Monthly technical roundup October 2022 | Macquarie

Recent developments

Welcome to the October technical roundup, a summary of the legislative and regulative developments in September. During this month the Government released several Bills aimed at implementing the Financial Accountability Regime (FAR) and Financial Services Compensation Scheme of Last Resort.

Other items of note include the release of a Consultation Paper aimed at reviewing four key elements of the Your Future, Your Super measures, such as the MySuper performance test, the YourSuper Comparison tool, stapling and the best financial interest duty imposed on superannuation trustees.

Legislative developments

Acts

Super splitting for de facto breakdown in Western Australia

On 31 August 2022, the Family Court Amendment Act 2022 (WA) received Royal Assent.

The new laws contained in the Act allow separating de facto couples in Western Australia to split their superannuation when a relationship breakdown occurs (in line with all other Australian jurisdictions). Prior to this reform, the Family Court of Western Australia was unable to make an order to split superannuation assets when it came to de facto couples.

The new laws were proclaimed on 15 September 2022 and the commencement date of the measures was 28 September 2022.

Bills

Social security measures to incentivise downsizing

On 7 September 2022, the Government introduced the Social Services and Other Legislation Amendment (Incentivising Pensioners to Downsize) Bill 2022 (Cth) to Parliament.

The Bill amends the Social Security Act 1991 (Cth) and Veterans’ Entitlements Act 1986 (Cth) to:

extend the existing assets test exemption from 12 months to 24 months (or up to 36 months on a case-by-case basis in extenuating circumstances) for the principal home proceeds intended for the purchase of a new principal home; and
applying only the below threshold deeming rate (currently 0.25%) to the asset test exempt principal home sale proceeds when calculating deemed income.

The proposals contained in the Bill will commence on the later of 1 January 2023 or the day after the end of the period of one month beginning on the day the Act receives Royal Assent.

FAR and CSLR Bills

On 8 September 2022, the Government introduced the following Bills aimed at implementing the Financial Accountability Regime (FAR) and Financial Services Compensation Scheme of Last Resort (CSLR).

FAR Reforms:

Introduces a new accountability regime for the banking, insurance and superannuation industries
4 core sets of obligations:

Accountability obligations – entities and their directors and most senior and influential executives to conduct business in a certain manner (e.g. honestly and with care, skill and diligence);

Key personnel obligations – nominate senior and influential executives to be responsible for all areas of business operations;

Deferred remuneration obligations – defer at least 40% of variable remunerations (e.g. bonuses) of directors and most senior and influential executives for a minimum of 4 years and reduce variable remunerations for non-compliance with their accountability obligations.

Notification obligations – require business to meet core notification obligations by providing the regulator with certain information about their business and their directors and most senior and influential executives and, for entities above certain thresholds, to prepare and submit accountability statements and accountability maps.

CSLR reforms:

creation of the CSLR scheme to provide compensation to eligible consumers after they have received an AFCA determination favouring the consumer. If the financial firm fails to make the payment, the consumer may apply to the CSLR operator and, where eligible, the CSLR operator must compensate, up to $150,000. To fund the scheme, a levy/tax would be created against the relevant industries.
to support the CSLR reforms, the Government published draft regulations on the same day the Bills were introduced to Parliament for public consultation. The consultation period for the draft regulations closed on 7 October 2022.

The establishment of the scheme and the supporting levy framework commences on the day after the Bills/Acts receive Royal Assent. The FAR regime will apply to the banking industry 6 months after commencement and apply to the insurance and superannuation industries 18 months after commencement.

Changes to Child Care Subsidy (CCS)

On 27 September 2022, the Family Assistance Legislation Amendment (Cheaper Child Care) Bill 2022 (Cth) was introduced to Parliament.

The proposals contained in the Bill include:

providing families earning up to $80,000 per year access to a child care subsidy (CCS) rate of 90%;
for families earning over $80,000 per year, the CCS rate will taper down by 1% for each additional $5,000 of family income, until it reaches 0% for families earning $530,000 (new CCS base rate);
no changes to the existing measure that provides a higher CCS rate to families with multiple children aged 5 or under in care. For the second and younger children aged 5 or under in care, the families will receive an additional 30%, up to the maximum rate of 95%. Families will also be entitled to the higher CCS rate up until a family income of $356,756 (for the 2022-23 financial year). If the families earn $356,756 or higher, all children in the family will be entitled to the new CCS base rate until the entitlement reaches 0% at $530,000;
a base level of 36 subsidised hours of child care per fortnight will be available for First Nations children, regardless of activity levels.

The proposed changes to the CCS rates will commence on 1 July 2023, with some measures to commence the day after the Bill/Act receives Royal Assent.

Temporary increase to Work Bonus Scheme

On 28 September 2022, the Social Services and Other Legislation Amendment (Workforce Incentive) Bill 2022 (Cth) was introduced to Parliament.

The Bill contains the following measures which are aimed at encouraging pensioners stay or return to the workforce:

provide eligible pensioners (age pensioners and certain DVA payment recipients) with a one-off $4,000 income credit to their work bonus income bank for the 2022-23 financial year. The credit which ceases on 30 June 2022 essentially increases the maximum amount the pensioner can earn in the 2022-23 financial year from $7,800 to $11,800 before their pension is reduced;
allow eligible pensioners to suspend (instead of cancel) their payments for up to 2 years if they lose their benefits due to their income exceeding the income test. This will enable the individual and their partners to resume receiving the payments once they become eligible within the 2-year period, without the need of lodging a new claim;
allow eligible pensioners to retain their Pension Concession Card for up to 2 years after their pension ceases due to failing the income test.

The measures contained in the Bill will generally commence on the later of 1 January 2023 and one month and a day after the Bill/Act receives Royal Assent.

The introduction of the $4,000 one-off income credit will commence on 1 December 2022. However, if the Bill/Act receives Royal Assent on or after 25 November 2022, this measure will commence on the seventh day after Royal Assent.

Regulations

Downsizer regulations

On 30 September 2022, the Government registered the Superannuation Legislation Amendment (Broadening Contribution Rules) Regulations.

The Regulations amend the acceptance rules in the SIS regulations to allow individuals to make downsizer contributions from the age of 55, and support the changes to the downsizer contribution rules contained in the Treasury Laws Amendment (2022 Measures No 2) Bill 2022 (Cth).

The Regulations have a commencement date that is the same as the commencement date for Schedule 5 of the above Bill, which is the first 1 January, 1 April, 1 July or 1 October to occur the day after the Bill/Act receives Royal Assent.

Consultation papers

Review of Your Future, Your Super

On 7 September 2022, the Government released a Consultation Paper aimed at reviewing the Your Future, Your Super measures to consider whether there have been any unintended consequences and implementation issues.

The 4 key elements under review include:

MySuper performance test – an annual performance test applied to MySuper products;
YourSuper comparison tool – a comparison tool which was launched on 1 July 2021 aimed at assisting members to choose a well-performing MySuper product;
Stapling – where a new employee does not choose a superannuation fund, then employers are required to check whether they have an existing ‘stapled’ fund before opening a new default account; and
Best financial interests duty – requiring superannuation trustees to assess whether their spending is in the best financial interest of their members and provide evidence to demonstrate this fact in the event of a civil proceeding.

The consultation period closed on 14 October 2022.

ASIC industry funding model

Further to the Government’s announcement on 8 August 2022 that a review of the ASIC Industry Funding Model was to be undertaken, on 28 September 2022, the Government announced the release of a Discussion Paper seeking industry feedback on the options, examples of potential changes, and questions designed to examine and address a range of issues set out in the review’s Terms of Reference.

The review is aimed at identifying any refinements to the funding model to ensure it remains appropriate in the longer term. Areas considered in the review include:

the design, legislative framework and flexibility of the funding model;
the types of costs and activities that are recovered from industry, and how the costs are allocated and recovered;
changes to the levy amounts since the commencement of the funding model; and
suitability of transparency and consultation mechanism.

The submission period will close on 28 October 2022.

Modifications to the employee share scheme (ESS) regime

On 29 September 2022, ASIC announced that it had released Consultation Paper 364 Modifications to the ESS regime (CP 364) seeking industry feedback.

ASIC stated that they understand that listed entities may find it difficult to make ESS offers if employees are unable to sell financial products that are in a class that is quoted and proposed to provide relief to the ESS regime to address unintended technical issues.

CP 364 sets out ASIC’s proposals which include:

providing a broader exemption for secondary sales of financial products that are quoted on a financial market;
financial information provided by foreign companies;
valuation information for financial products that are not ordinary shares; and
technical relief so that salary sacrificing arrangements can comply with requirements for contribution plans.

The consultation period will close on 27 October 2022 and ASIC plans to make any appropriate legislative instruments in relation to the new ESS regime before the end of this year.

Exposure drafts

Financial Accountability Regime Minister Rules

Following the release of the Financial Accountability Regime Bill 2022 (FAR Bill) on 8 September 2022, the Government released exposure draft legislation and explanatory statement on the Financial Accountability Regime Minister Rules 2022 (the Rules) which supports the establishment of the Financial Accountability Regime.

The proposed Minister Rules that support the FAR Bill prescribe:

particular responsibilities and positions which cause a person to be subject to the FAR in the banking, insurance and superannuation sectors;
the enhanced notification threshold (total asset size of the entity) when the assets of an accountable entity exceed the enhanced notification threshold;
the manner in which a written record can be authenticated and is admissible as prima facie evidence of the statement it records.

The consultation period closed on 7 October 2022.

Faith-based superannuation legislation

On 12 September 2022, the Government announced that they have released exposure draft legislation and explanatory statement seeking feedback on how faith-based superannuation products are treated under the Your Future, Your Super annual performance test.

The proposal contained in the draft legislation is to provide for a supplementary annual performance test for faith-based products where the faith-based investment strategy can be taken into account when assessing the performance of the product against its benchmarks.

The regulations also include amendments that support the implementation of the supplementary performance test by specifying:

when APRA must conduct the supplementary performance test;
how APRA may determine and apply alternative indices when conducting the supplementary performance test; and
additional information that must be included in the application for faith-based status.

The consultation period closed on 7 October 2022.

Regulator views

ASIC

Room for improvement with life insurance claims handling

On 2 September 2022, ASIC announced that they have reviewed nearly 4,800 individual disability income insurance (IDII) claims received between 1 January and 30 June 2021 and has found areas which require improvements to ensure consumers are protected from unfair practices in non-disclosure investigations and physical surveillances.

From the nearly 4,800 IDII claims, ASIC found that:

non-disclosure investigations were conducted in around 5% of claims and physical surveillance was conducted around 1% of claims;
5 insurers appeared to commence non-disclosure investigations only on the basis that the claim was lodged within 3 years of policy inception or renewal (heightening the risk of ‘fishing’);
40% of non-disclosure investigations related to mental health non-disclosure;
Physical surveillance was used in 10 mental health claims and ASIC considered that surveillance may have been unwarranted in half of those cases; and
Use of surveillance may have been unwarranted in 17.5% of claims where surveillance was used because the insurer had not shown that other investigation methods had been exhausted.

Binary options ban extended to 2031

On 5 September 2022, ASIC announced that it had extended its product intervention order banning the issue and distribution of binary options to retail clients until 1 October 2031.

In the 13 months to 3 May 2021 (before the ban took effect), ASIC found that retail clients incurred significant aggregate net losses trading binary options. For example:

74%-77% of active retail clients lost money trading binary options;
on aggregate, retail client accounts made net losses of $14 million; and
loss-making retail client accounts made net losses totalling $15.7 million, while profit-making retail clients made net profits of $1.7 million.

ASIC also released Report 736 Response to submissions on CP 362 Extension of the binary options product intervention order (CP 362), which summarises ASIC’s analysis of the impact of the order, using data from 5 licensed binary options issuers and highlights issues raised out of the submissions received on CP 362 and details its response to those issues.

Managed funds to amend marketing

Following ASIC’s recent surveillance of fund manager marketing materials, which identified a number of concerns, including inadequate warnings or disclaimers of past and future performance, ASIC announced on 8 September 2022 that they expect all investment managers, responsible entities and trustees to be familiar with the principles and regulatory guidance about marketing of managed funds and other financial products.

Some of ASIC’s expectations include:

marketing material must give a balanced message about performance, features, benefits and significant risks;
risk disclosures need to be clear and prominent;
safety, reliability or security of an investment should not be overstated;
comparison with other products or benchmarks must be appropriate and reasonable;
explain that any reliance on past performance is not indicative of future performance; and
care must be taken when using illustrations to ensure they are not confusing.

Additional information

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Monthly technical roundup - October 2022