24 May, 2019
What you need to know
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After a brief hiatus for the Federal election, the pace of regulatory change in the financial services sector is likely to pick up again, with reforms which were in train before Parliament was prorogued being given priority.
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This article provides a snapshot of the status of some of those reforms.
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Parliament must sit before the end of July 2019. Legislation to end grandfathered commission and to introduce consumer data rights to facilitate open banking are likely to be given priority.
The weekend's election result has surprised many, following election polls which indicated that it would be Labor's time. It was an election result which appears to have been driven by the unpopularity of the major tax reform agenda led as a key policy initiative of the Labor Government. Part of that agenda involved changes to superannuation, including a reduction of the non-concessional contribution caps, changes to taxation of superannuation contributions for those earning more than $200,000 and an end to tax deductibility for personal superannuation contributions.
The financial services reform policy agenda of each party was not necessarily a deciding factor in the election. But with the LNP likely to be in control of the House of Representatives, we can assume that the financial services changes which were being pursued by the Government before the election was called, will be back on the agenda. Here is a quick snapshot of some of the major Government financial services reforms and timing:
End of grandfathered commissions and volume based platform fees
The Government released the Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019 for public consultation in February 2019. The Bill proposed to end grandfathered commission and volume based shelf space (platform) fees from 1 January 2021. Draft regulations were released in March 2019 for consultation until 25 April – those regulations contemplate rebates to clients of amounts of conflicted remuneration which are no longer payable to advisers. The primary matter of dispute between the major parties was the start date for the reform – Labor proposed the abolition of grandfathered commissions from 1 July 2020. With the consultation having been completed, it would be reasonable to expect that the Bill will be one of the first pieces of legislation which is reintroduced when Parliament next sits, which must occur by the end of July 2019.
Consumer Data Rights and Open Banking
On 9 May 2018, the Government agreed to the recommendations of the Review into Open Banking, both for the framework of the overarching Consumer Data Right and for the application of the right to Open Banking, with a phased implementation from July 2019. The Treasury Laws Amendment (Consumer Data Rights) Bill 2019 was introduced into Parliament in February 2019, was recommended by the Senate Economics Committee but lapsed on proroguing of Parliament on 11 April 2019. It would be reasonable to expect that this would be reintroduced promptly following the reconstitution of Parliament. The current timetable is for all major banks to make data available on credit and debit card, deposit and transaction accounts and mortgages by 1 February 2020. All remaining banks were required to implement Open Banking with a 12-month delay on timelines compared to the major banks. Consultation on the draft rules for banking, necessary to implement the reforms, closed on 10 May 2019.
Protecting your superannuation
The Treasury Laws Amendment (Protecting Your Superannuation Package) Bill was passed by both Houses and achieved Royal Assent on 12 March 2019. The Bill encompassed a range of reforms including insurance on inactive accounts only to be provided on an 'opt in' basis, a ban on exit fees, capped fees on low balance accounts and a requirement to transfer low balance accounts to the ATO. The question remains as to whether the earlier proposals that opt-into insurance would no longer automatically apply to under-25-year-old members and to accounts with balances below $6000, which were removed from the Bill in the Senate, will be pressed by the newly elected Government. These were put forward by the Government in a Bill introduced on 20 February 2019, called the Treasury Laws Amendment (Putting Members’ Interests First) Bill 2019, which lapsed when Parliament was prorogued on 11 April 2019.
Mortgage broker commissions
Both the abolition of trail and upfront commissions were recommended by Commissioner Hayne in his final report for the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. While the Coalition had initially said in its official response to the final report that it would ban trail commission payments for new mortgages from 1 July 2020, in March 2019, it announced a delay of any decision on fundamentally changing the structure of broker remuneration until three years’ time, following concerns regarding competition..
Design and distribution obligations
The Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2018 made it through Parliament before it was prorogued, gaining Royal Assent on 5 April 2019. While the power for ASIC to make product intervention orders commenced on 6 April 2019, the provisions of the Act requiring product manufacturers to complete target market determinations and then take reasonable steps that will result in distribution being consistent with that determination, does not apply for two years, until 6 April 2021. The legislation as enacted, consistent with the recommendations of the final royal commission report, extends ASIC intervention powers to all financial products within ASIC's regulatory responsibility including those regulated by the National Consumer Credit Protection Act 2009.
For further information, please contact:
Lisa Simmons, Partner, Ashurst
lisa.simmons@ashurst.com
