Compliance: Theory and Practice in the Financial Services Industry

11B. First Home Saver Account Products

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Outline

   Definitions
   Licensing and Disclosure Requirements
   Relaxation of FSR Rules for Capital Guaranteed FHSA Products

Note: this module is now only of historical interest. In the 2014-15 Budget, the Federal Government announced the abolition of the first home saver accounts scheme. Eligibility for a government contribution to such accounts ceased from 1 July 2014. The tax and social security concessions and the restrictions on withdrawal that originally applied to such accounts ceased from 1 July 2015 and these accounts are now treated like any other account held with the provider.

 


Definitions

CA s764A(1) - Things that are Financial Products
Subject to subdivision D (s765A), the following are financial products for the purposes of Chapter 7: ...
(ha)  an FHSA (short for first home saver account) within the meaning of the First Home Saver Accounts Act 2008.

Click here for a copy of the First Home Saver Accounts Act 2008.

CA s761A - Definition of FHSA Product
FHSA product = an FHSA (within the meaning of the First Home Saver Accounts Act 2008).

 

FHSAA s8 – Definition of FHSA
An individual’s account, life policy or beneficial interest in a trust is an FHSA (short for first home saver account) if:
(a)   it is described as an FHSA;
(b)   it is opened or issued on or after 1 October 2008 (or a later day (if any) specified in the regulations); and
(c)   it is:
  (i)   an account to which an ADI accepts, or has accepted, contributions;
  (ii)   a life policy issued by a life insurance company; or
  (iii)   a beneficial interest in a trust constituted by a deed, the trustee of which holds an authorisation as an FHSA provider.

Hence, an FHSA product was able to be offered by ADIs as a deposit account, by life companies as a life policy and by trustees who held an authorisation as an FHSA provider as a beneficial interest in a trust constituted by a deed.

In relation to (c)(iii) above, FHSAA s89(1) provided that an RSE licensee that held an RSE licence of a class that would enable it to be a trustee of a public offer entity could apply to APRA for an authorisation as an FHSA provider. Self-managed, non-public-offer and public sector superannuation funds, and managed investment schemes and other trusts that were not superannuation entities, therefore, were not be able to offer FHSAs.

FHSAA s97 imposed conditions on all authorisations as an FHSA provider that the FHSA provider must: (a) comply with the FHSAA, the regulations and the prudential standards imposed thereunder; (b) perform properly the duties of a trustee in respect of each FHSA trust of which it is the trustee; (c) ensure that every FHSA trust of which it is the trustee is maintained solely in respect of the provision of FHSAs; (d) continue to meet the capital requirements under FHSAA s93; (e) continue to hold an RSE licence of a class that would enable it to be a trustee of a public offer entity; and (f) comply with any other conditions specified by regulations made for the purposes of this paragraph.

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Licensing and Disclosure Requirements

Licensing and Disclosure Requirements
•     Persons who carry on a business of advising on or issuing FHSA products need a financial services licence authorising them to provide that service or to be an authorised representative of such a licensee.
•     Subject to certain concessions for capital guaranteed FHSAs (see below), if they deal with retail clients (and they invariably will), they need:
  •     Financial Services Guide
  •     Statement of Advice for any advice given
  •     Product Disclosure Statement for any products recommended
  •     To act in the best interests of the client
  •     To warn if giving personal advice based on incomplete or inaccurate information or if giving general advice
  •     Dispute resolution systems
  •     Compensation arrangements

As mentioned above, FHSA products could be offered by ADIs as a deposit account, by life companies as a life policy and by trustees who held an authorisation as an FHSA provider as a beneficial interest in a trust constituted by a deed.

Hence, the authority given in a standard AFSL to an ADI to advise on and deal in deposit products, and to a life company to advise on and deal in investment life insurance products, would also have authorised it to advise on and deal in an FHSA product.

CR r7.6.01AA provides that a person’s AFSL is taken to cover the provision of a financial service in relation to a beneficial interest in an FHSA trust (within the meaning given in section 18 of the First Home Saver Accounts Act 2008) if the licence would cover the service if it were provided in relation to a superannuation product. So the authority given in a standard AFSL to an RSE licensee to advise on and deal in superannuation products would also have authorised it to advise on and deal in an FHSA product.

On PDS issues, note CR r7.9.10B, which provides that Part 7.9 of the Act is modified in its application to FHSA products as set out in Part 5 of Schedule 10A, the restrictions in r7.9.10C on when a PDS for a FHSA product may consist or two or more documents, and the restrictions in r7.9.10D on the manner in which a PDS for FHSA products may be given.

CR r7.9.10E – Modified PDS Requirements
A PDS for an FHSA product must:
(a)   include the information and statements mentioned in CR schedule 10B; and
(b)   be in the form mentioned in CR schedule 10B.

The modified PDS requirements for FHSA products in CR schedule 10B are quite prescriptive. For example, the length of a PDS (including any title page, contents, glossary, index and other information not required by the Regulations) for an FHSA product must not exceed: (a) 4 pages if it is printed on A4; (b) 8 pages if it is printed on A5; or (c) 12 pages if it is printed on DL. The minimum font size for text in the PDS is 8 points for the name, address, ABN, ACN and AFSL of the person giving the Statement and 9 points for all other text.

The PDS must contain the following sections, which must be numbered and titled as follows:

1. Who can have a First Home Saver Account

2. How the First Home Saver Account works

3. How the Government helps you save

4. [no prescribed title] - financial details of the product and a worked example of a balance changing over time.

5. What happens if your situation changes

6. Using your savings for your first home

7. The fees and costs [or “The fees” if there are no costs]

8. How to open an account

9. [no prescribed title] - details of the FHSA provider and their dispute resolution system, plus a link to the ATO website.

The PDS may contain other sections (for example, a table of contents, glossary, index, or information about the product issuer). The regulations contain further requirements as to what can and can't be included in each section mentioned above.

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Relaxation of FSR Rules for Capital Guaranteed FHSA Products

Under CR r1.0.02, a "capital guaranteed FHSA product" is an FHSA product: (a) that is an FHSA deposit account or an FHSA life policy; and (b) for which the balance may not be reduced other than by the debiting of fees.

CA s941C(6) and (7) – No Need for FSG
The providing entity does not have to give the client an FSG if the financial service is a dealing in, advice about, or in any way relates to, any of the following: ...
(c)   a financial product of a kind prescribed by regulations for these purposes,
provided that before the service is provided, the client is instead given the information that would be required to be in the FSG by ss942B(2)(a) and (h), or ss942C(2)(a) and (i), as the case requires.

CR r7.7.02(1)(d) prescribes capital guaranteed FHSA products for the purposes of (c) above.

CA ss942B(2)(a) and (h), and ss942C(2)(a) and (i), require disclosure of the name and contact details of the providing entity and information about its dispute resolution system. This information can be given orally (s940C(2)(a)).

CR r7.7.05C provides that an FSG for a service to which s941C(6) applies does not have to include the information about the types of services provided or about remuneration and other benefits that ss942B(2)(c) or (e) and 943C(2)(d) or (f) would otherwise require to be included in relation to that service.

Note that CR r7.7.08A, which permits a combined FSG and PDS to be issued as a single document for certain simpler financial products, does not apply if the PDS is for an FHSA product (r7.7.08A(1A)). The reason is that the Government wants to ensure that the consumer is provided with a short and simple PDS for FHSA products (see below), and combining the PDS with other documents is not consistent with this objective.

CA s946B(5) and (6) – No Need for SOA
The providing entity does not have to give the client an SOA if the advice relates to any or all of the following: ...
(c)   a financial product of a kind prescribed by regulations for these purposes,
provided that when, or as soon as practicable after, the advice is provided, the client is instead given the information that would be required to be in the SOA by ss947B(2)(d) and (e), or ss947C(2)(e) and (f), as the case requires.

Note that s946B has been replaced by CR r7.7.10AE, although the provisions applicable to FHSA products remain the same.

CR r7.7.10(j) prescribes capital guaranteed FHSA products for the purposes of (c) above.

CA ss947B(2)(d) and (e), and ss947C(2)(e) and (f), require disclosure of disclosure of information about remuneration and any interests, associations or relationships between the providing entity or an associate and a product issuer that might reasonably be expected or be capable of influencing the providing entity in providing the advice.

CR r7.9.62(3)(c) and (d) - Confirmations Not Required if Statement Given
Confirmations are not required for debits from or credits to an FHSA product if:
(i)   the holder of the product has been given a periodic statement under s1017D not later than 6 months after the transaction occurs; and
(ii)   the periodic statement contains the information about the transaction that is required by s1017D.

Note also CR r7.9.74B, which prescribes additional details to be included in the periodic statement for an FHSA product under s1017D.

ASIC Regulatory Guide 146 - Reduced Training Requirements for Advisers
•     Persons who advise on FHSA deposit accounts (ie those issued by an ADI) only require Tier 2 training (other types of FHSAs are Tier 1 products: see RG 146.45–RG 146.46).
•     The courses undertaken don't have to be approved by an authorised assessor or listed on the ASIC Training Register and instead can be self-assessed for appropriateness by the licensee as meeting the Tier 2 educational level.

ASIC Regulatory Guide 146 Licensing: Training of financial product advisers para 119 states: "Where a course on ... FHSA deposit accounts is assessed by the licensee rather than an authorised assessor, the role of the licensee is to: (a) benchmark their own training courses against our knowledge and skill requirements; (b) examine their own processes and procedures to assess whether the courses can successfully meet the training standards; and (c) upon completion of the course, assess an individual adviser against the training standards."

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