PwC Regulatory Update

December 2017 amp January 2018

wwwpwccomau

1LegislativeGovernment developments

What have

the regulators

been up to

Overseas

developments

Industry

bodies

PwC

publications

Legislative

Government

developments

Contacts

ndash 2 ndash

Australian Consumer Law Review ACL Amendments

The Government is seeking feedback on the proposed amendments to Australian Consumer Law regulations and legislation The amendments seek to

bull Clarify existing provisions relating to consumer guarantees voluntary recalls unsolicited consumer agreements and false billing

bull Enhance the regulatorsrsquo information gathering powers for investigations in relation to product safety and unfair contract terms

bull Extend the unconscionable conduct protections to publicly listed companies

bull Expand the remedies available to the courts for contraventions of the ACL and

bull Improve price transparency

Submissions are due by 28 February 2018

Source Treasury

Progress on establishment of AFCA

The Treasury Laws Amendment (Putting Consumers First ndashEstablishment of the Australian Financial Complaints Authority) Bill has passed the Senate and will now move to the House of Representatives for final passage The Australian Financial Complaints Authority (AFCA) will replace the existing Financial Ombudsman Service Credit and Investments Ombudsman and the Superannuation Complaints Tribunal

The Bill was passed in the Senate after making minor amendments to

bull Provide additional certainty in relation to the handling of superannuation disputes

bull Require the review of AFCArsquos operations after a period of 18 months from its commencement and

bull Enshrine in legislation the requirement that the AFCA Chair be independent

Source Minister for Revenue and Financial Services

1LegislativeGovernment developments

What have

the regulators

been up to

Overseas

developments

Industry

bodies

PwC

publications

Legislative

Government

developments

Contacts

ndash 2 ndash

Australian Consumer Law Review ACL Amendments

The Government is seeking feedback on the proposed amendments to Australian Consumer Law regulations and legislation The amendments seek to

bull Clarify existing provisions relating to consumer guarantees voluntary recalls unsolicited consumer agreements and false billing

bull Enhance the regulatorsrsquo information gathering powers for investigations in relation to product safety and unfair contract terms

bull Extend the unconscionable conduct protections to publicly listed companies

bull Expand the remedies available to the courts for contraventions of the ACL and

bull Improve price transparency

Submissions are due by 28 February 2018

Source Treasury

Progress on establishment of AFCA

The Treasury Laws Amendment (Putting Consumers First ndashEstablishment of the Australian Financial Complaints Authority) Bill has passed the Senate and will now move to the House of Representatives for final passage The Australian Financial Complaints Authority (AFCA) will replace the existing Financial Ombudsman Service Credit and Investments Ombudsman and the Superannuation Complaints Tribunal

The Bill was passed in the Senate after making minor amendments to

bull Provide additional certainty in relation to the handling of superannuation disputes

bull Require the review of AFCArsquos operations after a period of 18 months from its commencement and

bull Enshrine in legislation the requirement that the AFCA Chair be independent

Source Minister for Revenue and Financial Services

1LegislativeGovernment developments

What have

the regulators

been up to

Overseas

developments

Industry

bodies

PwC

publications

Legislative

Government

developments

Contacts

ndash 3 ndash

Superannuation Taxation Integrity Measures

The Government has released draft legislation Non-armrsquos length income (NALI) covering two superannuation taxation measures

bull The first measure includes a memberrsquos share of the outstanding balance of a Limited Recourse Borrowing Arrangement (LRBA) in their total superannuation balance (TSB)

bull The second measure ensures that non-armrsquos length expenditure is taken into account when determining whether the NALI taxation rules apply to a transaction

These measures are intended to ensure that LRBAs or related party transactions cannot be used to circumvent contribution caps They are not intended to prevent the use of LRBAs

Source Treasury

EDR Review Supplementary final report

The Government has released the supplementary final report of the expert panel reviewing external dispute resolution and complaints arrangements in the financial system The report

bull Makes recommendations on the establishment of a limited and carefully targeted Compensation Scheme of Last Resort to cover future unpaid compensation in parts of the financial services sector where there is evidence of a significant problem of compensation not being paid

bull Makes observations on the merits and issues involved in providing access to redress for past disputes

Source Treasury

Superannuation Guarantee Integrity Package

The Government is seeking feedback on the draft Bill Superannuation Guarantee (SG) Integrity Package The draft Bill would

bull Allow the Australian Tax Office (ATO) in cases where employers fail to comply with their SG obligations to issue directions to pay unpaid SG and undertake SG education courses

bull Introduce criminal penalties for failure to comply with a direction to pay

bull Allow the ATO to disclose more information about SG non-compliance to affected employees

bull Extend Single Touch Payroll to all employers

bull Facilitate more regular reporting by superannuation funds

bull Improve the operation of the ATOrsquos collection and compliance measures and

bull Streamline employee commencement processes

Submissions for feedback are due by 16 February 2018

Source Treasury

1LegislativeGovernment developments

What have

the regulators

been up to

Overseas

developments

Industry

bodies

PwC

publications

Legislative

Government

developments

Contacts

ndash 4 ndash

Review of the early release of superannuation benefits

The Government has sought feedback on the early release of superannuation benefits covering issues around the early release of superannuation on compassionate and severe financial hardship grounds and for victims of crime compensation The paper also examined whether an offenderrsquos superannuation assets should be available to pay compensation to victims of crime and if so the circumstances in which this may be appropriate

Submissions for feedback are now closed

Source Treasury

Corporate Collective Investment Vehicle taxation bill

The Government has drafted a proposed tax framework for the Corporate Collective Investment Vehicle (CCIV) in order to align with the attribution tax regime for managed investment trusts (MIT) The tax regime will provide capital gains tax relief for attribution MITs that convert into CCIVs and meet the eligibility requirements for attribution tax

Source Treasury

Enhancing whistleblower protections

The Government has introduced a Bill featuring an enhanced whistleblower protection regime to protect those who are exposed to corporate and tax misconduct after public consultation and advice from the Governments Expert Advisory Panel

The regime applies to whistleblower disclosures received from 1 July 2018 The disclosures can be for misconduct before 1 July 2018

Source Minister for Revenue and Financial Services

Asia Region Funds Passport bill

The Government has drafted a proposed Asia Region Funds Passport Bill which would

bull Amend the Corporations Act 2001 to provide the disclosure financial reporting distribution and licensing frameworks for notified foreign passport funds and

bull Include new provisions to address the treatment of notified foreign passport funds ban these funds from issuing debentures in Australia and require these funds to provide various reports to members in Australia

Source Treasury

2What have the regulators been up to

APRA releases response to submission on Financial Claims Scheme (FCS) Data Collection

APRA has released a letter to Authorised Deposit taking institutions (ADIs) in response to submissions on proposed FCS data collection requiring locally incorporated ADIs to submit semi-annual data under a newly released reporting standard ARS 9100 - Financial Claims Scheme Data Collection to commence for the period ending 31 December 2018 APRA received four submissions on its proposals The main issues raised in submissions concerned the implementation timeline and the alignment of definitions with other APRA data collections

APRA releases response to submission on new residential mortgage reporting requirements for ADIs

APRA has released a letter to all ADIs in response to submissions on proposed revisions to the residential mortgage lending reporting requirements for ADIs APRA received six submissions on its proposals Respondents supported APRArsquos proposals but minor changes and clarifications were suggested

APRA has released the final reporting standard ARS 2230 -Residential Mortgage Lending and reporting practice guide RPG 2230 - Residential Mortgage Lending Reporting will commence

bull for ADIs that currently report on reporting form ARF 3208 -Housing Loan Reconciliation from the reporting period ending 31 March 2018 and

bull for ADIs that do not currently report on ARF 3208 from the reporting period ending 30 September 2018

What have

the regulators

been up to

Overseas

developments

Industry

bodies

PwC

publications

Legislative

Government

developments

Contacts

ndash 5 ndash

APRA releases response to submission on revisions to the large exposures framework

APRA has released a response paper setting out the material issues raised in submissions on revised prudential framework for large exposures A number of submissions supported the proposals while some indicated that there would be various complexities with implementing the proposed large exposures framework and some respondents requested a longer transition period APRA has made a number of amendments to the framework in response to the issues raised

The core components of the new large exposures framework are

bull A reference to Tier 1 Capital as a basis for determining large exposures

bull A recalibration of existing large exposure limits and the introduction of a lower limit on D-SIB to D-SIB exposures and

bull A stronger set of requirements for measuring exposure values and for assessing groups of connected counterparties

APRA has released final prudential standard APS 221 ndash Large Exposures together with final reporting standard ARS 221 ndash Large Exposures APRA will require ADIs to implement most aspects of the new APS 221 by 1 January 2019 A transition period will be provided for requirements relating to groups of connected counterparties and structured vehicles with ADIs being required to fully implement the large exposures framework by 1 January 2020

ASXAustralian Securities Exchange

APRAAustralian Prudential Regulation Authority

ASICAustralian Securities and Investments Commission

RBAReserve Bank of Australia

2What have the regulators been up to

APRA consults on measures proposed to strengthen superannuation member outcomes

APRA has released a discussion paper Strengthening superannuation member outcomes seeking feedback on proposed changes to the prudential framework designed to assist members of registrable superannuation entities (RSEs) to be better positioned to deliver sound outcomes for fund members The proposed measures include

bull Changes to the existing prudential standard SPS 220 - Risk Management relating to strategic and business planning and fund expenditure policies and processes

bull A new prudential standard SPS 225 - Outcomes Assessment requiring all RSE licensees to annually assess the outcomes provided to members using a broader range of measures

bull New prudential practice guides to assist RSE licensees with their strategic and business planning and the outcomes assessment and

bull Amending prudential standard SPS 250 - Insurance in Superannuation to require RSE licensees to provide straight-forward processes for opting-out of all insurance products

APRA is proposing that final requirements will be released in mid 2018 and come into effect from 1 January 2019

Submissions are due by 29 March 2018

See media release

What have

the regulators

been up to

Overseas

developments

Industry

bodies

PwC

publications

Legislative

Government

developments

Contacts

ndash 6 ndash

APRA issues letter to all life insurers for review of prudential standard LPS 117 Capital Adequacy Asset Concentration Risk Charge

APRA has released a letter to all life insurers in relation to review of prudential standard LPS 117 - Capital Adequacy Asset Concentration Risk Charge APRA has decided to undertake a review of LPS 117 to ensure it meets with the objectives in the APRA mandate following consideration of the potential risks that may arise from increasing use by APRA-registered life insurers of reinsurance arrangements entered into with offshore life reinsurers which are not registered under the Life Insurance Act 1995 (non-registered reinsurers)

APRA intends to commence this review in the second half of 2018 The review will focus on asset concentration risk arising from reinsurance arrangements

APRA intends to gather further information on existing collateral and offsetting arrangements being relied on by life insurers for the purposes of calculating the Asset Concentration Risk Charge (ACRC) APRA will release an information request in early 2018 regarding all arrangements which are being relied on to provide capital relief under LPS 117

ASXAustralian Securities Exchange

APRAAustralian Prudential Regulation Authority

ASICAustralian Securities and Investments Commission

RBAReserve Bank of Australia

2What have the regulators been up to

ASIC reports on how large institutions manage conflicts of interest in financial advice

ASIC has released a report REP 562 - Financial advice Vertically integrated institutions and conflicts of interest outlining findings from its review of how large financial institutions manage the conflict of interest arising as a result of provision of personal advice to retail clients and the manufacture of financial products under a vertically integrated business model

The review found that based on a sample of customers files across 10 licensees within vertically integrated organisations

bull 21 of the financial products on the firms approved products lists (APL) were in-house products although 68 of clientsrsquo funds were invested in these products

bull After receiving financial advice customers invested an average of 68 of their money in in-house products and only 32 of money in external products

bull 78 of all customers (both new and existing) who made a new or additional investment after receiving personal advice invested in in-house products

bull In 75 of the customer files that were reviewed the adviser was non-compliant with the best interests duty and related obligations since the adviser had not demonstrated that they had sufficiently researched and considered the customerrsquos existing financial products andor based all judgements on the customerrsquos relevant circumstances

bull Around 10 of the advice reviewed was likely to leave the customer in a significantly worse financial position

What have

the regulators

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ndash 7 ndash

ASIC have noted that whilst the proportion of customer funds invested in in-house products is not expected to be the same proportion as in-house products in the product list the high level of non-compliant advice along with the high proportion of funds invest in the in-house products means that the conflict of interest in this vertically integrated business model needs to be managed

ASIC will consult with the financial advice industry to introduce more transparent public reporting on approved product lists for advice licensees to improve transparency around management of the conflicts of interests that are inherent in these businesses

See media release

ASIC licenses first crowd-sourced funding intermediaries

ASIC has issued its first batch of licences to seven intermediaries under the new crowd-sourced funding (CSF) regime The eligible public companies will now be able to use the CSF regime to raise capital by making offers of ordinary shares to investors via the online platform of one of these intermediaries Compared to other forms of public fundraising CSF offers are subject to fewer regulatory requirements

The newly licensed intermediaries have now been added to ASICrsquos register of AFS licensees

See media release

The Government welcomed the issuance of first batch of licences by ASIC allowing seven intermediaries to help small and innovative companies to raise funds from a crowd of investors

ASXAustralian Securities Exchange

APRAAustralian Prudential Regulation Authority

ASICAustralian Securities and Investments Commission

RBAReserve Bank of Australia

2What have the regulators been up to

Recent regulatory guidance

ASIC has released a regulatory guide RG264 - Sell-side research focusing on managing conflicts of interest and handling inside information when providing sell-side research It applies to Australian financial services (AFS) licensees who are involved in providing research It supplements the guidance in regulatory guide RG79 - Research report providers Improving the quality of investment research

ASIC has released an updated regulatory guide RG246 - Conflicted and other banned remuneration setting out guidance to be followed by AFS licensees and their representatives and other entities to comply with the conflicted and other banned remuneration provisions under the Corporations Act 2001 and its administration It applies to financial product advice given to retail clients and to certain benefits given in relation to life risk insurance products from 1 January 2018

Retaining ASICrsquos fintech licensing exemption

ASIC has released a consultation paper CP297 - Retaining ASICrsquos fintech licensing exemption seeking feedback from fintech businesses financial services providers and consumers on the financial technology (fintech) licensing exemption allowing eligible fintech businesses to test certain specified services without holding an Australian financial services or credit licence ASIC had committed to reviewing its fintech licensing exemption following 12-18 months operation

Submissions are due by 27 February 2018

See media release

Other updates from ASIC

ASIC has published an information sheet INFO230 - Exchange traded products Admission guidelines setting out good practices to help licensed Australian exchanges that are seeking to admit exchange traded products (ETPs) to ensure their admission and monitoring standards continue to support fair orderly and transparent markets Exchange traded products include certain managed funds exchange traded funds (ETFs) and structured products

ASIC and the Canadian regulators have signed a FinTech cooperation agreement aiming to help FinTech companies in Australia and Canada to expand into each otherrsquos markets The ASIC and the Canada regulators will cooperate for potential FinTech innovation projects to establish frameworks of mutual assistance This Cooperation Agreement is signed with participating Canadian provincial securities regulators Autoriteacute des marcheacutes financiers (Queacutebec) the British Columbia Securities Commission the Alberta Securities Commission the Financial and Consumer Affairs Authority of Saskatchewan the Manitoba Securities Commission the Financial and Consumer Services Commission (New Brunswick) and the Nova Scotia Securities Commission

ASIC has released a report REP 559 - Survey of marketplace lending providers 2016ndash17 providing an overview of marketplace lending involving the provision of financial products or services based on the findings from ASICrsquos survey of marketplace lending industry for the 2016ndash17 financial year The survey highlighted steady growth in both borrowing and lending activity in Australia across these platforms

What have

the regulators

been up to

Overseas

developments

Industry

bodies

PwC

publications

Legislative

Government

developments

Contacts

ndash 8 ndash

ASXAustralian Securities Exchange

APRAAustralian Prudential Regulation Authority

ASICAustralian Securities and Investments Commission

RBAReserve Bank of Australia

2What have the regulators been up to

The ASX intends to replace CHESS with Distributed ledger technology (DLT)

The ASX will be replacing the Clearing House Electronic Subregister System (CHESS) clearing and settlement system with a DLT based platform developed by Digital Asset (DA) Holdings The replacement follows the successful build of enterprise-grade DLT software for core equity clearing and settlement functions and the completion of extensive suitability testing by ASX and DA over the past two years

The Day 1 functionality and transition period to the new system will be determined in consultation with stakeholders

See media release

The Government welcomes the ASXs commitment to designing a system which remove barriers to access for non-affiliated market operators and clearing and settlement facilities

The ASX responds to consultation on proposed changes to the process for advising of changes to equity market security status

The ASX has released a response to consultation on the processes for advising of changes to security status and timeframes related to company announcements

They will be undertaking a range of actions

bull Publishing a technical specification for the FIX gateway

bull Incorporating the proposed amendments to the timeframes will be incorporated into the ASX Operating Rules Procedures

bull Offering an extended period of industry wide testing (IWT) from February 2018 to allow subscribers to develop to and test their technical solutions and

bull Confirming the delivery of the FIX gateway technical solution into production and final go-live date through a market notice

See media release

Speech An eAUD

Philip Lowe Governor at RBA addressed the 2017 Australian Payment Summit at Sydney His speech started with how the payments systems has evolved over recent times He also highlighted how AusPayNet has played an important role in coordinating the industryrsquos response to the Strategic Review of Innovation conducted by the Payments System Board His speech mainly centered around his thinking about the future and addressing question about RBArsquos intention to issue digital form of the Australian dollar

What have

the regulators

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Overseas

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PwC

publications

Legislative

Government

developments

Contacts

ndash 9 ndash

ASXAustralian Securities Exchange

APRAAustralian Prudential Regulation Authority

ASICAustralian Securities and Investments Commission

RBAReserve Bank of Australia

3 Industry bodies

Banking Reform Program - Report on Consumer Study Wave Two

The ABA has released a report Banking Reform Program - Report on Consumer Study Wave Two The survey assessed consumer perceptions of the Banking Reform Program and found

bull Consumer perceptions towards the banking industry are improving

bull Consumers are feeling more positive about the direction that the banking industry is headed

bull Measurements on banks becoming more customer-focused and helping customers navigate choices to make the best decisions for themselves have increased

bull 46 are now aware of the initiative to help customers understand how they can switch banks (up 4 percentage points since June 2017)

bull 47 are now aware of the initiative to establish standards that banks must follow to correct issues and compensate customers when things go wrong (up 6 percentage points since June 2017)

bull Customersrsquo level of trust in their own bank and their perception of the industry overall has improved

bull Awareness of each of the reforms has increased in particular initiatives to improve how banks manage complaints and compensate customers when mistakes are made

See media release

What have

the regulators

been up to

Overseas

developments

Industry

bodies

PwC

publications

Legislative

Government

developments

Contacts

ndash 10 ndash

ABA Customers will benefit from the new Banking Code

The new Banking Code of Practice has been sent to ASIC for approval The ABA has commented that

bull Banks are committed to change and the new Code is stronger broader and written in simple to understand language It has been completely rewritten to better meet community expectations and service the needs of customers

bull The new Code has been broken into ten key parts with four brand new sections including one dedicated to small businesses and another related to making banking more available and easier to access for customers The remaining six sections represent a complete restructure of important parts of the current Code

bull The new code means banking will be easier by making changes to processes providing customers with more info and introducing higher standards for how banks serve their customers

See media release

ABAAustralian Bankers Association

AFMAAustralian Financial Markets Association

APNAustralian Payments Network

ASFAAssociation ofSuperannuation Funds ofAustralia

COBACustomer Owned Banking Association

FPAFinancial Planning Association of Australia

FSCFinancial Services Council

3 Industry bodies

AFMA issues notice on launch of the Australian FX Global Code register

The AFMA has published a register for Statements of Commitment for participantsrsquo use to adhere to the FX Global Code in the Australian wholesale foreign exchange (FX) market The register facilitates the declaration by market participants of their commitment to conduct their FX market activities as per the principles of the Code

AFMArsquos register conforms with the Global Foreign Exchange Committeersquos (GFXC) initial guidance to host potential public register AFMA will maintain the Register in accordance with any future guidance provided by GFXC

See notice

APN releases interim payments fraud data

Australian Payments Network has released its interim payments fraud data for the past year noting

bull With chip technology providing strong protection against counterfeit cards fraud is continuing to migrate to online channels

bull Transactions on Australian cards was more than $7301 billion showing an increase of 38

bull Counterfeitskimming fraud dropped 34

bull Card-not-present fraud increased by 10 accounting for 82 of all fraud on Australian cards Card fraud increased by 31 to $5382 million

See media release

What have

the regulators

been up to

Overseas

developments

Industry

bodies

PwC

publications

Legislative

Government

developments

Contacts

ndash 11 ndash

ISWG releases Insurance in Superannuation Voluntary Code of Practice

The Insurance in Superannuation Working Group (ISWG) has released the Insurance in Superannuation Voluntary Code of Practicefor superannuation trustees setting standards to provide greater understanding clearer accountability and consistency of delivery across the superannuation industry

The Code will come into effect from 1 July 2018 The Code includes

bull A framework that sets expectations about the maximum amount of superannuation contributions that should be used for automatically provided life insurance premiums

bull Simpler and clearer processes for members to opt out of automatic life insurance

bull Simplified disclosure and improved superannuation fund member communications about insurance

bull Provision of better and more timely assistance to members during claims

bull Standards for handling of premium adjustment amounts between insurers and trustees and

bull Requirements for trustees to publish plans for the Code implementation and when various aspects of it will be implemented

The Associations intend to work with the Australian Competition and Consumer Commission (ACCC) to determine whether the Code requires their authorisation

See media release

ABAAustralian Bankers Association

AFMAAustralian Financial Markets Association

APNAustralian Payments Network

ASFAAssociation ofSuperannuation Funds ofAustralia

COBACustomer Owned Banking Association

FPAFinancial Planning Association of Australia

FSCFinancial Services Council

3 Industry bodies

Mortgage broking industry takes lead on improving customer outcomes

Representatives of Australiarsquos mortgage broking industry have prepared a reform package to improve consumer outcomes in mortgage broking The six principles to be implemented are

bull The standard commission model will avoid financial incentives that encourage consumers to borrow more than they need or will use

bull Volume-based and campaign-based commissions paid by lenders and aggregators are recognised as raising potential conflicts of interest and poor customer outcomes and are expected to cease

bull Non-monetary benefits will only be given based on a balanced scorecard and good customer outcomes and benefits given by lenders will be capped

bull Ownership models and commercial relationships will be made clear on all marketing materials so consumers have the right information to make informed choices

bull ASIC and consumers will be given clearer information on where loans are written commissions paid and interest rates to increase transparency and accountability in the industry and

bull The industry will introduce an improved governance framework that monitors for and identifies risks and requires the industry to take action and continuously improve where issues are identified

The Combined Industry Forum will report on its ongoing progress to ASIC Treasury and the Government

See media release

What have

the regulators

been up to

Overseas

developments

Industry

bodies

PwC

publications

Legislative

Government

developments

Contacts

ndash 12 ndash

COBA emphasises continued pro-competitive reform in retail banking

COBA has recommended continuing the implementation of pro-competitive reform in retail banking amidst the Royal Commission into misconduct in the banking superannuation and financial services industry COBA CEO Michael Lawrence said that action to promote sustainable competition would reduce misconduct in the banking market in the long run

See media release

FPA submission makes recommendation on strengthening penalties for unlicensed operators

The FPA has submitted the following recommendations to the ASIC Enforcement Review to increase the proposed penalty for unlicensed operators

bull Unlicensed misconduct warrants the maximum criminal sanctions

bull Unlicensed misconduct should be punished far more harshly than actions of license and authorised operators

bull Tolerance for unintentional mistakes

bull Penalties should be designed to incentivise good conduct and strongly disincentivise misconduct

bull Penalties should be appropriately scaled and applied based on the circumstances and severity of the misconduct

See media release

COBACustomer Owned Banking Association

FPAFinancial Planning Association of Australia

AFMAAustralian Financial Markets Association

APNAustralian Payments Network

ASFAAssociation ofSuperannuation Funds ofAustralia

ABAAustralian Bankers Association

FSCFinancial Services Council

3 Industry bodies

FASEA proposes guidance on the qualifications for existing advisers

The Financial Adviser Standards and Ethics Authority (FASEA) is seeking feedback on proposed guidance on the qualifications and pathways for existing advisers

FASEA has proposed that an AQF7 qualification which is equivalent to a three year full time university degree or an AQF8 qualification which is equivalent to a postgraduate certificate will be required for existing financial advisers unless an adviser already holds a formal approved qualification Advisers will be required to complete that program before 1 January 2024

Submissions are due by 29 June 2018

See media release

FSC finalises approved product list standard

The FSC has finalised its approved product lists (APLs) standard for life insurance promoting competitive access and choice for advisers and their clients The standards commences on 1 January 2018 with compliance being compulsory from 1 July 2018

The final standard requires FSC member life insurance APLs to contain a choice of three or more life insurance providers The standard also recommends best practice principles such as

bull Having an investment and product committee of experienced research professionals

bull Developing and utilizing benchmark methodology to identify which products are suitable for inclusion on the APL and

What have

the regulators

been up to

Overseas

developments

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PwC

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developments

Contacts

ndash 13 ndash

bull Considering a range of factors when reviewing the suitability of an insurance productprovider for inclusion on the APL

The standard will be reviewed within 18 months of commencement

See media release

FSC recommends inquiry to analyse the impact of automation on Australian retirement

The FSC has recommended a government-commissioned inquiry to examine the impact of automation self-employment contractors and the gig economy on tax revenue superannuation life insurance and retirement savings

The FSC has also recommended that the government

bull Maintain commitment to increase the Superannuation Guarantee (SG) to 12 per cent

bull Implement existing commitments to facilitate the rationalisation of legacy products in financial services

bull Continue to pursue a reduction in the corporate tax rate to 25

bull Implement tax reductions to apply once the cap on the overall tax burden is reached and

bull Implement a zero rate of non-resident withholding tax on Asia Region Fund Passport payments excluding both direct and indirect income from Australian real property

See media release

FSCFinancial Services Council

AFMAAustralian Financial Markets Association

APNAustralian Payments Network

ASFAAssociation ofSuperannuation Funds ofAustralia

ABAAustralian Bankers Association

COBACustomer Owned Banking Association

FPAFinancial Planning Association of Australia

4Overseas developments ndashGlobal

What have

the regulators

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Overseas

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PwC

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ndash 14 ndash

BIS Recent consultations FSB Recent announcements IOSCO Recent announcements

The Group of Central Bank Governors and Heads of Supervision (GHOS) have finalised the Basel III reforms to reduce excessive variability of risk-weighted assets The reforms include

bull Revisions to the internal ratings-based approach for credit risk and credit valuation adjustment (CVA) framework

bull A revised standardised approach for credit and operational risk and

bull Revisions to the measurement of the leverage ratio and a leverage ratio buffer for global systemically important banks

The revised standards will take effect from 1 January 2022 and will be phased in over five years

The Basel Committee on Banking Supervision has issued a consultation paperon stress testing principles proposing to replace the existing principles and a range of practices report on supervisory and bank stress testing describing bank stress testing practices and offering areas of evolution

Submissions are due by 23 March 2018

Source BIS

The Financial Stability Board (FSB) has published conclusions on the governance arrangements and an implementation plan for the unique transaction identifier (UTI) to facilitate aggregation of transaction reports about OTC derivatives markets including

bull A recommendation that jurisdictions implement the UTI by 2020

bull The designation of the International Organisation for Standardisation (ISO) as the responsible body for publishing and maintaining the UTI data standard and

bull The designation of CPMI and IOSCO as the appropriate bodies to undertake the governance functions allocated to an International Governance Body relating to the UTI on an interim basis

The FSB has published a consultation paper Key Attributes Assessment Methodology for the Insurance Sector seeking feedback on the methodology for assessing the implementation of the key attributes of effective resolution regimes in the insurance sector to provide guidance to jurisdictions during adoption of resolution regime

Source FSB

The Board of the International Organisation of Securities Commissions (IOSCO) has issued a report Recommendations for Liquidity Risk Management for Collective Investment Schemes providing recommendations to improve liquidity risk management practices of open-ended collective investment schemes (CIS) and also providing practical information examples and good practices regarding open-ended fund liquidity risk management

Source IOSCO

4Overseas developments ndashEurope

What have

the regulators

been up to

Overseas

developments

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bodies

PwC

publications

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Government

developments

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ndash 15 ndash

EBA Recent consultation EBA Recent guidelines EBA Recent technical standards

The European Banking Authority (EBA) is seeking feedback on the amended implementing technical standards (ITS) on benchmarking of internal models to adjust the benchmarking portfolios and reporting requirements in view of the benchmarking exercise to be carried out by EBA in 2019

The EBA is seeking feedback on the draft regulatory technical standards (RTS) specifying the requirements for originators sponsors and original lenders related to risk retention for securitisation transactions

Submissions are due by 15 March 2018

The EBA is seeking feedback on draft RTS specifying a set of criteria for the underlying exposures in securitisation to be deemed homogeneous in order to facilitate the assessment of underlying risks by investors and to enable them to perform robust due diligence The RTS are applicable to both asset-backed commercial paper (ABCP) and non-ABCP securitisations

Submission s are due by 15 March 2018

Source EBA

The EBA has published its final guidelineson disclosure requirements of IFRS 9 or analogous expected credit losses (ECLs) transitional arrangements in order to ensure consistency and comparability of the data disclosed by institutions during the transition to the full implementation of the new accounting standard The guidelines specify a uniform disclosure template institutions shall use when disclosing the information on own funds capital and leverage ratios

The EBA has released its final guidelines on security measures for operational and security risks of payments services under the revised Payment Services Directive (PSD2) in order to promote equal conditions for competition and mitigate the increased security risks arising from electronic payments

The EBA has released its final guidelines on outsourcing to cloud service providers by financial institutions to ensure that any related risks are adequately identified and managed The recommendations will apply from 1 July 2018

Source EBA

The European Supervisory authorities (ESAs) have published draft RTS in order to strengthen group-wide management of money laundering and terrorist financing risks

The ESAs have published their jointly developed draft RTS amending margin requirements for non-centrally cleared OTC derivatives in order to align the treatment of variation margin for physically-settled foreign exchange (FX) forwards with the supervisory guidance applicable in other key jurisdictions

The ESAs have released two amended ITS on the mapping of credit assessments of External Credit Assessment Institutions (ECAIs) for credit risk

bull Draft ITS amending Implementing Regulation and

bull Draft ITS amending Commission Implementing Regulation

Source EBA

4Overseas developments ndashEurope

What have

the regulators

been up to

Overseas

developments

Industry

bodies

PwC

publications

Legislative

Government

developments

Contacts

ndash 16 ndash

EIOPA Recent opinions ESMA Recent consultations

The European Insurance and Occupational Pensions Authority (EIOPA) has published an opinion on monetary incentives and remuneration between providers of asset management services and insurance undertakings in order to support insurance undertakings in addressing the conflicts of interest resulting from the monetary incentives

The EIOPA has published an opinion on service continuity in insurance in light of the withdrawal of the United Kingdom (UK) from the European Union (EU) underlining the importance of sufficient preparation so that undertakings can continue to service contracts following the UKrsquos withdrawal from the EU and prevent insurance activities without authorisation

The EIOPA has published an opinion on the supervisory assessment of internal models including a dynamic volatility adjustment in order to highlight importance of common supervisory practices and approaches throughout the EU as regards the use of internal models

Source EIOPA

The European Securities and Markets Authority (ESMA) has published three consultation papers on draft technical standards implementing the Securitisation Regulation

bull Draft technical standards on content and format of the simple transparent and standardised (STS) notification under the regulation

bull Draft technical standards on disclosure requirements operational standards and access conditions under the regulation and

bull Draft technical standards on third-party firms providing STS verification services under the regulation

Submissions are due by 15 March 2018

The ESMA has published a call for evidenceon potential intervention measures relating to the provision of contracts for differences (CFDs) including rolling spot forex and binary options in order to protect retail investors

Source ESMA

4Overseas developments ndashUK

What have

the regulators

been up to

Overseas

developments

Industry

bodies

PwC

publications

Legislative

Government

developments

Contacts

ndash 17 ndash

FCA Recent announcements PRA Recent announcements PRA Recent consultations

The Financial Conduct Authority (FCA) is seeking feedback on various proposals on how firms and individuals will move to the Senior Managers and Certification Regime (SMampCR) in order to make individuals more accountable for their conduct and competence

bull CP1740 - Individual accountability Transitioning FCA firms and individuals to the Senior Managers amp Certification Regime

bull CP1741 - Individual accountability Transitioning insurers and individuals to the Senior Managers amp Certification Regime and

bull CP1742 - The Duty of Responsibility for insurers and FCA solo-regulated firms

The FCA has released a discussion paper seeking feedback to better understand the market for non-workplace pensions including whether competition is working well and if there are issues that need to be addressed in order to protect consumers

Submissions are due by 27 April 2018

The Prudential Regulation Authority (PRA) has released a policy statement providing feedback in relation to the consultation paper CP917 ndashRecovery Planning setting out the PRArsquos final expectations on the content of recovery plans and on the approach to recovery planning for groups containing a ring-fenced body (RFB)

The statement includes the supervisory statement SS917 ndashRecovery Planning and the revised supervisory statement SS816 ndashRing-fenced bodies

The PRA has proposed to postpone the effective dates of PRA rules related to Insurance Distribution Directive from 23 February 2018 to 1 October 2018 following a proposal by European Commission

Submissions are due by 23 February 2018

Source PRA

The Prudential Regulation Authority (PRA) has released a consultation paper Changes in insurance reporting requirements seeking feedback on a number of regulatory reporting changes designed to reduce the burden for Solvency II firms and mutual in addition to maintaining the PRArsquos ability to meet its statutory objectives

Submissions are due by 13 April 2018

The PRA has released a consultation paper Model risk management principles for stress testing setting out its proposals to support effective practices in model risk management for stress testing in order to help regulators and firms assess capital positions under adverse economic conditions

Submissions are due by 6 March 2018

4Overseas developments ndashUK

What have

the regulators

been up to

Overseas

developments

Industry

bodies

PwC

publications

Legislative

Government

developments

Contacts

ndash 18 ndash

PRA Recent consultations PRA Recent consultations

The PRA has published a consultation paper International insurers The PRArsquos approach to branch authorisation and supervision seeking feedback on its proposed approach to authorising and supervising international insurers which includes a focus on those that undertake insurance activities in the UK via branches or subsidiaries

Submissions are due by 27 February 2018

The PRA has published a consultation paper International Banks The PRArsquos approach to branch authorisation and supervision seeking feedback on its proposed new approach to authorising and supervising international banks which includes a focus on those that undertake wholesale banking activities in the UK via branches

Submissions are due by 27 February 2018

Source PRA

The PRA has released a consultation paper Strengthening accountability implementing the extension of the SMampCR to insurers and other amendments sets out the proposed changes to forms and minor administrative amendments related to the extension of the SMampCR to insurers It also sets out proposals for the removal of gendered language from the SMampCR for banking firms and insurers

Submissions are due by 21 February 2018

The PRA has issued a consultation paper Resolution planning MREL reporting setting out its proposed expectations for reporting on the minimum requirement for own funds and eligible liabilities (MREL) in order to provide the PRA and the Bank of England (authorities) with information to monitor firmsrsquo progress towards meeting interim MREL and eventual compliance with end-state MREL

Submissions are due by 9 April 2018

Source PRA

4Overseas developments ndashUS

What have

the regulators

been up to

Overseas

developments

Industry

bodies

PwC

publications

Legislative

Government

developments

Contacts

ndash 19 ndash

CFTC Recent announcement FRB Recent consultations FRB Recent consultations

The Commodity Futures Trading Commissionrsquos (CFTC) divisions of clearing and risk and market oversight has extended no-action relief from the swap clearing and trade execution requirements for certaininter-affiliate transactions until 31 December 2020 or the date on which amendments to relevant CFTC regulations take effect to provide time to allow market participants to comply with the inter-affiliate exemption

Source CFTC

The Federal Reserve Board (FRB) is seeking feedback on the proposed guidance clarifying principles of effective senior management management of business lines and independent risk management and controls for large financial institutions

Submissions are due by 15 March 2018

The FRB has repealed Regulation C and is seeking feedback on its proposal to amendRegulation M to reflect the transfer of certain consumer protection rule writing authority to the Consumer Financial Protection Bureau (CFPB)

Source FRB

The FRB is seeking feedback on the amended Regulation A revising the provisions regarding the establishment of the primary credit rate in a financial emergency and deleting the provisions relating to the use of credit ratings for collateral for extensions of credit under the former Term Asset-Backed Securities Loan Facility (TALF)

The FRB is seeking feedback on a number of proposals to increase the transparency of its stress testing program

bull Policy statement on the approach to supervisory stress testing

bull Enhanced disclosure of the models used in the supervisory stress test and

bull Policy Statement on the scenario design framework for stress testing

Source FRB

4Overseas developments ndashAsia

What have

the regulators

been up to

Overseas

developments

Industry

bodies

PwC

publications

Legislative

Government

developments

Contacts

ndash 20 ndash

China Recent announcements Hong Kong Recent consultations Hong Kong Recent consultations (contrsquod)

The China Banking Regulatory Commission (CBRC) has announced the following policy directions to further open up the banking sector by

bull Allowing for wider commercial presence choices of foreign banks to encourage a more diversified financial system

bull Broadening the business scope of foreign banks to boost the vitality of the financial system and

bull Refining regulatory rules to further unleash foreign banksrsquo potential

Source CBRC

The Securities and Futures Commission (SFC) is seeking feedback on its proposals to refine the scope of regulated activities requirements in relation to OTC derivative risk mitigation client clearing record-keeping and licensing matters and proposed conduct requirements to address risks posed by group affiliates

Submissions are due by 20 February 2018

The SFC has published a consultation paper Proposed Amendments to the Code on Unit Trusts and Mutual Funds (UT Code) seeking feedback on proposed amendments to the UT Code (key operators investments specialised schemes) in order to modernise the current requirements under the UT Code to facilitate market development and enhance investor protection and align the regulatory regime for SFC-authorized funds with international standards

Submissions are due by 19 March 2018

The SFC is seeking feedback on its proposed amendments to the Codes on Takeovers and Mergers and Share Buybacks Key proposals include

bull Increasing the voting approval threshold for whitewash waivers to 75 of independent shareholders

bull Empowering the Takeovers panel to require compensation to be paid to shareholders who have suffered as a result of a breach of the Codes and

bull Clarifying the obligations of persons dealing with the Takeovers Executive the Takeovers Panel and the Takeovers Appeal Committee in all Codes transactions requiring their prompt cooperation and assistance and the provision of true accurate and complete information

Submissions are due by 19 April 2018

Source SFC

4Overseas developments ndashAsia

What have

the regulators

been up to

Overseas

developments

Industry

bodies

PwC

publications

Legislative

Government

developments

Contacts

ndash 21 ndash

Hong Kong Recent announcements

Singapore Recent announcements

South Korea Recent announcements

The Hong Kong Monetary Authority (HKMA) has published a consultation paper Open API Framework for the Hong Kong Banking Sector detailing and seeking feedback on the intended approach to Open Application Programming Interfaces (API) for the banking industry in Hong Kong

Submissions are due by 15 March 2018

The HKMA is seeking feedback on its consultation on proposed rules on loss-absorbing capacity requirements for authorised institutions under the Financial Institutions (Resolution) Ordinance

Submissions are due by 16 March 2018

The HKMA and the Dubai Financial Services Authority (DFSA) have signed a FinTech cooperation agreement aiming to help FinTech companies in Hong Kong and Dubai to expand into each otherrsquos markets The HKMA and the DFSA will cooperate for potential FinTech innovation projects to establish frameworks of mutual assistance

Source HKMA

The Monetary Authority of Singapore (MAS) has released a consultation paper on recommendations of the Corporate Governance Council including

bull Revised Code of Corporate Governance

bull Mapping of changes to Code

bull Changes from Code streamlining

bull Draft practice guidance and

bull SGX Listing Rule amendments

Submissions are due by 15 March 2018

The MAS has announced a Credit Limit Management Measure in order to limit the additional unsecured credit that a financial institution may extend to a borrower whose outstanding unsecured debts exceed six times his monthly income The measure is effective from 1 January 2018 in addition to the existing industry wide borrowing limit in place

Source MAS

The Financial Services Commission (FSC) is seeking feedback on the proposed amendments to the Banking Act relaxing certain compliance and capital requirements and removing investment limit on certain classes of debt securities

Submissions are due by 25 February 2018

The FSC is seeking feedback on the proposed amendments to the Enforcement Decree of the Financial Investment Services and Capital Markets Act in order to facilitate crowdfunding with higher individual investment limits and shortened resale restriction period

Submissions are due by 19 February 2018

The FSC announced measures that only allow trading through real-name bank accounts linked to cryptocurrency exchanges and introduced a guideline to prevent cryptocurrency related money laundering in order to speculation in cryptocurrency trading

Source FSC

5 PwC publications

What have

the regulators

been up to

Overseas

developments

Industry

bodies

PwC

publications

Legislative

Government

developments

Contacts

ndash 22 ndash

PwC AU Design and distribution obligations and ASICrsquos product intervention powers

PwC AU Banking Matters ndashManaged Investment Schemes Trusts

PwC Global lsquoBasel IVrsquo - big bang or the endgame of Basel III

PWC Australian (AU) has published a report on the impacts of the draft legislation for design and distribution obligations for financial products and ASICrsquos product intervention powers

Products impacted by the legislation include financial products to retail clients including

bull Insurance

bull Asset Management Superannuation (excluding MySuper products) and

bull Derivatives

The legislation will create accountability obligations for entities that issue or distribute financial products as well as strengthen consumer protection by introducing financial product intervention powers

See publication

PwC AU have released a report on the impacts of managed investment schemes implementing the Attribution Managed Investment Trust (AMIT) tax regime

Due to the removal of distribution of trust income under the AMIT regime classification of Trust units has been impacted Some AMITs will now be classified as equity

See publication

The BCBS has published its final documents on the Reform of Basel III Basel IV PwC Global has published a report lsquoBasel IVrsquo big bang or the endgame of Basel III to both explain and analyse the changes

See publication

5 PwC publications

What have

the regulators

been up to

Overseas

developments

Industry

bodies

PwC

publications

Legislative

Government

developments

Contacts

ndash 23 ndash

PwC HK How regulations and taxes are shaping the future of ETFs

PwC HK Chinese bankersrsquo survey 2017

PwC HK Robust internal control framework

PwC Hong Kong (HK) has published a report Resolutions How regulations and taxes are shaping the future of ETFs showing how skyrocketing popularity often comes at the price of sharp scrutiny as the fast-growing exchange traded funds (ETF) industry is learning

Key findings include

bull Regulators appear to be committed to ensure that safeguards exist for accurately identifying and communicating risks and costs as well as ensuring up-to-date compliance practices for ETFs

bull Whether such directives dampen growth and innovation or steer funds toward new opportunities may depend on how well ETF sponsors manage risks and disclosures while also accommodating changing distribution technologies and new investment products

See publication

PwC HK has released a report summarising the results from the ninth Chinese Bankersrsquo Survey 2017 report prepared jointly by the China Banking Association (CBA) and PwC The report tracks developments in the sector from the perspective of Chinese bankers

Key findings include

bull Improving the capability of risk management and control has been put at the heart of the operations and strategies of Chinese banks

bull Chinese bankers are most enthusiastic about the new markets created by more advanced manufacturing and the new demand driven by increased consumption

bull Chinese bankers are also very supportive of green industries and the lsquoMade in China 2025rsquo strategy

See publication

Since the implementation of Foreign Account Tax Compliance Act (FATCA) in 2014 most financial institutions (FIs) in HK have been focusing their efforts on addressing the core compliance requirements around account due diligence withholding and reporting

The Internal Revenue Service (IRS) also requires FIs to demonstrate an effective internal controls framework on FATCA compliance with the first certification to be submitted to the IRS by 30 June 2018 The FI appointed Responsible Officer (RO) is personally liable for FATCA compliance

PwC HK has published a report Do you have a robust internal control framework to ensure FATCA compliance showing how PwC can help with the services that enable FIs to effectively manage the complex certification requirements

See publication

5 PwC publications

What have

the regulators

been up to

Overseas

developments

Industry

bodies

PwC

publications

Legislative

Government

developments

Contacts

ndash 24 ndash

PwC HK PampC insurance core transformation

PwC US Feds new risk management guidance

PwC US Frauds getting digital

The insurance industry continues to invest heavily in transforming their legacy policy billing and claims applications Core transformation can be so much more than a legacy technology replacement

PwC HK has released a report PampC insurance core transformation Exploring the possibilities discussing several activities that can be leveraged to unlock the full potential of a transformation

bull Digital differentiation

bull Data and analytics

bull Innovation and

bull InsurTech

See publication

The Federal Reserve is seeking feedback on proposed guidance for risk management practices at large financial institutions in order to provides greater transparency around specific factors the Fed will consider in determining a bankrsquos rating as well as whether it is well managed

PwC US has published a report Feds new risk management guidance which summarises the proposed guidance

See publication

PwC US has launched a report Frauds getting digital 8 points to watch in 2018 highlighting eight considerations for financial institutions in the fraud landscape in 2018 including emerging threats industry developments and next steps

See publication

5 PwC publications

What have

the regulators

been up to

Overseas

developments

Industry

bodies

PwC

publications

Legislative

Government

developments

Contacts

ndash 25 ndash

PwC US US LCR disclosures -more questions than answers

PwC US Implementation efforts related to the CDD Rule

The quarterly disclosures by G-SIBs related to Liquidity Coverage Ratio (LCR) calculations are intended to provide greater transparency into the banksrsquo liquidity positions The disclosures highlight huge differences in the components of HQLA and net cash outflows among the US G-SIBs and raises more questions than it answers

PwC US has released a report US LCR disclosures More questions than answers analysing the US G-SIBsrsquo LCR disclosures

See publication

Financial institutions (FIs) have been undertaking massive implementation projects in order to meet the compliance deadline for the Customer Due Diligence Rule (CDD rule)

PwC has released a report Implementation efforts related to the CDD Rule sharing the results of the benchmarking study covering 50 FIs of varying size and geographic scope regarding their implementation plans related to the CDD rule

PwC found that while the industry has taken significant steps to comply with the CDD rule ahead of the compliance deadline questions still remain due to the lack of supplemental guidance from regulatory authorities PwC also identified several takeaways and industry leading practices that will assist FIs in making informed decisions on imminent compliance requirements

See publication

6 Contacts

What have

the regulators

been up to

Overseas

developments

Industry

bodies

PwC

publications

Legislative

Government

developments

Contacts

Nicole SalimbeniPartnernicolesalimbenipwccom(02) 8266 1729

Edwina StarPartneredwinastarpwccom(02) 8266 4940

ndash 26 ndash

Sarah HofmanPartnersarahhofmanpwccom(02) 8266 2231

Craig StaffordPartnercraigstaffordpwccom(02) 8266 3725

Amrita JebamoneyPartneramritajebamoneypwccom(02) 8266 1826

copy 2018 PricewaterhouseCoopers All rights reserved

PwC refers to the Australian member firm and may sometimes refer to the PwC network Each

member firm is a separate legal entity Please see wwwpwccomstructure for further details

This content is for general information purposes only and should not be used as a substitute for

consultation with professional advisors

Liability is limited by the Accountantrsquos Scheme under the Professional Standards Legislation

PwC Australia helps organisations and individuals create the value theyrsquore looking for

Wersquore a member of the PwC network of firms in 158 countries with close to 169000 people

Wersquore committed to delivering quality in assurance tax and advisory services Tell us what

matters to you and find out more by visiting us at wwwpwccomau

wwwpwccomau

copy 2018 PricewaterhouseCoopers All rights reserved

PwC refers to the Australian member firm and may sometimes refer to the PwC network Each

member firm is a separate legal entity Please see wwwpwccomstructure for further details

This content is for general information purposes only and should not be used as a substitute for

consultation with professional advisors

Liability is limited by the Accountantrsquos Scheme under the Professional Standards Legislation

PwC Australia helps organisations and individuals create the value theyrsquore looking for

Wersquore a member of the PwC network of firms in 158 countries with close to 169000 people

Wersquore committed to delivering quality in assurance tax and advisory services Tell us what

matters to you and find out more by visiting us at wwwpwccomau

wwwpwccomau