Financial Services in Focus – Issue 78

ASIC consults on class orders on changing responsible entities and equal treatment due to expire 

On 21 March, ASIC released Consultation Paper 368 Remaking ASIC class orders: [CO 13/519] and [CO 13/656] (CP 368).

CP 368 sets out ASIC’s proposals to remake the following class orders, which are due to expire on 1 October:

• Class Order [CO 13/519] Changing the responsible entity; and
• Class Order [CO 13/656] Equality of treatment impacting on the acquisition of interests.

According to the media release, ASIC considers the class orders are operating effectively and efficiently, continue to form a necessary and useful part of the legislative framework and that the fundamental policy principles that underpin the class orders have not changed.

CP 368 and its attachments are available on ASIC’s website.

Consultation closes 11 April.

Government announces review of regulatory framework for managed investment schemes

On 8 March, Stephen Jones, the Assistant Treasurer and Minister for Financial Services, announced that the Government will task the Treasury with conducting a review of the regulatory framework governing managed investment schemes.

According to the media release, the review will examine whether the regulatory framework is fit-for-purpose, identify potential gaps, and consider what enhancements can be made to reduce undue financial risk for investors.

In particular, the Treasury will be required to consider the following matters:

• whether the thresholds that determine whether an investor is a retail or wholesale client remain appropriate;
• whether certain managed investment scheme investments should be able to be marketed and sold to retail investors;
• the various roles and obligations of responsible entities and whether the governance, compliance and risk management frameworks for managed investment schemes are appropriate;
• interactions between Commonwealth and State laws when regulating real estate investments by managed investment schemes (including issues arising in relation to the failure of the Sterling Income Trust);
• whether ‘investor rights’ for people who invest in managed investment schemes are appropriate;
• liquidity requirements for managed investment schemes; and
• whether an insolvency regime is required for managed investment schemes.

Treasury intends to release a public consultation paper by mid-year and consult with industry before reporting findings to Government by early 2024.

Read more about this review in our earlier article.

ASIC consults on ‘sunsetting’ class orders related to the financial resource requirements for the managed funds industry

On 3 March, ASIC released Consultation Paper 367 Remaking ASIC class orders on financial requirements: [CO 13/760], [CO 13/761] and ASIC Instrument 2022/449 (CP 367), which sets out its proposals to remake ‘sunsetting’ class orders that impose financial resource requirements on the managed funds industry.  

If not remade:

• Class Order [CO 13/760] Financial requirements for responsible entities and operators of investor directed portfolio services and Class Order [CO 13/761] Financial requirements for custodial or depository service providers will expire on 1 October 2023; and
• ASIC Corporations (Financial Requirements for Corporate Directors of Retail Corporate Collective Investment Vehicles) Instrument 2022/449 will expire on 1 October 2024.

According to the media release, ASIC has formed the view that the class orders are operating effectively and efficiently, continue to form a necessary and useful part of the legislative framework and that the fundamental policy principles that underpin the class orders have not changed.

Consultation closes 31 March.

ASIC issues report on insurance in superannuation

On 22 March, ASIC released Report 760 Insurance in Superannuation: Industry progress on delivering better outcomes for members (Report 760).

Report 760 sets out findings from ASIC’s review of the progress made by 15 selected superannuation trustees to improve their arrangements for life insurance in superannuation, in response to issues identified in ASIC’s public communications since 2019 and recent regulatory reforms (including the design and distribution obligations and the extension of the obligation to act efficiently, honestly and fairly to all trustee activities, including claims handling).

According to the media release, ASIC’s review found:

• many trustees have made changes to the design of their insurance arrangements to better meet member needs and provide value for money, such as by changing restrictive ‘total and permanent disability’ definitions;
• many trustees have worked with their insurers to streamline their claims processes to make them easier for members to navigate, and taken steps to enhance their oversight of insurers’ claims handling practices; and
• some trustees have improved the way they explain their insurance offerings to make it easier for members to understand their insurance and make appropriate decisions for their circumstances.

Report 760 sets out these findings and recommends key actions that superannuation trustees can take to improve their insurance arrangements.

APRA publishes response to feedback on Phase 1 of the Superannuation Data Transformation minor amendments

On 3 March, APRA published a letter to all RSE licensees outlining its response to the consultation on the proposed amendments to reporting standards outlined in Phase 1 of the Superannuation Data Transformation.

The amendments comprised minor and clarifying amendments to the existing reporting requirements for expenses and investment option reporting.

According to APRA’s letter, the submissions were generally supportive of the proposals with some minor issues raised in relation to the proposed implementation of timeframes and the ongoing time required to source and compile quarterly investments data.

In response to this feedback APRA has:

• revised implementation timeframes;
• increased the timeframes for investment option reporting for specified reporting tables from 35 to 40 days;
• included payees who are paid a sponsorship-related expense to the list of payees where payee details must be reported, and reduced the materiality threshold for identifying payees for other marketing-related expenses from $10,000 to $5,000; and
• incorporated feedback on proposed definitions where APRA considered it appropriate to do so.

APRA publishes notes from the Superannuation Data Transformation Strategic Forum

On 2 March, APRA published notes from the Superannuation Data Transformation Strategic Forum (‘SDTSF’) held on 14 February 2023.

According to APRA, the SDTSF is an opportunity for industry stakeholders to contribute to the understanding and resolution of challenges arising from the implementation of the new superannuation data collections.

Treasury announces changes to the superannuation tax laws

On 28 February, the Federal Government announced the concessional tax rate applied to future earnings for superannuation balances above $3 million will be 30% from 2025-2026.

The proposed changes do not impose a limit on the size of superannuation account balances in the accumulation phase and will not operate retrospectively.

According to the media release issued jointly by the Treasurer, Jim Chalmers, and the Assistant Treasurer and Minister for Financial Services, Stephen Jones, the Government claims the changes will apply to around 80,000 people.

APRA re-issues the 2022 MySuper Heatmap publication

On 24 February, APRA re-issued its 2022 MySuper Heatmap publication to ensure that international index data is correctly reflected in the relevant investment and performance test metrics.

APRA has also published a new set of frequently asked questions (FAQs) to provide further information on these amendments.

ASIC grants conditional relief to facilitate reissue of certain life insurance policies

On 17 March, ASIC announced the granting of conditional relief for life insurers from the design and distribution obligations (DDO) when reissuing life insurance policies in certain, limited circumstances. The relief is set out in ASIC Corporations (Design and Distribution Obligations—Reissued Life Policies Class Exemption) Instrument 2023/183 (Instrument 2023/183).

According to the media release, the relief set out in the Instrument will allow life insurers to reissue pre-DDO policies in circumstances that have a low risk of consumer harm.

To qualify for relief, the reissued policy must:

• have originally been issued before 5 October 2021, except where the policy is reissued to correct an administrative error or reinstate a lapsed policy;
• have been reissued at the request of the policyholder, except where the policy is reissued to correct an administrative error;
• be reissued on the same terms and conditions without additional underwriting or individual loadings, apart from changes that are necessary to give effect to the transaction; and
• be issued to the same policyholder.

Instrument 2023/183 will expire on 16 March 2028.

APRA responds to consultation on life insurance standards set to expire

On 9 March, APRA released a letter detailing its response to its consultation on remaking four life insurance prudential standards set to expire on 1 April. Read more about this consultation in Issue 75.

According to APRA’s response:

• two submissions were received which agreed with APRA’s position that the standards remained broadly relevant; and
• suggestions were made in relation to technical modifications of Prudential Standard LPS 360 Termination Values, Minimum Surrender Values and Paid up Values, however APRA stated that these suggestions would not be incorporated at this stage, but rather would be subject to further review as part of its strategic initiative to Modernise the Prudential Architecture.

APRA will now remake these standards without amendment.

ASX consults on market management

On 28 February, the ASX published Market Management Consultation 3: ASX Testing Uplift, Environments and BCP (Consultation Paper).

The Consultation Paper sets out the final of three consultations that the ASX has undertaken to implement its response to Report 708 ASIC’s expectations for industry in responding to a market outage.

According to the Consultation Paper, the ASX is seeking stakeholder feedback across the following five topics:

• enhancements to ASX platform test strategy;
• simulation testing with market participants;
• market operators’ interconnectedness;
• improvements to BCP strategy; and
• customer test environments.

Consultation closes on 14 April.

APRA responds to consultation on new centralised publication for ADIs

On 7 March, APRA issued a letter to all deposit-taking institutions (ADIs) setting out its response to its consultation on the frequency of its new centralised statistical publication for locally incorporated ADIs.

According to APRA’s letter, the publication prototype and a mapping template will be provided to affected ADIs, with the publication expected to be released in June.

APRA intends to expand the ADI centralised publication over the coming years and will continue to consult with the ADI industry as it does so.

APRA publishes information paper on macroprudential settings

On 27 February, APRA released Information Paper Update on APRA’s macroprudential policy settings (Information Paper).

The Information Paper provides an update on APRA’s macroprudential policy settings. It also sets out what the current settings are and explains the key factors that have informed APRA’s decision-making, enhancing transparency on macroprudential policy.

According to APRA, its view is that existing policy settings remain appropriate based on the current risk outlook.

Treasury consults on miscellaneous amendments to Treasury portfolio laws

On 15 March, Treasury released for consultation exposure draft legislation and supporting explanatory materials pertaining to miscellaneous amendments that seek to ensure that the law operates as intended by correcting technical or drafting defects, removing anomalies, and addressing unintended outcomes.

The Exposure Draft Legislation and supporting explanatory materials are available on Treasury’s website.

Consultation closes 4 April.

Government re-introduces the Financial Accountability Regime package

On 8 March, the Federal Government re-introduced the following bills into the House of Representatives:

• Financial Accountability Regime (Consequential Amendments) Bill 2023;
• Financial Accountability Regime Bill 2023;
• Financial Services Compensation Scheme of Last Resort Levy (Collection) Bill 2023;
• Financial Services Compensation Scheme of Last Resort Levy Bill 2023; and
• Treasury Laws Amendments (Financial Services Compensation Scheme of Last Resort) Bill 2023.

According to the Assistant Treasurer and Minister for Financial Services, Stephen Jones’ second reading speech (with respect to Financial Accountability Regime Bill 2023), these bills – taken together – will establish the Financial Accountability Regime, extending the provisions of the existing Banking Executive Accountability Regime to the superannuation and insurance sectors. The bills will also establish a Compensation Scheme of Last Resort.  The Minister also issued a media release on 19 March.

These bills were previously introduced into the House of Representatives in 2022 and progressed as far as a second reading in the Senate.

All the Bills were introduced, read for a first time and had their second reading moved.

Treasury publishes Quarterly Report on Foreign Investment

On 8 March, Treasury published its Quarterly Report on Foreign Investment:  1 October – 31 December 2022 (Quarterly Report).

This Quarterly Report sets out key performance data concerning the operation of Australia’s foreign investment regulatory framework.

The next quarterly report will be published in May 2023.

ACCC releases compliance and enforcement priorities for 2023-24

On 7 March, the ACCC published its Compliance and Enforcement Priorities for 2023-24.

Relevantly, the ACCC’s Compliance and Enforcement Priorities for 2023-24 are:

• consumer, product safety, fair trading and competition concerns in relation to environmental claims and sustainability;
• scam detection and disruption, supporting the implementation of the National Anti-Scam Centre;
• consumer and fair trading issues relating to manipulative or deceptive advertising and marketing practices in the digital economy;
• unfair contract terms in consumer and small business contracts;
• competition and consumer issues relating to digital platforms; and
• promoting competition and investigating allegations of anti-competitive conduct in the financial services sector, with a focus on payment services.

Treasury consults on draft legislation regarding corporations and financial services law

On 6 March, Treasury released for consultation two sets of exposure draft regulations, the Australian Law Reform Commission (ALRC) regulations and the Modernising Business Communications (MBC) regulations.

The proposed ALRC regulations contain consequential amendments, primarily to the Corporations Regulations, required following the proposed changes to the primary law contained in the Treasury Laws Amendment (Measures for consultation) Bill 2022: ALRC Financial Services Interim Report Tranche 2, which was released for consultation between 12 December 2022 and 15 January 2023.

The proposed MBC regulations contain consequential amendments required following the changes to primary law contained in the Treasury Laws Amendment (Modernising Business Communications and Other Measures) Bill 2022.

Both sets of exposure draft regulations and explanatory statements are available on Treasury’s website.

Consultation closes 3 April.

ASIC publishes report on good practices for handling whistleblower disclosures

On 2 March, ASIC published Report 758 Good practices for handling whistleblower disclosures (Report 758).

Report 758 sets out the good practices ASIC observed from its review of seven entities’ whistleblower programs from a cross-section of industries.

According to the media release, ASIC found that programs with thoughtful and well-publicised arrangements for protecting whistleblowers and handling disclosures, received useful reports and tip offs about concerns and issues in the workplace.

Treasury consults on Register of Foreign Ownership of Australian Assets

On 2 March, Treasury released for consultation exposure draft regulations, Treasury Laws Amendment (Measures for Future Instruments) Instrument 2023: Register of Foreign Ownership of Australian Assets (Exposure Draft Regulations).

The Exposure Draft Regulations propose to prescribe circumstances in which foreign persons will be required to provide information to be included in the Register of Foreign Ownership of Australian Assets (under Part 7A of the Foreign Acquisitions and Takeovers Act 1975).

Consultation closes 31 March.

Separately, the Australian Taxation Office is also consulting on the draft legislative instrument, Foreign Acquisitions and Takeovers (Register Notices) Data Standard 2023, which describes the technical requirements for submitting information to the Register. Consultation closes 24 March.