In brief 14 min read
As the dust settles on a raft of COVID-19 related disruptions to various proposed legislative and regulatory reforms, the Allens team takes stock of the current regulatory reform proposals in the superannuation, funds and insurance sectors which have been mooted for the tail end of 2020 and early 2021.
COVID-19 related activity aside, it is undoubtedly the case that slated legislative and regulatory reforms have slowed in the past few months as regulators acknowledge the priority of business continuity and adjustment to the new operating environment. However, as can be seen from the imposing length of the items described below, once the demands arising from COVID-19 related activity subside, regulators have set a demanding pace of reform that we think will occupy the industries' time and attention in 2020 and beyond.
Reforms with cross-sector implications
REFORM: Royal Commission related legislative reforms with cross-sector application
WHAT IS IT?
On 31 January 2020, the Government released an extensive package of Exposure Draft Bills relating to the final set of Royal Commission related reform measures (see our recent update for more on this).
The measures include:
'Enforceability of financial services industry codes' amendments: ASIC is to be given the power to make certain provisions of financial services industry codes ‘enforceable code provisions’ (breaches of which may attract civil penalties). The Bill also introduces a framework for the establishment of mandatory financial services industry codes through regulation. See our recent update for more on this.
'Strengthening ASIC breach reporting' amendments: The breach reporting regime for AFS licensees is to be substantially rewritten by replacing the current reporting obligation in section 912D in the Corporations Act with new reporting obligations. The Bill also introduces a comparable set of obligations for credit licensees under the National Consumer Credit Protection Act 2009 (Cth).
Of particular note is that the Bill expands the circumstances in which breach reports must be lodged with ASIC to include the fact that a licensee has merely commenced an investigation into a potentially significant breach. The discretion that licensees currently have to determine the 'significance' of a particular breach will also be materially curtailed.
Helpfully, however, reporting periods will be extended to 30 calendar days (currently 10 business days) after the licensee reasonably knows that there are reasonable grounds to believe a reportable situation has arisen, although outcomes of investigations will need to be reported within 10 calendar days.
See our recent update for more on this.
CURRENT STATUS?
Exposure draft legislation and exposure draft regulations were released on 31 January 2020; submissions closed on 28 February 2020.
WHAT'S NEXT?
Despite the Government's original intention to have the exposure draft legislation consulted on and introduced to Parliament by 30 June 2020 under its Royal Commission Implementation Roadmap, the Government has now deferred its implementation for six months due to the impacts of COVID-19.
Under the updated timetable, these measures are now slated to be introduced to Parliament by the end of December 2020.
REFORM: Deferral of certain cross-industry prudential and reporting standards
WHAT IS IT?
APRA has announced delayed commencement dates for CPS 226 (Margining and Risk Mitigation for Non-Centrally Cleared Derivatives) in relation to the phase-in of initial margin requirements and for CPS 234 (Information Security) (but only in relation to the need to put in place third-party arrangements to meet the Standard).
Entities seeking an extension for CPS 234 must advise APRA of the nature of their third-party arrangements and how they are monitoring the risks associated with these arrangements.
See our recent updates on CPS 226 here and CPS 234 here.
CURRENT STATUS?
In relation to CPS 226, the original commencement dates of 1 September 2020 and 1 September 2021 have been deferred to 1 September 2021 and 1 September 2022 (respectively).
In relation to the CPS 234 third-party arrangements requirements, APRA will consider requests for a six-month extension by regulated entities on a case-by-case basis from the original commencement date of 1 July 2020.
WHAT'S NEXT?
Affected industry participants should continue preparing for these changes based on the revised timelines and, if needed, consider applying to APRA for an extension on the CPS 234 requirements.
REFORM: Fees and costs disclosure: Regulatory Guide 97 (RG 97)
WHAT IS IT?
After many years of tinkering, a materially revised set of fee and cost disclosure requirements for superannuation and managed investment scheme PDSs and periodic statements have been released by ASIC in an updated RG 97 and in ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070.
Originally, those new rules were to apply to PDSs issued on or after 30 September 2020 and for periodic statements (ongoing or on exit) for reporting periods that commence on or after 1 July 2021.
CURRENT STATUS?
ASIC has recently announced it will amend the transitional arrangements for PDSs to allow entities to opt into the new regime for PDSs issued from 30 September 2020, but that the final implementation date will be delayed so that it applies to any PDS given on or after 30 September 2022.
ASIC has stated there will be no changes to the existing periodic statement transition arrangements.
WHAT'S NEXT?
ASIC will issue a media release and update the RG 97 webpage when the amendment is made.
REFORM: Design and distribution obligations (DDO)
WHAT IS IT?
The DDO regime (introduced by the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019) will require product issuers (including insurers, banks and superannuation trustees) to make and review a 'target market determination' for each product the regime covers.
Additional obligations will also be imposed on product issuers and distributors, including conduct, notification and record keeping obligations.
See our recent update for more on the DDO regime.
CURRENT STATUS?
The DDO regime was originally due to commence on 5 April 2021. However, ASIC has deferred the commencement of the new regime by six months until 5 October 2021.
ASIC released draft regulatory guidance in December 2019, which closed for consultation in March. ASIC is planning to publish final regulatory guidance on the DDO regime in Q3 of 2020.
WHAT'S NEXT?
ASIC expects entities to continue preparing for the transition based on the new timeline, which may involve material changes to systems and processes of issuers and distributors.
REFORM: Financial Accountability Regime (FAR)
WHAT IS IT?
On 22 January 2020, Treasury responded to certain Banking Executive Accountability Regime (BEAR) related recommendations of the Royal Commission by releasing a proposal paper for extending the BEAR to all APRA regulated entities (to be rebranded as the 'Financial Accountability Regime' or 'FAR').
CURRENT STATUS?
Submissions on the proposal paper closed on 14 February 2020. The proposal paper indicated that the Government would consult on, and introduce, legislation to implement the FAR by the end of 2020. However, it is unclear whether this timeline is to be deferred.
WHAT'S NEXT?
We await exposure draft legislation on the reforms.
REFORM: 'Treasury Laws Amendments (2019 Measures No 3)' amendments
WHAT IS IT?
The Treasury Laws Amendment (2019 Measures No 3) Bill 2019 amends the Corporations Act to defer the transitional timeframes for existing financial advice providers to comply with certain increased education and training standards. It also sets out a number of minor and technical amendments to laws relating to taxation, superannuation, corporations and credit.
The amendments relating to superannuation include clarification of when a person has been 'involved' in a contravention of a provision, other than an offence provision, as well as amendments to apply the existing fee cap on low-balance accounts where a product is only held for part of an income year.
Taxation amendments relating to downsizer contributions, transfer balance caps and death benefit rollovers may also be of interest.
CURRENT STATUS?
The Bill received royal assent on 22 June 2020.
WHAT'S NEXT?
Affected industry participants should be aware of the commencement date corresponding to each relevant amendment.
REFORM: Replacement of CHESS
WHAT IS IT?
Following comprehensive stakeholder consultation, the ASX is proposing to replace the Clearing House Electronic Subregister System (CHESS) with a distributed ledger technology platform that is intended to provide a broader range of benefits to users than the current system. It was proposed that the CHESS replacement platform would go live in April 2021.
CURRENT STATUS?
On 22 May 2020, ASX released its response to consultation feedback received on the Tranche 1 draft rule amendments. In light of COVID-19 and feedback from users, consultation on Tranche 3 has been suspended until after the June 2020 consultation on the new CHESS replacement timetable.
WHAT'S NEXT?
In June 2020, ASX will consult on a new timetable for the implementation of the replacement system that will move the go-live date to a later time.
Superannuation
REFORM: Royal Commission related legislative reforms for superannuation
WHAT IS IT?
As part of the package of Exposure Draft Bills released on 31 January 2020 relating to the Royal Commission measures, Treasury included a number of superannuation specific reforms.
'Superannuation regulator roles' amendments and regulations: The superannuation regulator roles amendments in the Bill aim to adjust APRA and ASIC’s roles in relation to superannuation to accord with the principles that APRA is the prudential regulator and ASIC the conduct and disclosure regulator.
Changes to the AFS licensing regime for trustees: The Bill extends coverage of the Australian financial services licensing regime to include a new financial service of providing 'superannuation trustee services'. In addition, the exemption for trustees of non-public offer superannuation funds from the requirement to hold an AFS licence to deal in financial products is to be removed.
'Trustees of RSEs should hold no other role or office' amendments: The Bill amends the SIS Act to create an additional RSE licence condition which prohibits trustees (but not individual directors of the trustee) from having a duty to act in the interests of another person, subject to exceptions that enable trustees to undertake their ordinary functions as RSE licensees.
CURRENT STATUS?
Exposure draft legislation and regulations were released on 31 January 2020; submissions closed on 28 February 2020.
WHAT'S NEXT?
As noted above, despite the Government's intention to have the exposure draft legislation consulted on and introduced to Parliament by 30 June 2020, the Government has deferred its implementation for six months due to the impacts of COVID-19. Under the updated timetable, these measures will be introduced to Parliament by December 2020.
REFORM: Retirement income covenant and CIPRs
WHAT IS IT?
As part of the Government's intention to introduce a framework for Comprehensive Income Products for Retirement (CIPR), it is proposing to amend the SIS Act to include a new 'retirement income covenant'. This covenant would require trustees of a superannuation fund to formulate a retirement income strategy for members of the fund and is intended to supplement development of the comprehensive income product for retirement framework (which is scheduled to commence from 1 July 2022).
See our most recent updates (here, here, here and here) for more on this.
CURRENT STATUS?
The covenant proposal (and the CIPR regime more generally) is moving slowly and is still at the consultation stage. On 22 May 2020, the Government announced plans to defer the introduction of the covenant (which was previously scheduled to start on 1 July 2020). The deferral will enable further consultation and drafting of the measure to occur post-COVID-19 and will also allow drafting to be informed by the Retirement Income Review.
WHAT'S NEXT?
The revised date for introduction of the covenant will be determined following further consultation.
REFORM: Portfolio holdings disclosure
WHAT IS IT?
The (long-foreshadowed and appropriately pared-back) portfolio holdings disclosure regime will require superannuation trustees to disclose publicly on their websites certain information about each of their investment options twice each year within 90 days of 30 June and 31 December.
See our recent updates (here and here) for more on this.
CURRENT STATUS?
On 29 October 2019, ASIC Corporations (Amendment) Instrument 2019/1056 was registered. It amends ASIC Class Order [CO 14/443] to extend the first reporting date for Portfolio Holdings Disclosure from 31 December 2019 to 31 December 2020. Regulations specifying some of the more detailed aspects of the regime have long been promised but not drafted.
However, ASIC (recognising that the current conditions may make it difficult for trustees to prioritise the development of appropriate disclosures even if the expected regulations were made soon) has now announced its intention to further defer the first reporting date for portfolio holdings disclosure from 31 December 2020. We await further details of the revised start date for the regime.
WHAT'S NEXT?
ASIC has not announced the new first reporting day but has committed to provide further details on this website once a decision is made.
REFORM: 'Reuniting more superannuation' amendments
WHAT IS IT?
The Treasury Laws Amendment (Reuniting More Superannuation) Bill 2020 aims to facilitate the closure of eligible rollover funds (ERFs) by 30 June 2021 through amendments to the SIS Act and the Superannuation (Unclaimed Money and Lost Members) Act 1999 (Cth) (amongst others). If passed, super funds will no longer be able to transfer a member's account balance to an ERF. In addition, ERFs will be required to transfer the balance of all ERF accounts with balances of less than $6,000 on 1 June 2020 to the ATO by 30 June 2020 (with all remaining ERF account balances required to be transferred to the ATO by 30 June 2021).
CURRENT STATUS?
This Bill, which was introduced into the House of Representatives on 6 February 2020, is currently before the Senate.
WHAT'S NEXT?
We anticipate the Bill will be passed in August 2020 at the earliest.
REFORM: 'Improving flexibility for older Australians' amendments
WHAT IS IT?
On 13 May 2020, the Treasury Laws Amendment (More Flexible Superannuation) Bill 2020 was introduced into the House of Representatives. It will amend the Income Tax Assessment Act 1997 (Cth) to enable individuals aged 65 and 66 to make up to three years of non-concessional superannuation contributions under the bring-forward rule.
CURRENT STATUS?
The Bill is currently before the House of Representatives. The accompanying Superannuation Legislation Amendment (2020 Measures No. 1) Regulations 2020 were registered on 29 May 2020.
WHAT'S NEXT?
We anticipate the Bill will be passed in August 2020 at the earliest.
REFORM: 'Your superannuation, your choice' amendments
WHAT IS IT?
The Treasury Laws Amendment (Your Superannuation, Your Choice) Bill 2019 will amend the Superannuation Guarantee (Administration) Act 1992 (Cth) to enable employees under workplace determinations and enterprise agreements made on or after 1 July 2020 to choose their super fund under the 'choice of fund' regime.
CURRENT STATUS?
The Bill was introduced on 27 November 2019. It is currently before the Senate and was debated and amendments were proposed by the committee of the whole on 18 June 2020.
WHAT'S NEXT?
We anticipate the Bill will be passed in August 2020 at the earliest.
Insurance
REFORM: Royal Commission related legislative reforms for insurance
WHAT IS IT?
On 29 November 2019, Treasury released exposure draft legislation and exposure draft regulations which would make the handling and settlement of insurance claims a ‘financial service’ under the Corporations Act.
Once passed, the proposed law will require certain persons handling and settling insurance claims (including insurers, loss assessors, brokers who handle claims on behalf of insurers and claims managers) to either hold an AFS licence which covers claims handling and settling an insurance claim or become an authorised representative of such a licence holder.
The proposed definition of 'claims handling and settling service' is broad and will capture a wide range of insurance claims handling activities.
CURRENT STATUS?
Consultation on the exposure draft legislation and exposure draft regulations closed on 10 January 2020. Despite the Government's intention to have the exposure draft legislation consulted on and introduced into Parliament by the end of 2019 under its Royal Commission Implementation Roadmap, the draft legislation has yet to be introduced into Parliament.
WHAT'S NEXT?
As noted above, the Government has deferred its implementation of the Royal Commission recommendations for six months due to the impacts of COVID-19. Under the updated timetable, we anticipate that these measures will now be introduced by December 2020.
REFORM: Royal Commission recommendation - unfair contract terms
WHAT IS IT?
The Financial Sector Reform (Hayne Royal Commission Response – Protecting Consumers (2019 Measures) Bill 2019 amends the Insurance Contracts Act 1984 (Cth) (ICA) and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) to extend the unfair contract terms regime under the ASIC Act to insurance contracts governed by the ICA (with limited exceptions).
The regime will apply to new and renewed insurance contracts entered into on or after 5 April 2021.
CURRENT STATUS?
The Bill was passed on 6 February 2020 and received Royal Assent on 17 February 2020. The regime is set to commence on 5 April 2021.
WHAT'S NEXT?
Insurers should continue preparing for this change based on the existing timeline.