will focus on improving the operation of the reportable situations regime (formerly known as breach reporting).
ASIC has indicated that it is aware that the regime has led to a number of implementation challenges. To support the success of the regime, it has developed a comprehensive plan of work to ensure that the regime meets its objectives for ASIC, industry and consumers.
As an early phase of this work, ASIC is consulting with industry on priority issues and proposed solutions, arising from industry engagement since the regime commenced, and their own data analysis.
ASIC has released a discussion Paper, setting out 22 issues and proposed solutions, for feedback from industry, as well as more information about this process.
ASIC has indicated that it potentially could address 15 of these issues in the short term, where possible, through supplementary guidance or minor changes to the reporting form. These issues include:
- circumstances in which related reportable situations should be grouped into a single report
- calculation of the number of reportable situations, the number of instances or the number of clients affected
- use of placeholder values for client financial loss or clients affected
- expectations for frequency of lodging updates
- quality of breach descriptions
- date the licensee first identified there may be a breach
- reporting on previous similar breaches
- definition of ‘investigation complete’.
ASIC has indicated that it is possible it will not be in a position to implement solutions to all of the issues in the Discussion Paper, however, it will prioritise implementation of solutions that will be of highest impact and will be quickest to implement.
ASIC is requesting feedback on the first 15 issues identified in the Discussion Paper, in particular whether the proposed solutions could work to improve the operation of the regime, by Friday 21 October.
If you have any feedback you would like ASFA to consider in relation to the Discussion Paper, please forward it to Fiona Galbraith by close of business Friday 14 October.
Review of financial services legislation: ALRC second interim report
As reported in ASFA Action over the last two years, the Australian Law Reform Commission (ALRC) is inquiring into the potential simplification of laws that regulate financial services in Australia.
The ALRC’s first interim report, focusing on the appropriate use of definitions in financial services laws, was released in November 2021 (see ASFA Action issue 836)
The ALRC’s second interim report, Interim report B has now been tabled in Parliament. The report focuses on regulatory design and the hierarchy of primary law provisions, regulations, class orders and standards.
Interim Report B contains proposals for an alternative legislative model that aims to be more coherent and principled, to accommodate change, and to make the law easier to navigate. According to the ALRC, its proposed legislative model combines existing legislative tools with a more principled approach to legislative design. The ALRC anticipates its reform ideas would offer considerable benefits to consumers, industry, and regulated entities with a shorter, clearer, and more navigable legal framework that should significantly reduce compliance costs.
The ALRC is seeking written submissions from stakeholders on the proposals and questions outlined in Interim Report B, by close of business Wednesday 30 November.
A third interim report, to focus on potential reframing or restructuring of Chapter 7 of the Corporations Act 2001, is due by 25 August 2023 with a consolidated final report due by 30 November 2023.
Expansion of eligibility for downsizer contributions: regulations made
As reported in ASFA Action issue 863, the Government has introduced into Parliament the Treasury Laws Amendment (2022 Measures No 2) Bill 2022. This Bill contains amendments to reduce the eligibility age for downsizer contributions from 60 to 55 years, which was a pre-election commitment from both the current and former governments. The Bill is currently before the Senate.
The reduced eligibility age will apply to contributions made from the first day of the first quarter after the day on which the Bill receives Royal Assent.
The Government has registered the Superannuation Legislation Amendment (Broadening Contribution Rules) Regulations 2022. These include amendments to the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) and the Retirement Savings Account Regulations 1997 (RSA Regulations) to allow funds and retirement savings accounts to accept downsizer contributions for individuals aged 55 years or over. This change to the contribution acceptance rules will apply from the date the amendments in the Treasury Laws Amendment (2022 Measures No 2) Bill 2022 commence.
The regulations also make what the explanatory material describes as “stylistic changes” to the referencing of age ranges within the contribution acceptance rules in the SIS Regulations and RSA Regulations.
Optus data breach: APRA warning to regulated entities
As widely reported, Optus recently experienced a cyber-attack that resulted in a large-scale data breach involving customer records. It is understood that the compromised data may include customers’ names, dates of birth, phone numbers, email addresses, and, for a subset of customers, addresses and ID document numbers such as driver’s licence or passport numbers.
APRA has noted that perpetrators may seek to use the compromised ID information to commit identify theft, in order to carry out fraudulent transactions.
APRA has issued the following message to its regulated entities:
“As a matter of priority, all APRA-regulated entities should harden controls on high-risk processes and transactions where possible, e.g. digital customer on-boarding, setting up first time payees etc. This could include control examples such as additional two-factor authentication requirements and call-backs. Entities should also appropriately communicate to their customers to raise awareness and direct customers to reputable sources such as ACSC, Moneysmart and the Office of the Australian Information Commissioner, which outline additional steps customer can take to limit the risk of fraud. APRA-regulated entities are also reminded of their notification requirements under CPS234 Information Security regarding security incidents and control weaknesses. If you have any queries, please contact your APRA supervisory team.”
Design and Distribution Obligations: updated ASFA/Deloitte Target Market Determination template
In August 2022, ASIC called on trustees of superannuation funds to review and (if necessary) improve the effectiveness of target market determinations (TMDs) for their products (see ASFA Action issue 866 for background).
The ASFA/Deloitte Target Market Determination (TMD) Template has been updated to reflect observations made by ASIC following its sample review of TMDs.
Remediation: updated ASIC guidance
ASIC has published a package of materials aimed at helping Australian Financial Services licensees, including superannuation fund trustees, conduct consumer remediation.
The package comprises:
- Regulatory Guide 277 Consumer remediation (RG 277): This updated and expanded regulatory guidance allows licensees to scale and tailor their remediations to fit the circumstances. Amongst other things, RG 277:
- clarifies the principles for conducting a remediation, to help licensees comply with their obligations and conduct remediations efficiently, honestly and fairly
- provides examples to assist in the practical application of the guide
- introduces guidance on the use of assumptions
- introduces updated product specific guidance on possible monetary and non-monetary remedies
- updates guidance on the use of a low value compensation threshold and payment channels
- introduces guidance on what to do if a consumer cannot be contacted or paid
- helps licensees understand how remediation interacts with other obligations (for example, internal dispute resolution and other general licensing obligations).
- an updated version of Making it right: How to run a consumer centred remediation, a best practice field guide that helps licensees with the day-to-day design and execution of consumer-centred remediations
- Report 737 Response to submissions on CP 350 Consumer remediation: Further consultation.
ASIC Deputy Chair Karen Chester indicated that the guidance “puts the onus on industry to get on with fair and timely remediations” and should enable licensees to achieve the right remediation outcomes on their own without a need for direct oversight by ASIC. “Going forward, while ASIC may need to intervene in some isolated cases, we cannot and should not oversee remediations in order for consumers to receive fair and timely outcomes”.
Ms Chester said licensees must “do better at identifying and remediating problems earlier to avoid the costly lag and drag of remediation. The common stumbling block we have seen across remediations is underinvestment in systems. This underinvestment has led to a trifecta of failures. First and foremost, in delivering on promises to consumers, second in identifying the failures and third in being able to remediate consumer loss in a timely way”.
Ms Chester stated that ASIC expects to see industry applying the updated guidance to all new remediations going forward.
ASIC undertook consultation on enhancements to its guidance on consumer remediation between December 2020 – February 2021 and November 2021 – February 2022 (see ASFA Action issues 786 and 834.)
ASFA REGULATORY WATCHLIST
ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations
and other regulatory announcements relevant to superannuation.
