Monthly technical roundup - September 2022

Manage excess transfer balance for complying income streams

On 9 August 2022, the Treasury Laws Amendment (2022 Measures No. 1) Act 2022 (Cth) received Royal Assent.

The Act made the necessary amendments to the Social Security Act 1991 (Cth) and Veterans’ Entitlements Act 1986 (Cth) to allow individuals to make partial commutations from certain products (e.g. market-linked and life-expectancy income streams) to manage their excess transfer balance amounts, whilst retaining their asset-test exemption for social security purposes.

The above amendments commenced retrospectively from 5 April 2022.

Reduction to downsizer contribution age

On 3 August 2022, Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 was introduced to Parliament.

The Bill proposes to reduce the eligibility age for individuals to make downsizer contributions to superannuation from age 60 to age 55.

Also contained in the Bill is a proposal to remove the $250 non-deductible threshold for work-related self-education expenses. Under the proposed new law, the $250 threshold will be removed and individuals may be able to claim deductions for self-education expenses under the Income Tax Assessment Act 1997 (Cth) if:

• the expense is incurred in gaining or producing accessible income;
• the expense is not private, domestic or capital in nature; and
• the deduction is not prevented by a provision in that Act. 

The proposals contained in the Bill will commence on the first 1 January, 1 April, 1 July or 1 October after the day the Bill receives Royal Assent.

Super splitting for de facto breakdown in WA

On 18 August 2022, the Family Court Amendment Bill 2022 (WA) was passed by both houses and is awaiting Assent.

The new laws will allow separating de facto couples in Western Australia (WA) to split their superannuation when a relationship breakdown occurs (to be 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 State Government of WA also stated that they are working together with the Federal Government to ensure the new WA law and Federal law are proclaimed at or about the same time.

Consultation on financial adviser education standards

On 10 August 2022, the Government reiterated their election commitment to removing the tertiary education requirements for financial advisers who had passed the financial adviser exam, have 10 years of experience and a clean record of financial practice.

They have also asked Treasury to develop a consultation paper on options to simplify the education requirements (including for new entrants).

Following that announcement, Treasury released on 23 August 2022 a consultation paper seeking industry feedback - the consultation period closed on 16 September 2022.

In addition, the Government has also asked Treasury to look into whether improvements could be made to the delivery of the financial adviser exam after 30 September 2022, and to consult on the Code of Ethics in 2023 (after the Government has considered its response to the Quality of Advice review).

Quality of Advice - Proposals Paper

On 29 August 2022, the Government released the Quality of Advice Review – Proposals Paper seeking feedback before preparation of the Final Report in December 2022.

The proposals contained in the Paper are aimed at simplifying the regulatory framework to better enable the provision of high quality, accessible and affordable financial advice. Some of the proposals include:

• redefining personal advice with a requirement to provide ‘good advice’;
• the removal of the ‘general advice’ classification;
• expanding intra-fund advice and permitting the deduction of adviser fees from a superannuation fund;
• amendments to fee disclosure and ongoing fee arrangements (including the removal of Fee Disclosure Statements);
• simplifying the Design and Distribution Obligation reporting requirements; and
• the removal of the requirement to provide Statements of Advice.

The consultation period closes on 23 September 2022.

Improving Corporations and Financial Services Law

On 24 August 2022, the Government announced the release of two exposure drafts aimed at reducing the complexity and improving readability of the Corporations and Financial Services Law.

The proposed new legislation and regulations:

• enact recommendations and other suggested improvements identified by the Australian Law Reform Commission (ALRC) Interim Report A; and
• address the complexity in the design of definitions in the Corporations and Financial Services Law by removing erroneous references and redundant definitions, using consistent headings and other amendments to improve the navigability and clarity of the laws.

The consultation period closes on 20 September 2022.

ASIC funding model review

On 8 August 2022, the Government released a Terms of Reference for the review of ASIC’s Industry Funding Model.

The review will consider and make recommendations (if appropriate) regarding:

• the types of costs and nature of ASIC’s activities, how the costs are recovered, and who they are recovered from. This will include costs recovered through levies and regulatory fee-for-service, and whether some or all costs associated with certain activities (e.g. enforcement and capital expenditure) remain appropriate to be recovered through the model;
• how ASIC allocates costs to sub-sectors, the consequences of time lags between regulatory action and cost allocation, and changes to the sub-sector composition (e.g. when a firm exits);
• changes in levy amounts under the model, with a focus on sub-sectors that have faced significant increases in levies, volatility in levies, and variance between estimated and actual levies;
• whether key aspects of the design and legislative framework for the model remain appropriate, and whether changes are required to any sub-sector definitions or levy metrics;
• flexibility of the Model in responding to industry changes, including emerging industry sectors; and
• suitability of the transparency and consultation mechanism, including the Costs Recovery Implementation Statement (CRIS) and how ASIC could improve the accuracy of its estimated costs.

The review will be led by Treasury who will undertake public consultation later in the year to seek stakeholder feedback.

Crypto asset reforms underway

On 22 August 2022, the Government announced that they are looking into improving the way the Australian regulatory system manages crypto assets, with the aim of providing greater protections for consumers.

The Government stated that they are ready to start consultation with stakeholders on the framework for industry and regulators, and the first step in the reform agenda is to prioritise ‘token mapping’ which will help identify how crypto assets and related services should be regulated.

The Government has indicted that a public consultation paper on ‘token mapping’ will be released soon. 

Review of ASIC’s effectiveness and capability

On 25 August 2022, the Government announced that they have tabled in Parliament the Effectiveness and Capability Review of the Australian Securities and Investments Commission (ASIC).

The 4 recommendations contained in the report that are aimed at enhancing ASIC’s culture and improve its effectiveness and capabilities include:

• uplifting ASIC’s data and technology capabilities, which will involve cultural changes;
• a stronger focus across the organisation on enhancing the quality of its engagement with stakeholders;
• enhancing its ability to measure its own effectiveness and capability, and communicate the outcomes transparently; and
• continuing to broaden its mix of skillsets to meet current and future needs.

Updated FSCP guidance

On 3 August 2022, ASIC announced the release of Regulatory Guide 263 Financial Services and Credit Panel (FSCP) (RG 263) and Information Sheet 273 FSCP decisions: Your rights (INFO 273).

• RG 263: provides an overview of the purpose and composition of the FSCP, actions a sitting panel may take, the FSCP’s processes and procedures around hearings, their decisions and confidentiality.
• INFO 273: outlines the financial adviser’s rights (if they are affected by a FSCP decision), including how to make an application to vary or revoke the decisions and how to have the FSCP’s decision reviewed by the Administrative Appeals Tribunal (independent body).

Compensation for financial advice related misconduct for 2021-22

On 24 August 2022, ASIC provided an update on the compensation for financial advice related misconduct as at 30 June 2022.

The update covers 6 of Australia’s largest banking and financial services institutions, and it summarises the amounts paid or offered to customers who suffered loss or detriment because of fees for no service misconduct or non-compliant advice.

Below is a summary of the outcomes, as at 30 June 2022:

*Not included because ASIC accepted an enforceable undertaking in January 2013, which resulted in $24.7million in compensation to 263 clients.

Surveillance of internal dispute resolution in super

On 10 August 2022, ASIC urged superannuation trustees to review their internal dispute resolution (IDR) arrangements after ASIC found indicators of significant compliance issues after their first stage of surveillance.

Below are some of ASIC’s observations, based on the data they have collected:

• Recording of complaints: ASIC is concerned that some trustees may be failing to record all member complaints or are adopting an inappropriately narrow definition of a “complaint”. For example, 10% of trustees recorded less than 10 complaints for every 10,000 members, whereas the overall rate is 30 for every 10,000 members (calculated using the number of member accounts that the funds had as at 30 June 2021);
• Response timeframes: Trustees may be over-applying the limited exemptions to the maximum timeframe required under RG 271 or are not sufficiently monitoring how long complaints take to resolve;
• Informing complainants of delays: The review found that in circumstances where trustees are required to notify complainants of delays and their rights to go to AFCA when a written response is not sent within 45 days, the complainants were not notified in nearly 50% of the time; and
• Process failures: 1/3 of trustees advised ASIC that there were varying degrees of process failures or errors in their IDR systems.

ASIC stated that in the next stage of their surveillance, they will review and address the concerns identified, and consider regulatory action where appropriate.

Super trustees urged to improve TMDs

On 29 August 2022, ASIC urged super trustees to review, and if necessary, improve the effectiveness of the target market determinations (TMD) for their products.

ASIC found some instances of poor practices after they have reviewed a sample of 55 TMDs prepared by 27 super trustees across the industry, retail, corporate and public sectors for both accumulation and retirement products.

Some observations from ASIC’s sample review include:

• Defining target markets: although all TMDs described a target market (some more defined than others), ASIC recommended that trustees clearly articulate the target market for each product, clearly define the intended target market and when describing classes of consumers as being ‘potentially in the target market’, that the trustees should sufficiently cover the factors indicating the product’s suitability, and to clearly articulate the target market for each product and differences between products in TMDs that covered multiple products;
• Describing investment sub-markets: investment submarkets should be specific and comparable to be effective, and these elements (e.g. the Standard Risk Measure) should be consistent with other documents about the product (e.g. product disclosure statement); and
• Setting review triggers: some triggers were not specific enough to determine a review of the TMD and ASIC recommended trustees to consider how insights from their Member Outcomes obligations are incorporated in their review triggers.

Financial adviser exam results released

On 1 September 2022, ASIC released the results of the financial adviser exam which were held in July and August.

Of the 628 candidates who sat the exam, 52% passed. In releasing the results, ASIC has also stated that to date, 21,148 candidates have sat the exam and over 92% of those candidates have passed.

This exam sitting was the last opportunity for advisers who are under the 9-month exam extension. For advisers who did not pass the exam, ASIC released guidance for the adviser and licensee.

Below is a summary of the steps available to advisers who are under the exam extension and have not passed the exam:

• For advisers who have their authorisation to provide personal advice ceased by 30 September 2022, they will only need to pass the exam before they are eligible for re-authorisation; and
• For advisers who have not had their authorisation to provide personal advice ceased by 30 September 2022, they will need to complete a professional year and obtain an approved degree in addition to passing the exam before they are eligible for reauthorisation.

Latest climate risk self-assessment survey

On 4 August 2022, APRA announced the release of an information paper which summarises the findings of its latest climate risk self-assessment survey conducted across the banking, insurance and superannuation industries.

Some key observations from the paper include:

• 4 out of 5 boards oversee climate risk on a regular basis, while 63% of institutions have incorporated climate risk into their strategic planning processes;
• almost 40% of institutions said climate-related events could materially or moderately impact their direct operations;
• 73% of institutions said they had one or more climate-related targets in place, however 23% of institutions do not have any metrics to measure or monitor climate risks; and
• 68% of institutions said they have publicly disclosed their approach to measure and manage climate risks, with 90% aligning their disclosure to the Taskforce for Climate-related Financial Disclosures framework.

Super statistics for June 2022

On 23 August 2022, APRA released its quarterly superannuation performance statistics for June 2022.

Some highlights from the report:

Life insurance statistics for June 2022

On 25 August 2022, APRA released its quarterly life insurance performance statistics for June 2022.

Some highlights from the report:

MySuper performance test results

On 31 August 2022, APRA released its second MySuper performance test results.

APRA assessed 69 MySuper products with at least 5 years of historical performance against an objective benchmark, which assesses investment performance, fees and costs.

Some highlights from the announcement:

• almost 96% of members (13.1 million member accounts) in MySuper products are now in products which passed the test;
• the performance test has contributed to over 5.1 million MySuper members now paying lower fees than the previous year;
• 1 MySuper product failed the performance test for the first time; and
• 4 MySuper products failed the performance test for the second time.