Thursday 12 December 2019

Recent developments

Welcome to the December technical roundup. Several Bills have been introduced to Parliament in the last month, including provisions in response to recommendations from the Hayne Royal Commission.

Other items of note include regulator views in relation to the monitoring, compliance with and enforcement of the Financial Adviser Code of Ethics, which financial advisers will need to comply with from 1 January 2020 .

Legislative developments


Exposure Drafts

Legislative Instruments

Regulator views






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Legislative developments


Superannuation choice

The Treasury Laws Amendment (Your Superannuation, Your Choice) Bill 2019 was introduced to the House of Representatives on 27 November.

This Bill reintroduces amendments to the Superannuation Guarantee (Administration) Act 1992 that were previously introduced in September 2017.

The amendments ensure employees under workplace determinations or enterprise agreements have an opportunity to choose the superannuation fund for their compulsory employer contributions.

The measure applies to new workplace determinations and enterprise agreements made on or after 1 July 2020.

Financial Sector Reform – Protecting Consumers

On 28 November, the Financial Sector Reform (Hayne Royal Commission Response - Protecting Consumers (2019 Measures)) Bill 2019 was introduced to the House of Representatives.

The Bill addresses recommendations from the Hayne Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry including:

  • extending the existing protections of the unfair contract terms regime to insurance contracts (commencing 5 April 2021)
  • ensuring consumer protection provisions apply to funeral expense policies (commencing the day after the Bill receives Royal Assent)
  • requiring mortgage brokers to act in the best interest of consumers and addressing conflicted remuneration for mortgage brokers (effective 1 July 2020).

Financial Sector Reform – Stronger Regulators

The Financial Sector Reform (Hayne Royal Commission Response – Stronger Regulators (2019 Measures)) Bill 2019 was also introduced in the House of Representatives on 28 November.

The Bill proposes to grant ASIC new enforcement and supervision powers in response to the recommendations of the ASIC Enforcement Review Taskforce and Banking Royal Commission, including:

  • introduction of an ongoing "fit and proper person" test to strengthen ASICs licensing powers
  • extend banning order powers, and grounds on which a banning order can be issued
  • harmonise ASIC search warrant powers across ASIC-administered Acts and bring them into line with the search warrant powers in the Crimes Act 1914 (Cth)
  • allow interception agencies (such as the police, ASIO and anti-corruption bodies) to provide lawfully intercepted telecommunications information to ASIC for serious offences that ASIC can investigate or prosecute; and
  • align the penalties for false and misleading statements in AFS and Credit Licence applications.

These new enforcement and supervision powers will come into effect the day after the Bill receives Royal Assent (although the power to share intercepted telecommunications with ASIC will also apply to information held by an interception agency before Royal Assent to the Bill).

Super Guarantee amnesty for employers

The Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019 was passed by the House of Representatives on 28 November without amendment and now moves to the Senate.

The Bill proposes to enable employers to self-correct historical underpayments of SG amounts without incurring additional penalties that would normally apply. It will apply to SG shortfalls as far back as 1 July 1992, and up until the quarter starting on 1 January 2018 (inclusive).

To qualify for the amnesty, a disclosure must be made to the ATO in the approved form (and must not have been previously disclosed). Employers who do not take advantage of the amnesty will face higher penalties when they are subsequently caught, including a minimum 100% penalty on top of the SG Charge.

The amnesty period will start from 24 May 2018 and run until 6 months after the day the Bill receives Royal Assent.

Exposure drafts

Review of the retirement income system 

On 22 November 2019, the Government released the Retirement Income Review consultation paper to support the independent review commissioned in September 2019. The consultation paper outlines some of the issues the Panel will be considering and is intended as a guide to those making a submission. The Retirement Income Review will aim to identify:

  • how the retirement income system supports Australians in retirement
  • the role of each pillar in supporting Australians through retirement
  • distributional impacts across the population and over time and
  • the impact of current policy settings on public finances.

The Panel welcomes contributions and invites submissions from the Australian community on the issues and material it should examine as it considers the current state of the retirement income system and how it will perform in the future.

The closing date for submissions is 3 February 2020.

Legislative Instruments

Relief from financial adviser compliance scheme takes effect 

Following from the 15 October announcement, that ASIC would provide relief to AFS licensee from the financial compliance scheme obligations, ASIC has registered the ASIC Corporations (Amendment) Instrument 2019/1145 to give effect to the 3-year exemption announced.

This exemption provides certainty to Australian financial services (AFS) licensees that they will not be in breach of the law because their financial advisers were not able to register with an ASIC-approved compliance scheme by 1 January 2020, as originally required.

ASIC’s action follows the Government announcement that it would accelerate the establishment of a single disciplinary body for financial advisers that will displace the role of Code Monitoring Bodies in enforcing the Code of Ethics.

Ending grandfathered commissions for financial advisers - Regulations

The Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Regulations 2019 were made on 28 November 2019.

The regulations provide for a scheme by which conflicted remuneration that remains payable on or after 1 January 2021 will be rebated to affected retail customers by means of payments or other monetary benefits.

The regulations also place record-keeping requirements on AFS licensees who are required to rebate conflicted remuneration.

The regulations repeal provisions that grandfather conflicted remuneration that are contained in the Corporations Regulations 2001.

Regulator views

Australian Taxation Office

Contributions made to the Small Business Superannuation Clearing House

The ATO have issued Draft Practical Compliance Guideline PCG 2019/D8 to outline circumstances when the Commissioner will not apply compliance resources to determine in which income year a small business employer can claim tax deductions for superannuation contributions made through the Small Business Superannuation Clearing House (SBSCH). This will apply where:.

  • the payment to SBSCH was made on behalf of its employee(s) before the close of business on the last business day of the income year;
  • at that time, all relevant information was given to the SBSCH to enable it to process the payment; and
  • the payment has not been dishonoured or returned to the employer.

Accordingly, this will allow eligible small business employers to claim a deduction in the income year the payment is made to the SBSCH, even if the superannuation fund receives the contribution in the following income year, and the guidance will apply retrospectively.

The ATO has invited comments on the draft Guideline by 17 January 2020.

Disregarding or reallocating remedial SG contributions

The ATO have released a factsheet that sets out the Commissioner's approach in exercising discretion to disregard or reallocate superannuation contributions when an employer makes remedial super guarantee (SG) contributions.

Even though remedial SG contributions may relate to an earlier income year, they are treated as a concessional contribution in the year they are "made" – as a result they may result in an employee exceeding their concessional contributions cap. An employee may apply for an ATO determination to have these remedial SG contributions disregarded or allocated to another year to manage contribution caps. However, the ATO said it does not have the power to exercise this discretion for Div 293 purposes.

In deciding whether to exercise discretion, the ATO says it will consider whether the remedial SG contributions results in "unfair or unintended outcomes", whether the employee had "control" over the circumstances that led to the remedial contributions, and whether it was "reasonably predictable" that the remedial SG contributions would result in excess contributions for an income year.

Transfer balance cap and indexation

The ATO updated information on their website regarding the transfer balance cap. The updated information highlights how individuals will be impacted when the general transfer balance cap is indexed in the future.

Indexation of the general transfer balance cap may change contribution cap limits and trustees may need to review how much they withhold from capped defined benefit income streams they pay their members.

Indexation of the general transfer balance cap from $1.6 to $1.7 million will occur on 1 July 2020 if the All Groups CPI figure for the December 2019 quarter is 116.9 or higher. If indexation does not occur on 1 July 2020, the ATO anticipates it will occur on 1 July 2021.


ASIC approach to FASEA Code of Ethics obligations

On 26 November, ASIC confirmed that it will not be monitoring or enforcing compliance by individual advisers with the Financial Planners and Advisers Code of Ethics.

ASIC has previously registered an Instrument to grant a 3-year exemption so that AFS licensees do not need to comply with the compliance scheme obligations until 31 October 2022. This follows the Government's announcement that it will establish a single disciplinary body for financial advisers.

However, financial advisers are still required to comply with the code from 1 January 2020, and AFS licensees are required to take ‘reasonable steps’ to ensure that their financial advisers comply with the code.

The reasonable steps include making sure that their advisers are aware that they need to comply with the code from 1 January 2020, and providing training on the types of conduct that is consistent/inconsistent with the code.

After consultation with Financial Adviser Standards and Ethics Authority (FASEA), ASIC have also indicated that it will take a ‘facilitative approach’ to compliance with Standards 3 and 7 of the Code, until the new single disciplinary body is operational.

Updates to RG97 – Fees and cost disclosure

ASIC has released updated guidance on fees and costs disclosures for issuers of superannuation and management investment products.

The main changes to fees and costs disclosure are:

  • a re-grouping of values in the re-named fees and costs summary to more clearly show fees and costs that are on-going and those that are member-activity based
  • a simplification of ongoing fees and costs into three groups – Administrative, Investment and Transaction including a single ‘Cost of Product’ figure in a PDS, and
  • simplifying how fees and costs are presented in periodic statements.

Modifications to legislative obligations described in RG 97 are made in the following instrument: ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070.

The new fees and costs disclosure requirements will apply to:

  • PDSs issued on or after 30 September 2020, and
  • periodic statements (ongoing or on exit) for a reporting period that commences on or after 1 July 2021


MySuper heatmap

APRA has released details of the superannuation heatmap it will publish in December, which will provide insights into the outcomes being delivered by every MySuper product.

The heatmap will use a graduating colour scheme to provide clear and simple insights into MySuper products across three areas: investment performance, fees and costs, and sustainability of member outcomes. An information paper has been published which explains the metrics, benchmarks and methodology used.

The full heatmap will be published on the APRA website by mid-December.

Proposed changes to prudential standard governing insurance in superannuation

APRA has released for consultation proposed revisions to Prudential Standard (SPS 250) Insurance in Superannuation. Proposed changes include:

  • a new independent certification requirement for RSE licensees, where an insurance arrangement is with a related party insurer or gives priority or privilege to an insurer
  • a requirement for RSE licensees to be satisfied that rules which attribute a particular status to a member in connection with insurance is fair and reasonable
  • RSE licensees to give adequate consideration to the cost of insurance inappropriately eroding member benefits
  • processes to make opt-out insurance easier for members

These proposed changes are aimed at improving superannuation member outcomes by helping trustees select the most appropriate policies for their members, and monitor their ongoing relationships with insurers.

The consultation closes on 1 February 2020 and APRA will finalise the prudential standard by mid-2020. The revised standard will come into effect on 1 January 2021.


AFCA approach to the Code of Ethics

The Australian Financial Complaints Authority (AFCA) has announced that it will take a ‘measured and considered approach’ when assessing adviser conduct obligations under the new Code of Ethics.

Speaking at the FPA National Congress, AFCA Deputy Chief Ombudsman Dr June Smith announced that AFCA will only assess adviser conduct against the Code where a complaint and the conduct has occurred after 1 January 2020.

AFCA will also take into account ASIC’s expectations about steps AFS licensees should take to ensure their advisers comply with the Code and specifically the guidance that they will take a facilitated compliance approach with respect to Standards 3 and 7 while FASEA continues to refine its guidance over the period up to the establishment of a single disciplinary body.


FASEA releases September exam results

FASEA has released exam results from the second Financial Adviser Exam held in September. The exam was held in 8 metropolitan and 7 regional centres across Australian from 19-23 September.

The exam was marked to a credit standard and 88% of the 1697 candidates who sat the exam achieved a pass.

Registrations for the December exam are closed, with over 2,430 advisers registered. The exam was held 5-9 December in 19 centres across Australia.

Registrations for the February 2020 exam sitting in 17 locations (including regional locations) are now open.

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