Recent developments

This technical roundup will give you an update on reforms and announcements for the month of March 2022.

During March, the Government handed down its 2022 Federal Budget which includes an increase to the low to middle income tax offset and an extension of the halving of the minimum pension payment requirements. Other items of note include the release of the Quality of Advice Review – Issues Paper. The review will look into how the regulatory framework could better enable the provision of high quality, accessible and affordable advice.

Bills

Various Budget 2022 Proposals

On 31 March 2022, the following Bills were introduced to Parliament and were passed by both houses and now await Royal Assent.

The changes contained in the Bills which are relevant to financial services industry include:

  • increasing the low and middle income tax offset (LMITO) by $420 for the 2021-22 financial year;
  • introducing a cost of living payment of $250 to be paid to eligible recipients from 28 April 2022;
  • the indexation of the Medicare Levy income thresholds for the 2021-22 financial year; and
  • providing regulatory relief for certain employee share schemes. This change is to come into effect 6 months after the Bill receives Royal Assent.

Consultation papers

Crypto assets secondary service provider: Licensing and custody requirements

On 21 March 2022, the Government released a consultation paper seeking feedback on a licensing and custody regime for crypto asset secondary service providers.

The Government recognises the growing importance of the crypto asset ecosystem to the Australian and Global economy and understands the need for regulatory certainty to provide consumers with a greater level of confidence and encourage innovation and competition.

The consultation period will close on 27 May 2022.  

Government announcements

Quality of Advice Review

On 25 March 2022, the Government released the Quality of Advice Review – Issues Paper seeking stakeholder feedback.

The review will assess how the regulatory framework could deliver better outcomes for consumers. The review will also investigate:

  • whether there are opportunities to streamline and simplify regulatory compliance to reduce costs and duplications;
  • how to improve the clarity and availability of documents provided to consumers; and
  • whether parts of the regulatory framework have created unintended consequences.

The review also includes an examination into:

  • key concepts such as ‘financial product advice’, ‘general advice’ and ‘personal advice’;
  • the safe harbour provisions for the best interest duty;
  • financial advice documentation and disclosure requirements;
  • fee disclosure and consent requirements, including the annual review of ongoing fee arrangements;
  • life insurance reforms, and the impacts of reforms on levels of insurance coverage;
  • remaining exemptions on banned conflicted remunerations, including life and general insurance; and
  • whether consent arrangements for sophisticated and wholesale clients are working effectively for the purposes of financial advice.

The consultation period closes on 3 June 2022. Interested parties are invited to comment on this consultation.

 

Federal Budget 2022

On 29 March 2022, the Government handed down the 2022 Federal Budget. Below are some of the proposals:

For individuals

  • increasing the low and middle income tax offset (LMITO) by $420 for the 2021-22 financial year;
  • expanding access and reducing the red tapes around Employee Share Schemes; and
  • expanding the eligibility to the paid parental leave scheme.

For small businesses

  • allowing eligible businesses to deduct an additional 20 percent of expenditure incurred on external training provided to their employees.

Superannuation

  • extending the temporary 50 per cent reduction to the minimum superannuation income payments for account based pension and other pensions by another year, to 30 June 2023.

For more information, please refer to the Federal Budget page of our website.

 

NALE to be amended

On 22 March 22, the Government announced that it intends to make changes to legislation to ensure the non-arm’s length expenses (NALE) provisions operate as envisaged.

NALE provisions are designed to prevent superannuation funds from circumventing contribution caps and artificially inflating fund earnings through non-commercial dealings.

The Government will consult with relevant stakeholders (in particular APRA funds) on the appropriate operations of the NALE provisions, and the intends to apply the new legislation from 1 July 2022.

Regulator views

ASIC

Amendments to market integrity rules and other ASIC-made rule books

On 10 March 2022, ASIC introduced new market integrity rules which are aimed at promoting technological and operational resilience of securities and futures market operators and participants. ASIC has also amended the prohibition on payment for order flow to address certain regulatory gaps and made deregulatory, minor and administrative amendments to 10 ASIC-made rule books.

The new updates include the following measures.

Technological and operational resilience rules – new rules which apply from 10 March 2023 relate to change management, outsourcing, information security, business continuity planning, governance and resourcing, and trading controls (market operators only).

Extension to the prohibition on payment for order flow – proactive measures to avoid the emergence of payment for order flow arrangements in Australia.

The above amendments may have varying transition periods and some of the requirements may apply from 10 June 2022.


 

Worldwide securities regulators consult over retail trading market

On 21 March 2022, ASIC announced the release of a consultation paper by the International Organization of Securities Commissions (IOSCO) on retail market conduct issues in the context of the rapidly changing global retail investment landscape.

The taskforce, which is led by ASIC and the Central Bank of Ireland have identified a number of emerging concerns coinciding with the unprecedented surge in retail trading by new investors and global regulators are encouraged to identify effective tools to address the risks.

The most recent trends and developments include:

  • increased retail trading volumes likely due to a combination of different factors, such as recent technological developments, market conditions, the pandemic, and demographic factors such as the increasing participation of younger investors;
  • fraudulent online activity which has escalated over the past eighteen months, which coincides with the pandemic;
  • social media or online platforms are increasingly used to promote scams. To address this growing problem, a range of counter measures is being employed by IOSCO members;
  • retail investors are increasingly pushed towards “digitalisation”, possibly due to the COVID-19 pandemic measures (e.g. lockdowns);
  • concerns about the suitability for retail investors of crypto-assets and platforms, and possible related fraudulent platforms and scams; and
  • the rise of digital trading platforms and social media influence which brought along high-risk and gambling-type investment opportunities, which is a global concern.

The consultation period closes on 23 May 2022.


 

Scrutinising marketing material by managed funds

On 23 March 2022, ASIC announced that it has commenced surveillance into managed funds that have provided misleading performance and risk representations in their marketing/ promotional material.

ASIC is concerned that consumers (mainly retail and unsophisticated wholesale clients) who are seeking reliable or high returns in the current highly volatile and low-yield environment are being misled by performance and risks associated with the funds they are investing in.

The surveillance also follows on from ASIC’s ‘True to Label’ initiative, which examines whether representations in fund labels may have misled consumers about the characteristics of the underlying investments.

 

Financial adviser exam results for February 2022

On 25 March 2022, ASIC released the results from the February 2022 Exam.

Of the 333 candidates who sat the exam, 32.4% passed. In releasing the results, ASIC has also stated that to date, over 19,850 candidates have sat the exam where 91% of those candidates have passed.

The next exam sitting in 2022 will be held from 12 May 2022 to 16 May 2022. For advisers who are looking to sit the next sitting, the booking period will close on 26 April 2022.

ATO

Trust taxation – reimbursement agreement

On 4 March 2022, the ATO announced that when a beneficiary’s trust entitlement arises out of a reimbursement agreement, the corresponding share of the net income may be assessed to the trustee at the highest marginal tax rate instead of being assessed to the beneficiary, under section 100A of the Income Tax Assessment Act 1936(Cth)

The ATO has also released a Draft Tax Ruling TR2022/D1 Income Tax: section 100A reimbursement agreement on 23 February 2022 seeking feedback and the consultation period will close on 8 April 2022.


 

Re-contribution of COVID-19 early release amount

On 14 March 2022, the ATO announced that individuals who have made withdrawals under the COVID-19 early release of super program can now re-contribute the amounts into superannuation.

The COVID-19 re-contribution amounts are a personal contribution, where the contribution amount would not count towards their non-concessional contribution cap, and the contributions can be made between 1 July 2021 and 30 June 2030.

For COVID-19 re-contributions into a SMSF, the requirements are detailed on the ATO website.


 

APRA

No actions against divestment of Russian assets

Following the Government’s announcement to superannuation funds to review portfolio holdings and to take steps to divest any Russian assets, APRA announced on 3 March 2022 that APRA will not take any action against superannuation trustees who seek to divest Russian assets in this context where trustees have considered such divestments in accordance with their duties.

APRA also indicated that superannuation fund holdings of Russian assets are a very small proportion of the total $3.5 trillion superannuation asset pool.


 

Retirement income covenant - implementation

On 7 March 2022, APRA and ASIC announced the release of a joint letter issued to all registrable superannuation entities (RSE) licensees on the implementation of the new retirement income covenant.

The letter outlines an indicative implementation pathway for RSE licensees, retirement income considerations for embedding the retirement income covenant into existing business practices and ASIC and APRA’s expectations of RSE licensees in formulating and implementing the covenant for its members from 1 July 2022.

Indicative implementation pathway:

By 1 July 2022

  • prepare a retirement income strategy;
  • assess outcomes of existing products and assistance offered to members;
  • update business plan to reflect the retirement income strategy; and
  • take reasonable steps to gather the information necessary to inform the strategy.

From 1 July 2022

  • put in place the retirement income strategy and publish a summary on their website; and
  • regular monitoring of outcomes against retirement income strategy.

2022-2023 (and annually)

  • undertake annual outcome assessment of retirement income products;
  • assess initial impact of strategy as part of business performance review; and
  • capture annual review findings in business plan.

By 30 June 2025

  • complete first triennial review of strategy (proposed).

 

Suspension of policy contract term measure for disability income insurance

On 24 March 2022, APRA announced they will delay the implementation of the policy contract term measure for individual disability income insurance (IDII).

The policy contract term measure will require IDII providers to only offer IDII products (e.g. income protection cover) where the policy term does not exceed five years, and at the end of 5 years the policy holder must be offered the income protection on sale at that point in time.

The measure was meant to come into effect on 1 October 2022 and APRA has suspended it by two years, at which time they will reassess their position.

FSC

Helping flood victims find lost life insurance policies

On 8 March 2022, the FSC urged flood victims who have lost important insurance documents and have forgotten which life insurance company they have used to visit its website to seek further guidance.

The FSC can also assist flood victims by contacting life insurance members and asking them to check their records and contact the person if they have a policy or other relevant information.

The FSC also noted that:

  • if a person knows who the life insurer is that they should contact the insurer directly with any questions about their cover or getting replacement documents;
  • if the enquiry is about group insurance within superannuation, they should contact their superannuation fund or go to the ATO website for assistance; and
  • there are no flood exclusions in life insurance policies, so flooding will never be a reason why a life insurance claim won’t be paid.  

AFCA

Consultation on proposed funding model

On 10 March 2022, AFCA proposed a new user-pay funding model which is subject to consultation by AFCA with financial firms.

The proposed funding model includes:

  • a single registration fee;
  • a simplified complaints fee structure and includes a five free complaints per year for all members; and
  • the removal of the superannuation levy, which will bring superannuation funds under the same fee structure as most AFCA members.

The user-pay approach would minimise the cross-subsidisation across sectors (resulting in 95% of members only paying the annual registration fee) and reduce the burden on AFCA members who are less frequent users of the external dispute resolution scheme. 

AFCA’s consultation period will end on 22 April 2022 and any changes would take effect from 1 July 2022.

Australian Banking Association

Loan repayment options for flood victims

On 3 March 2022, ABA announced that individuals who are affected by the floods in NSW and QLD may have an option to defer or reduce their loan repayments for up to three months.

These options can be applied to home, personal and some business loans, and customers are encouraged to contact their banks to see what form of assistance is available to them.

Additionally, depending on the client’s circumstances, assistance may also include:            

  • waiving of fees and charges, including for early access to term deposits;
  • debt consolidation to help make repayments more manageable;
  • restructuring existing loans free of the usual establishment fees;
  • offering additional finance to help cover cash flow shortages;
  • deferring upcoming credit card payments; and
  • emergency credit limit increases.

Additional information

This information is provided by Macquarie Investment Management Limited (MIML) ABN 66 002 867 003 AFSL 237 492. MIML is not an authorised deposit-taking institution for the purposes of the Banking Act (Cth) 1959, and MIML’s obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542.  Macquarie Bank Limited does not guarantee or otherwise provide assurance in respect of the obligations of MIML.

This information is provided for the use of financial services professionals only.  In no circumstances is it to be used by a potential investor or client for the purposes of making a decision about a financial product or class of products.

The information provided is not personal advice. It does not take into account the investment objectives, financial situation or needs of any particular investor and should not be relied upon as advice.  Any examples are illustrations only and any similarities to any readers’ circumstances are purely coincidental. 

While the information provided here is given in good faith and is believed to be accurate and reliable as at the date of preparation, 1 March 2022, it is provided by MIML for information only.  It does not constitute legal advice and should not be relied upon as such. MIML will not be liable for any losses arising from reliance on this information.

MIML does not give, nor purport to give, any taxation advice. The application of taxation laws to each client depends on that client’s individual circumstances.  Accordingly, clients should seek independent professional advice on taxation implications before making any decisions about a financial product or class of products.

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