Quality of Advice Review
Treasury released a Proposals Paper (‘the Paper’) in relation to the Quality of Advice Review based on the feedback to the consultation undertaken earlier this year. The Paper contains 12 proposals across six key themes and proposes to:
- Broaden the definition of 'personal advice' so it would cover any recommendation or opinion provided to a client about a financial product (or class of financial product) where the provider has or holds information about the client’s objectives, needs or any aspect of the client's financial situation.
- Abolish 'general advice' as a financial service by removing the definition, together with the obligation to give a general advice warning. General advice providers would not need to be licensed, but would still need to comply with the consumer law (including the prohibition on misleading and deceptive conduct), and would continue to be subject to conflicted remuneration restrictions and requirements under the Design and Distribution Obligations (DDO).
- Replace the 'best interests duty' and related obligations with an obligation to provide 'good advice', being advice that would be reasonably likely to benefit the client, having regard to the information that is available to the provider at the time it is provided. 'Relevant providers' would remain subject to additional professional standards (education and training standards and the Code of Ethics), although the concept would be narrowed.
- Amend the superannuation legislation to put beyond doubt that trustees of superannuation funds can provide personal advice to members on their interests in the fund and use fund assets to pay for advice. Trustees would also be given discretion to decide how to charge members for personal advice, and the restrictions on collective charging of fees would be removed.
- Replace the requirement for advisers to provide fee disclosure statements, seek client agreement to renew fee arrangements and obtain their clients' signed consent to deduct fees from financial products with a requirement for providers of personal advice to obtain annual written consent from their clients to deduct advice fees from a financial product if there is an ongoing fee arrangement.
- Replace the requirement to provide a statement of advice or record of advice to clients with a requirement to maintain complete records of the advice provided and to give a written record of advice to a client on request.
- Simplify the reporting requirements under the DDO regime so that relevant providers are required to report to product issuers only where they receive complaints and not in relation to significant dealings outside the target market.
Submissions on the proposals have been provided, and the Review’s final report is due to the federal Government on 16 December 2022.
Your Future, Your Super review
The Treasury Laws Amendment (Your Future, Your Super) Act 2021 received royal assent on 22 June 2021 with supporting regulations made in August 2021. The Your Future, Your Super measures, which are now law, are aimed at increasing member engagement, reducing fees, increasing performance, and holding trustees to account for the decisions they make.
The government has made a commitment to review the Your Future, Your Super measures to consider whether there have been any unintended consequences and implementation issues arising from any of the four elements of these measures:
- Performance test
- YourSuper comparison tool
- Stapling
- Best financial interests duty
The focus of the review is on ensuring that Australian superannuation funds perform better, delivering dignity in retirement, and avoiding perverse outcomes for members.
In conducting this review, Treasury will hold stakeholder meetings to seek feedback. Treasury will also convene a technical working group on the performance test. We’re pleased to announce Australian Retirement Trust’s Damian Lillicrap, Head of Investment Strategy at QSuper, has been included in the technical working group. Mr Lillicrap will participate in a consultation forum to constructively work through key issues and consider potential solutions.
Treasury releases draft legislation to improve Corporations and Financial Services Law
The government has released exposure draft legislation to reduce the complexity of Australia's corporations and financial services laws by making these laws more adaptive, efficient and navigable within existing policy settings. Simplifying these laws will benefit industry and consumers and is critical to maintaining a strong financial sector. The draft legislation implements formal recommendations and informal suggestions made by the Australian Law Reform Commission (ALRC) in Interim Report A of its Review of the Legislative Framework for Corporations and Financial Services Regulations ('ALRC Financial Services Interim Report').
Super splitting
The Family Court Amendment Bill 2022 (WA) passed Parliament and is awaiting Royal Assent. The Bill amends the Family Court Act 1997 (WA) to allow superannuation to be split between separating de facto couples, bringing Western Australia (WA) into alignment with the rest of the nation.
Regulatory update
APRA outlines plans to modernise the prudential architecture
The Australian Prudential Regulation Authority (APRA) has outlined its approach to modernising the prudential architecture - a core strategic initiative to make the design of the regulatory framework clearer, simpler and more adaptable.
In an information paper published 12 September 2022, APRA outlined plans for its multi-year program to modernise the architecture of prudential standards and guidance for banks, insurers and superannuation funds.
The program, which commenced last year, is intended to ensure the framework continues to underpin financial safety and stability in a rapidly changing economic and technological environment.
APRA will achieve this through a series of initiatives focused on:
- Better regulation - ensuring prudential standards and guidance are easier to navigate, understand and implement;
- Digital first - exploring how to use technology to support better regulation; and
- New risks, new rules - developing new approaches to tackle emerging risks and new business models on the regulatory perimeter.
Over 2022, APRA has been building the foundations for the program and engaging with international regulatory peers. Several modernisation initiatives are already underway, including APRA’s first prudential standard to strengthen operational resilience (which will replace five current standards).