Recent developments

Welcome to the November technical roundup, which provides an update on reforms and announcements for the month of November. A large omnibus Bill was introduced to Parliament to implement a range of financial sector reforms recommended by the Royal Commission.  The Government also released an exposure draft of various superannuation measures announced in the Federal Budget 2020.

Acts

JobMaker Hiring Credit

The Economic Recovery Package (JobMaker Hiring Credit) Amendment Act 2020 received Royal Assent on 13 November 2020.

The Act amends the JobMaker Hiring Credit Scheme that was announced by the Government as part of the 2020 Federal Budget. Under this scheme, the Government will provide funding to accelerate employment growth by supporting organisations to take on additional employees through a hiring credit. Eligible employers will receive $200 per week for hiring eligible employees aged 16 to 29, or $100 per week if they hire eligible employees aged 30 to 35 years. The JobMaker Hiring Credit will be available for up to 12 months from the date of employment.

The effective date of the Act is 14 November 2020.

Economic Support Payments

The Social Services and other legislation amendment (Coronavirus and other measures) Act 2020 received Royal Assent on 13 November 2020. The Act:

  • allows payment of two Further Economic Support payments of $250 to eligible recipients, as announced in the 2020 Federal Budget
  • temporarily amends circumstances in which a person may be regarded as independent for youth allowance purposes
  • creates a temporary pathway for young people who are seeking to qualify as independent for the purposes of assessing Youth Allowance (student)
  • introduces a revised Paid Parental Leave work test period for a limited time
  • improves assistance for families affected by stillbirth and infant death in respect of payments for newborn children.

Bills

Extension of the Coronavirus Supplement

On 12 November, the Social Services and Other Legislation Amendment (Extension of Coronavirus Support) Bill 2020 was introduced to Parliament.

The Bill proposes to extend the Coronavius Supplement for 3 months, with both existing and new JobSeekers to be paid the Coronavirus Supplement at a rate of $150 per fortnight from 1 January 2021 through to 31 March 2021.

It will also extend the temporary COVID-19 qualification rules for JobSeeker payment and Youth Allowance to 31 March 2021.

The ordinary waiting period, newly arrived resident’s waiting period and seasonal work preclusion period will also continue to be waived until 31 March 2021.

Financial Sector Reform

The Financial Sector Reform (Haynes Royal Commission Response) Bill 2020 was introduced to Parliament on 12 November 2020. This Bill implements several recommendations made in the Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Some of the key changes include:

  • hawking of financial products (recommendations 3.4 and 4.1). Schedule 5 of the Bill amends the Corporations Act 2001 to ban the hawking of financial products, to take effect the day after Royal Assent or 5 October 2021, whichever is later.
  • trustees of registerable superannuation entities should have no other duty (recommendation 3.1). Schedule 8 of the Bill amends the Superannuation Industry (Supervision) Act 1993. It imposes a new condition of licences held by a body corporate trustee of a registrable superannuation entity, prohibiting these trustees from having a duty to act in the interest of another person, to take effect from the day after Royal Assent or 1 July 2021, whichever is later.
  • adjustment of APRA and ASIC roles in superannuation (recommendations 3.8, 6.3, 6.4 and 6.5). Schedule 9 of the Bill extends ASIC’s role in superannuation regulation to cover consumer protection and market integrity regulation. It also extends the Australian financial services licensing (AFSL) regime so that each RSE licensee must hold an AFSL authorising it to provide a superannuation trustee service, capturing all activities involved in operating a superannuation fund. It will also prevent superannuation trustees and directors from using trust assets to pay criminal, civil or administrative penalties. Schedule 9 will take effect the day after Royal Assent or 1 January 2021, whichever is later.

The Bill also includes measures regarding financial adviser reference checking and information sharing between licensees, breach reporting and remediation and a number of insurance related changes.

Additional Financial Sector Reform

On 9 December, the Financial Sector Reform (Haynes Royal Commission Response No. 2) Bill 2020 was introduced to Parliament. This Bill implements a further four recommendations of the Financial Services Royal Commission, to improve consumer protections. In particular:

  • annual renewal and payment (recommendation 2.1). Schedule 1 of the Bill amends the Corporations Act 2011 to require financial service providers to provide clients with a single document each year, which outlines the fees that will be charged, the services to which the client will be entitled and seeks annual renewal from clients for all ongoing fee arrangements. They must also obtain written consent before fees under an ongoing fee arrangement can be deducted from a client’s account.
  • disclosure of lack of independence (recommendation 2.2). Schedule 2 of the Bill also amends the Corporations Act to require a providing entity (financial services licensee or authorised representative) to give a written disclosure of lack of independence where they are authorised to provide personal advice to a retail client.
  • advice fees in superannuation (recommendations 3.2 and 3.3). Schedule 3 of the Bill amends the Superannuation Industry (Supervision) Act to provide greater protection for superannuation members against paying fees for no service. As a result, fees under an ongoing fee arrangement will not be able to be deducted from MySuper products. In addition, trustees will be prohibited from charging a member fees for advice provided to that member (other than intra-fund advice) unless:
    • the fee is charged in accordance with an arrangement that the member has entered into
    • the member has consented to the fee, and
    • the trustee has the consent, or a copy of the consent from the member.

Date of effect for Schedules 1 and 2 is 1 July 2021. Schedule 3 also applies from 1 July 2021 with a 12 month transitional period commencing 1 July 2021 for arrangements entered into before 1 July 2021.

Miscellaneous technical measures

On 2 December, the Government introduced Treasury Laws Amendment (2020 Measures No. 6) Bill 2020, which contains a number of technical amendments, including:

  • temporary full expensing and backing business investment provisions in the income tax law to provide greater flexibility for entities to access the concessions
  • amends the Australian Charities and Not-for-profit Commission (ACNC) Act 2012 to incentivise basic religious charities that may be responsible for past institutional child sexual abuse to join the Redress Scheme
  • MySuper lifecycle related amendments
  • no-TFN tax offset extension for superannuation providers
  • ordinary time earnings base for SG purposes.

Legislative Instruments

SMSF rental income deferrals and COVID-19

The ATO finalised Self Managed Superannuation Funds (COVID-19 Rental income deferrals – In-house Asset Exclusion) Determination 2020 on 13 November 2020.

This instrument provides that an asset of an SMSF is not taken to be an in-house asset for the 2019-20, 2020-21 and future income years where the SMSF, during one or both of the 2019-20 and 2020-21 income years:

  • Allows a related party to defer the payment of rent owing under a lease agreement (on arm’s length terms) to ease the financial impact of COVID-19, which creates the assets held by the fund, or
  • Holds the asset that is an interest in a company or unit trust which would not otherwise be an in-house asset under regulation 13.22B or regulation 13.22C of the Superannuation Industry (Supervision) Act 1993 and that company or unit trust allows a tenant to defer the payment of rent under a lease (on arm’s length terms) to ease the financial impact of COVID-19.

Exposure Drafts

Your Future, Your Super package

The Government has released exposure draft legislation and explanatory material for the Your Future, Your Super package announced in the 2020-21 Budget. The draft contains the following elements:

  • super fund stapled to member – amends the SGA Act to limit the creation of multiple superannuation accounts for employees who do not choose a superannuation fund when they start a new job
  • investment performance benchmarking – APRA will conduct an annual performance test for MySuper products, with trustees required to give notice to member when a product fails the test. Trustees are prohibited from accepting new members into the product if it has failed the performance test in two consecutive years.
  • ranking funds by fees and returns – to be ranked and published on a website maintained by the ATO
  • best financial interests – requiring trustees to act in the best financial interests of their members.

The public consultation period is open until 24 December 2020.

Government announcements

Extension of HomeBuilder scheme

On 29 November the Government announced that it would extend the HomeBuilder programme from 1 January 2021 to 31 March 2021.

For all new build contracts signed between 1 January 2021 and 31 March 2021:

  • eligible owner-occupier purchase will receive a $15,000 HomeBuilder payment; and
  • the property price caps for new builds in NSW and Victoria will be increased to $950,000 and $850,000 respectively.

In addition, the construction commencement deadline will be extended from three months to six months for all eligible contracts signed on or after 4 June 2020.

Simplifying regulatory framework applying to financial advisers

On 9 December the Government announced that it will expand the operation of the Financial Services and Credit Panel (FSCP) within the Australian Securities and Investment Commission (ASIC), to avoid the need to create a new body to provide the disciplinary system required by recommendation 2.1 of the Royal Commission.

The Government will also move the standard-making functions of the Financial Adviser Standards and Ethics Authority (FASEA) to Treasury, with the standards to be set by legislative instrument.

The remaining elements of FASEA’s role, including administering the adviser examination, will be incorporated into the FSCP’s expanded mandate. As a result, FASEA will be wound up.

Legislation implementing these reforms is intended to be introduced into Parliament in the first half of 2021.

Regulator views

ATO

SGC – Part 7 penalty

The ATO has published a Law Administration Practice Statement (PS LA 2020/4) to provide guidelines in relation to the remission of additional superannuation guarantee charge imposed under Part 7 of the Superannuation Guarantee (Administration) Act 1992.

The additional superannuation guarantee charge (referred to as the Part 7 penalty) is automatically imposed by law and applies where:

  • an employer lodges an SG statement for a quarter after the due date; or
  • where the ATO makes a default assessment of the employer’s liability for the SGC, because an employer has not lodged an SG statement for the quarter and the ATO is of the opinion that the employer is liable to pay SGC for the quarter.

The Part 7 penalty imposed is equal to double the SGC payable by the employer for the quarter (i.e. 200% of the SGC).

Between 24 May 2018 and 7 September 2020 employers were offered a one-off amnesty to disclose unpaid SG without being subject to Part 7 penalties. The practice statement provides guidelines for ATO officers so that where a historical quarter is assessed for SGC after 7 September 2020, they cannot remit the Part 7 penalty below 100% of the SGC unless:

  • the employer voluntarily came forward to lodge an SG statement prior to being notified of any ATO compliance action; or
  • exceptional circumstances prevented the employer from lodging an SG statement during the amnesty period or before the employer was notified of any ATO compliance action.

ASIC

Promoting access to affordable advice for consumers

On 17 November, ASIC released Consultation Paper 332 Promoting access to affordable advice for consumers (CP 332).

CP 332 seeks input from industry participants and relevant stakeholders to help ASIC understand:

  • the issues and impediments relating to the supply of good quality affordable personal advice; and
  • the practical steps that can be taken by ASIC and industry to improve consumer access to good quality affordable advice.

A particular focus of this paper is on promoting access to quality ‘limited advice’ and ASIC is keen to receive feedback on the impediments to providing affordable and limited advice.

As part of this consultation, ASIC is also seeking input on what can be done to make the example statements of advice (SOAs) in RG 244 and RG 90 more helpful.

Submissions to CP 332 are due by 18 January 2021 and industry participants are invited to provide feedback online at this link.

Reference checking and information sharing protocol

On 19 November, ASIC released a consultation paper seeking feedback on a new reference checking and information sharing protocol for financial advisers and mortgage brokers following the introduction of the Financial Sector Reform (Hayne Royal Commission Response) Bill 2020 into Parliament on 12 November.

In addition to the draft ASIC Protocol, ASIC has also prepared a draft information sheet to help licensees understand their reference checking and information sharing obligations.

Consultation on both the draft ASIC Protocol and the accompanying information sheet is through Consultation Paper 333 Implementing the Royal Commission recommendations: Reference checking and information sharing (CP 333).

Industry and other interested stakeholders have until 29 January 2021 to provide feedback.

Information sheet for insurance claims handling

On 27 November ASIC released a draft information sheet on insurance claims handling and settling following the introduction of the Financial Sector Reform (Hayne Royal Commission Response) Bill 2020 into Parliament on 12 November.

On passage of the Bill, persons providing claims handling and settling services will need to be covered by an Australian Financial Services (AFS) licensee, and general conduct obligations under section 912A of the Corporations Act 2001 will apply.

Entities that already hold an AFS licensee will need to apply for a variation to their license, so it covers the new financial service of claims handling and settling.

The draft information sheet:

  • sets out who needs to be authorised to provide claims handling and settling services for insurance products and who can act on an AFS licensee’s behalf
  • explains how and when to apply for an AFS licence, or variation to an existing AFS licence, including materials that are needed to support an application, and
  • refers to existing regulatory guidance on how to meet the general obligations under section 912A of the Act and indicates how the obligations may be tailored to claims handling.

ASIC expects to start taking applications for AFS licenses, and variations to existing licenses, from 1 January 2021 (subject to passage of the Bill).

Consumer remediation guidance

On 3 December, ASIC released Consultation Paper 335 Consumer Remediation which outlines proposed updates to Regulatory Guidance 256: Client review and remediation conducted by advice licensees, and clarifies RG 256’s application to all financial services licensees, credit licensees and superannuation trustees.

Submissions on CP 335 are due by 26 February 2021. ASIC will then release the draft guidance (informed by the feedback received during this consultation period) for a second phase of consultation.

ASIC has also released Making it Right: how to run a consumer centred remediation, a resource that offers immediate help to licensees with the day-to-day design and execution of consumer-centred remediations. This guide draws on ASIC’s on-the-ground experience with remediations and lessons from behavioural science. It does not set new legal obligations.

Other

FASEA October Exam results

On 26 November, FASEA released the results from the October 2020 Exam. Of the 625 candidates who sat the exam, 76% passed. In releasing the results, FASEA has also highlighted some areas for improvement, particularly amongst unsuccessful candidates. These are:

1.      Financial Advice Regulatory and Legal Requirements:

  • assessing whether the adviser has appropriately scoped the advice
  • assessing whether advice recommendations meet the client’s best interests
  • demonstrating knowledge of when key advice documentation is provided to the client i.e. FSG/SOA
  • demonstrating knowledge of the consequences of breaches of financial disclosure obligations for themselves, for clients and for the industry.

2.      Applied ethical and professional reasoning and communication:

  • applying the Code of Ethics to advice scenarios identifying compliance and non-compliance
  • demonstrating an understanding of an adviser’s ethical obligations when advising on complex family structures.

Additional information

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