Financial Services in Focus – Issue 31
Funds and financial products
Grandfathered commissions payments legislation passes
On 14 October, the Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019 passed through Parliament. The joint media release of the Treasurer, Josh Frydenberg, and Jane Hume, Assistant Minister for Superannuation, Financial Services and Financial Technology, welcomed the passage.
ASIC and Dutch Authority for Financial Markets release joint report on effectiveness of disclosure
On 14 October, ASIC released a report it prepared jointly with the Dutch Authority for the Financial Markets on the effectiveness of disclosure for financial products on consumer outcomes.
Report 632 Disclosure: Why it shouldn’t be the default (REP 632) states that while both regulators agree that, while disclosure is necessary, it alone is often not sufficient to drive good consumer outcomes and that disclosure can and does contribute to better financial markets.
In releasing REP 632, ASIC states that, going forward, ASIC is taking a more consumer outcome-focused approach, making the most of our enhanced regulatory tool kit, including using its new product intervention powers when warranted and setting expectations for firms to deliver good consumer outcomes under their design and distribution obligations.
Treasury consults on removal of exemption for funeral expenses policies
On 1 October, the Treasury released exposure draft legislation and accompanying exposure draft explanatory materials which are designed to remove the Corporations Act exemption for funeral expenses policies to be treated the same as other financial products.
Treasury states that the draft legislation is in response to recommendation 4.2 of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, and in particular:
- the draft regulations seek to remove the exemption for funeral expenses policies from the definition of financial products for the purposes of the Corporations Act; and
- the draft legislation seeks to ensure that it is clear that the consumer protection provisions of the ASIC Act apply to funeral expenses policies.
The Treasurer, Josh Frydenberg, stated that these regulations will improve consumer outcomes by requiring providers of funeral expenses policies to hold an AFSL and be fully regulated by ASIC.
Consultation closes on 18 October.
ASIC consults on proposed use of product intervention power regarding sale of add-on products by car yards
On 1 October, ASIC released a consultation paper on a proposal to use its product intervention power to reform the sale of add-on financial products by car yards.
Consultation Paper 324 Product intervention: The sale of add-on financial products through caryard intermediaries (CP 324) sets out ASIC’s proposal for using its product intervention power in Part 7.9A of the Corporations Act in relation to the distribution of add-on insurance and warranties by caryard intermediaries. ASIC states the proposal complements the concurrent consultation by the Treasury on reforms to the sale of add-on insurance products issued in September 2019. CP 324 follows on from ASIC’s Consultation Paper 294 The sale of add-on insurance and warranties through caryard intermediaries, which sought views on whether or not a deferred sales model should be introduced for the sale of add-on financial products through caryard intermediaries.
In releasing CP 324, ASIC states that there has been a history of unfair conduct and poor results for consumers in the add-on insurance market, and that it has seen policies sold to consumers when they have been ineligible to claim under them.
Comments on CP 324 should be sent to ASIC by 12 November.
ASIC consults on its review of school banking programs
On 30 September, ASIC released Consultation Paper 323 Review of school banking programs (CP 323). ASIC states that the purpose of the review is to better understand how these programs are operating in primary schools and provide a national perspective of school banking program engagement and participation.
In releasing CP 323, ASIC states that it is important for ASIC to understand the range and extent of impacts that school banking programs can have on students, parents and school communities, as part of its responsibility to ensure the financial sector is delivering for all Australians, and especially for future generations of financial consumers.
Comments on CP 323 should be sent to ASIC by 31 October.
APRA releases response to submissions on amendments to its margin requirements for non-centrally cleared derivatives
APRA also issued a marked-up version of Prudential Standard CPS 226 Margining and risk mitigation for non-centrally cleared derivatives.
ASIC remakes class order about changing scheme constitutions
On 17 September, ASIC announced it remade existing relief on changing scheme constitutions under Class Order [CO 09/552] Changing scheme constitutions, which was to end on 1 October 2019.
The new instrument, ASIC Corporations (Changing Scheme Constitutions) Instrument 2019/700, continues to provide relief in certain situations to vary how the constitution of a registered scheme may be modified, or repealed and replaced with a new constitution. ASIC also issued ASIC Corporations (Repeal) Instrument 2019/885, which repeals [CO 09/552].
In releasing the new instrument, ASIC states the new instrument will continue the effect of the previous instrument with some minor amendments, which include simplifying the drafting to give greater clarity.
Financial product advice
Government proposes new single disciplinary body for financial advisers
On 11 October, the Treasurer, Josh Frydenberg, and Jane Hume, Assistant Minister for Superannuation, Financial Services and Financial Technology, jointly announced that the Government is accelerating the establishment of a new disciplinary system and single disciplinary body for financial advisers as recommended by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The ministers state that the Government will work towards establishing the new body in early 2021, subject to the passage of legislation which will be introduced into the Parliament next year. The new body will replace the role of code monitoring bodies which were due to be established by industry associations under professional standards reforms.
On 15 October, ASIC announced that it will make a legislative instrument to provide relief to Australian financial services licensees from financial adviser compliance scheme obligations. ASIC states that the relief will provide certainty for AFS licensees that they will not be in breach of the law because their financial advisers were not able to register with an ASIC-approved compliance scheme by 1 January 2020, as originally required.
ASX releases response to its consultation paper on major listing rule reforms
On 10 October, ASX Limited (“ASX”) released its response to the submissions it received on its 28 November 2018 consultation paper Simplifying, clarifying and enhancing the integrity and efficiency of the ASX listing rules. The consultation paper proposed a broad range of changes to the ASX Listing Rules and related guidance.
Accompanying the consultation response are mark-ups of the final changes ASX is making to the ASX listing rules addressing the feedback received in consultation submissions, together with a mark-up comparing the final rule changes to the consultation version.
Subject to the receipt of the necessary regulatory approvals, with two exceptions, the final rule changes will come into effect on 1 December 2019.
AUSTRAC consults on proposed amendments to AML/CTF Rules regarding compliance reports
On 15 October, released proposed amendments to Chapter 11 of the AML/CTF Rules for public consultation.
AUSTRAC states the proposed amendments remove references to the 2018 reporting and lodgement periods and sets those periods for 2019 and each successive year, and that the amendments also make minor drafting changes to simplify the expression of the circumstances in which registered remittance affiliates are exempted from the compliance reporting obligations.
Consultation closes on 12 November.
APRA consults on proposed revisions to Prudential Standard APS 111
On 15 October, APRA released for consultation a discussion paper on its proposed revisions to Prudential Standard APS 111 Capital Adequacy: Measurement of Capital (APS 111). A marked-up version of the revised APS 111 has been made available by APRA.
APRA states the revisions aim to ensure Australian deposit holders continue to be protected when the major banks hold significant investments in subsidiaries.
Submissions close on 31 January.
APRA remakes Reporting Standard ARS 117.1 Interest Rate Risk in the Banking Book
0n 26 September, APRA announced that it remade the Reporting Standard ARS 117.1 Interest Rate Risk in the Banking Book (IRRBB) (ARS 117.1), which was due to expire on 1 October 2019.
The new reporting standard has updated references to APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book (Advanced ADIs) and standard wording. APRA states the reporting requirements and the group of authorised deposit-taking institutions (ADIs) that are required to report will remain unchanged.
The updated ARS 117.1 will apply from 1 October 2019.
Other financial services regulation
ASIC provides information to help determine suitability of SMSFs
On 11 October, ASIC released a factsheet, Self-managed super funds: Are they for you?, to help people make informed decisions as to whether or not to establish a self-managed superannuation fund (SMSF).
In releasing the factsheet, ASIC states that it has identified eight ‘red flag’ situations which, together or in part, would make it extremely unlikely for an investor to gain any advantage from using SMSFs to create and safeguard their intended retirement lifestyle.
ASIC releases report on director and officer oversight of non-financial risk
On 2 October, ASIC released a report in which ASIC urges companies to apply a greater focus and sense of urgency to the oversight and management of non-financial risk.
The report is by the Corporate Governance Taskforce and is called the Director and officer oversight of non-financial risk report.
In releasing the report, ASIC states that boards need to be mindful that all risk can have financial consequences, including non-financial risks.
ASIC remakes instrument about departed former temporary residents’ unclaimed superannuation disclosure
On 19 September, ASIC remade Class Order [CO 09/437] Departed former temporary residents superannuation – Disclosure relief, which was due to expire on 1 October 2019.
The new instrument, ASIC Corporations Unclaimed Superannuation – Former Temporary Residents Instrument 2019/873, will continue to provide relief for trustees of regulated superannuation funds from the requirement to notify and give exit statements to departed former temporary residents when their superannuation benefits are paid to the Australian Taxation Office under Part 3A of the Superannuation (Unclaimed Moneys and Lost Members) Act 1999.
The conditions of relief are summarised in ASIC’s media release.
APRA consults on integrating AASB 17 into the capital and reporting frameworks for insurers
On 27 September, APRA released an information request to collect information on the readiness of industry for implementing AASB 17 Insurance Contracts (AASB 17), and to seek feedback from stakeholders on APRA’s indicative directions for integrating AASB 17 into the capital and reporting frameworks for regulated insurers.
Submissions will be received until 22 November.
Treasury consults on remaking sunsetting Unclaimed Money and Lost Members regulations
On 30 September, the Treasury released exposure draft regulations and accompanying exposure draft explanatory materials designed to remake the existing Superannuation (Unclaimed Money and Lost Members) Regulations 1999, which are scheduled to sunset on 1 April 2020.
Consultation closes on 25 October.
Government announces review of the retirement income system
On 27 September, the Treasurer, Josh Frydenberg, announced the Government has commissioned an independent review of the retirement income system, and that the review will look at the three pillars of the existing retirement income system, being the Age Pension, compulsory superannuation and voluntary savings.
A consultation paper will be released in November 2019 and the final report provided to Government by June 2020.
The review's terms of reference are set out here.
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