First Home Saver Accounts - Consultation Paper
This chapter outlines a range of other regulatory issues associated with the provision of First Home Saver Accounts, including prudential regulatory requirements, licensing requirements and disclosure obligations.
New prudential requirements will be needed to accommodate First Home Saver Accounts provided by Public-Offer Licensees under a separate trust structure from their superannuation operations. Life insurers (including friendly societies), banks, building societies and credit unions will be able to offer accounts under the existing prudential frameworks applying to these institutions. Where necessary, APRA will also develop prudential standards governing the operation of the accounts by providers. These standards will also apply to accounts provided by Public-Offer Trustees to ensure consistency in regulation across all account providers. APRA will consult separately on the development of the standards.
These standards will not apply to Public-Offer Trustees’ superannuation operations, which will continue to be regulated by the SIS Act and operating standards contained in the SIS Regulations in the existing manner.
From a prudential perspective, accounts that are offered by banks, building societies and credit unions as capital-guaranteed deposit products carry different risks to those that are offered by Public-Offer Trustees and life insurers on an investment-linked basis. In the case of investment-linked products, the four-year savings horizon and the limited purposes for which the savings can be used provide some constraints on when withdrawals will be made. However, it will still be difficult for account providers to be able to predict withdrawal patterns. In addition, the accounts are likely to be much shorter term investment products than superannuation or most investment-linked life insurance policies.
Given these differences, there will need to be some limits on the investment strategies associated with accounts offered by Public-Offer Licensees and life insurers, requiring the investments to be appropriate for the nature of the accounts and to consider liquidity requirements. In addition, there may be some asset classes that are not appropriate investments given the nature of the accounts. These requirements will be detailed, where appropriate, in APRA’s prudential standards governing the operation of the accounts. These requirements will also have implications for the choice of investment strategies offered to account holders under investment-linked accounts offered by Public-Offer Licensees and life insurers.
Accounts offered by Public-Offer Licensees will be subject to borrowing restrictions in the same way as superannuation funds under the SIS Act.
Other restrictions on superannuation fund investments which currently apply under the SIS Act will also apply in respect of the accounts offered by Public-Offer Licensees.
Life insurers, banks, building societies, and credit unions offering the accounts will need to ensure the accounts are operated in accordance with all existing laws and regulations governing life policies and deposit accounts.
The accounts will meet the definition of a ‘financial product’ under the Corporations Act 2001. If necessary, amendments will be made to ensure this. Consequently, the licensing and conduct provisions of the Corporations Act will apply.
Account providers will generally be required to hold an Australian Financial Services Licence (AFSL) under the Corporations Act to offer and provide advice on the accounts, subject to the exemptions in that Act. This is consistent with the current treatment of other financial products, including superannuation products provided by public-offer entities under the licensing provisions. Where an account provider already holds an AFSL, the licensee conditions may need to be adjusted to enable the licence holder to provide the financial service.
6.2.1 Dispute resolution arrangements
As the First Home Saver Accounts will be a ‘financial product’, providers of the accounts will be required to be members of an external dispute resolution scheme that is approved by ASIC under requirements in the Corporations Act. The Superannuation Complaints Tribunal will not deal with complaints in relation to the accounts.
6.3.1 To account holders
Account providers will need to provide retail clients with a Financial Services Guide and, if they are providing personal advice, a Statement of Advice.
Account providers will be required to disclose certain key information to the applicant before an account is opened, such as the risks, benefits, fees and dispute resolution procedures associated with the product and types of investment options on offer (where relevant).
The Government proposes to develop a simplified disclosure regime for the accounts. The extent of disclosure may differ somewhat depending on the nature of the product. The precise content and presentation of the disclosure document will be subject to further consideration.
The Government will work with industry to ensure that fees charged on the accounts are transparent, simple and kept to a minimum.
Account providers will also be required to provide account holders with an annual statement containing information such as the account balance, increase in contributions and return on investment, similar to an annual statement that is provided on an investor’s superannuation account.
Under the Financial Sector (Collection of Data) Act 2001, providers of First Home Saver Accounts will be required to report certain information to APRA in respect of the accounts. APRA will modify its existing reporting standards for ADIs and life insurers, and create a new reporting standard for First Home Saver Accounts offered by Public-Offer Licensees, in order to facilitate the necessary reporting. APRA will consult with industry on the new reporting standards.
Accounts offered by a life insurer would be referable to a statutory fund established under the Life Insurance Act 1995. Statutory funds’ assets may only be used for the expenses and liabilities incurred by the business of the fund, which provides protection to policyholders.
Where an account is offered by a bank, building society or credit union as a deposit product, the account holder will receive protection from the depositor preference provisions in the Banking Act 1959. For accounts offered by Public-Offer Licensees, there will be arrangements, modelled on the financial assistance provisions in the SIS Act, to enable trustees to apply for financial assistance for losses suffered as a result of fraudulent conduct or theft.
Account providers will be required to ensure that fees charged on small balances do not exceed investment earnings in any given year — these provisions will be modelled on the ‘member protection’ rules that protect small superannuation balances from being eroded by fees and charges. The member protection rules apply to balances less than $1,000. As the accounts must be opened with a minimum amount of $1,000, it will be necessary to align the member protection balance for First Home Saver Accounts to the minimum opening contribution balance of $1,000.
Providers of First Home Saver Accounts will be required to comply with the requirements in the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) and identify customers upon opening an account. Key obligations in the AML/CTF Act include:
- verifying a customer’s identity before providing a designated service to the customer;
- reporting suspicious matters, and certain transactions above a threshold to AUSTRAC;
- reporting certain international funds transfer instructions to AUSTRAC;
- keeping records relating to customer identification and specified transactions; and
- ensuring that electronic funds transfer instructions include certain information about the origin of the transferred funds.
In relation to Public-Offer Licensees, the current AML/CTF obligations require that they identify a customer when a member’s superannuation funds are cashed out or their pension commences. Upfront customer identification in relation to First Home Saver Accounts will therefore differ from the current obligations applying to superannuation trustees. As account providers will be receiving information from individuals to open accounts, it is not expected that the upfront customer identification requirements under the AML/CTF Act will impose significant additional obligations.