Fund Product, Company and Regulatory Updates as at 9 October 2018

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Product Updates

Fidelity launching global emerging markets ETF
Fidelity International is launching a global emerging markets exchange traded fund (ETF) on the ASX (ticker code FEMX), based on Fidelity’s Global Emerging Markets Fund. Lower volatility was cited as the reason for the new ETF, which is due for launch in late October.

AMP cans SMSF lending, divests $440m from tobacco
Following the lead of the Commonwealth Bank and Westpac, AMP has ceased self-managed superannuation fund (SMSF) lending. AMP’s current SMSF loan customers will continue to be serviced, but from November 2018 they will not be able to refinance or switch to interest-only loans. AMP Capital has removed $440 million in tobacco manufacturing-related holdings from all equity and fixed income investments, with the divestment the largest by an Australian fund manager. AMP Capital signed on to the new Tobacco-Free Finance Pledge at a United Nations General Assembly meeting.

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Company Updates

Tobacco exclusion indices launched by MSCI
MSCI has launched a new suite of indices, excluding any company that is classified as a producer of tobacco, and those companies earning more than five per cent aggregate revenue from the distribution, retail and supply of tobacco-related products. Ex-Tobacco Involvement indices are to become part of the standard offerings in the ESG index module. Like AMP, this move comes after the Tobacco-Free Finance Pledge at the UN General Assembly recently.

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Regulatory Updates

Bill introduced for revealing target markets of financial products
A bill has been introduced to Parliament that hopes to ensure that consumers are served by new financial products. The design and distribution obligations and product intervention powers amendment bill also bolsters ASIC’s powers. Concerns have been raised about increased regulatory costs, however if the bill passes, it would help increase consumer product awareness and suitability. The offerer of a product would have to produce a target market determination, which would be publicly available. This determination would be reviewed periodically to ensure it is still relevant, and report any inconsistencies to ASIC.

SMSF lending changes proposal from ASIC
ASIC has proposed that self-managed superannuation funds (SMSFs) must have a minimum balance before they are allowed to borrow, among other suggestions to improve the SMSF sector. Other areas being examined by ASIC include member education, such as implementing mandatory SMSF trustee education prior to starting a fund. This includes financial advisers who work with SMSF clients. A report was released by ASIC in June 2018 reviewing SMSF advice, where 91 per cent of a sample of 250 client files showed that the adviser did not comply with the best interests duty. In 10 per cent of cases, the clients were likely to be significantly worse off in retirement due to the advice given. Nineteen per cent of the clients were at an increased risk of financial detriment because of a lack of diversification.

New fintech agreements signed between Australia and US, Luxembourg
The US Commodities Futures Trading Commission (CFTC) and ASIC have signed an agreement to support and cooperate with innovations in fintech using the CFTC’s LabCFTC and ASIC’s Innovation Hub. The Luxembourg Commission de Surveillance du Secteur Financier (CSSF) has also signed a cooperation agreement with ASIC to understand financial innovations in each area. The CSSF and ASIC already have a close relationship.