In April 2020, the financial services industry has been actively engaging with the Federal Government and regulators in order to address key issues and mitigate risks as a consequence of COVID-19. While regulators have changed certain priorities, with a number of initiatives and consultations put on hold, focus has primarily been on ensuring financial stability and appropriate consumer outcomes. This has included the regulators reminding superannuation trustees, responsible entities of managed funds and insurers of their obligations to ensure appropriate mechanisms are in place to protect consumers during these challenging and uncertain times.
ASIC and APRA release joint letter to RSE licensees on COVID-19
On 1 April 2020, APRA’s Deputy Chair Helen Rowell and ASIC’s Commissioner Danielle Press issued a joint letter to superannuation trustees on the impact of COVID-19. The joint letter to RSE licensees reminds trustees of their obligations during the COVID-19 pandemic, including to:
- make new business arrangements;
- amend priorities;
- adjust their short-term investment strategies;
- maintain sufficient levels of liquidity in order to sustain the operation of their funds; and
- comply with their usual responsibilities including their duty to comply with the law and duty to act in the best interests of their members.
In particular, the regulators have noted they are placing increased regulatory focus on monitoring liquidity to ensure superannuation funds are able to fulfil their payment obligations, including the early release of superannuation. Trustees should be undertaking regular and detailed liquidity stress testing, identifying specific areas for increased attention with respect to liquidity, and assessing the impact of liquidity on their liabilities and contractual commitments, such as currency hedging and reviewing security lending arrangements.
With respect to insurance in superannuation, trustees should appreciate how members’ insurance may be affected by economic conditions and public health restrictions, as well as the reduction of account balances. Trustees are expected to communicate often with their members in a clear, accurate and factual manner and ensure they are member-centric across communication channels. Further information on superannuation developments is available in our article , with ASIC and APRA’s joint letter available on APRA’s website.
ASIC issues letters to general and life insurers in the current COVID-19 environment
ASIC wrote to general and life insurers on 27 April 2020 outlining their expectations on insurers’ response to the COVID-19 pandemic. The regulator noted in their letters that it expects insurers to handle insurance claims with the utmost good faith and to handle and deal with complaints promptly, genuinely, fairly and consistently. ASIC stressed that insurers must be flexible when dealing with consumers’ circumstances and in particular how best insurers can assist consumers who are unable to pay premiums due to reduced income. The letters suggested that insurers may, where appropriate and reasonable, introduce measures such as premium ‘holidays’, deferrals or reductions for a reasonable period of time.
Furthermore, ASIC also reiterated its expectations to ensure insurers communicate with consumers in a proactive, clear and accurate manner, particularly as the current climate is continually changing. More information including ASIC’s letters are available in the regulator’s Media Release.
ASIC issues letter to responsible entities on liquidity management
ASIC published a letter issued in March to responsible entities of registered managed investment schemes reminding them of their fundamental duties and legal obligations to members as a result of disruption, market volatility and other challenges as a result of COVID-19. Particular emphasis was placed on scheme liquidity, with ASIC expecting responsible entities to actively monitor redemptions and their terms to ensure they remain consistent with the liquidity of the underlying assets of the scheme.
Responsible entities must actively assess whether schemes remain liquid or become non-liquid and whether redemptions should be suspended, monitor the valuation of scheme property, comply with ASIC Regulatory Guide 259 Risk management systems of responsible entities, communicate with members and ensure disclosure obligations are timely met. ASIC must be notified immediately should responsible entities form the view that any scheme is not-liquid or if they decide to suspend redemptions, with hardship relief available. A copy of ASIC’s letter is available on the regulator’s website.
ASIC announces three temporary relief measures to provide affordable and timely advice during the COVID-19 pandemic
On 14 April 2020, ASIC announced the introduction of three temporary relief measures impacting the timing and affordability of advice within the superannuation industry. As outlined in our March 2020 Financial Services wrap-up article, the Government announced that eligible individuals impacted by COVID-19 can access their superannuation early for up to $10,000 in 2019-20 and a further $10,000 in 2020-21. To further assist, ASIC announced that financial advice providers do not need to provide a statement of advice (SOA) to clients when providing advice about accessing superannuation early. Furthermore, registered tax agents are permitted to provide advice to existing clients about early access to superannuation without the requirement to hold an Australian financial services (AFS) licence. ASIC has also issued a temporary ‘no-action’ position to superannuation trustees in order to expand the scope of personal advice that is provided by, or on behalf of, the superannuation trustee as ‘intra-fund advice’.
The temporary relief and no-action position is subject to a number of conditions, including that clients must be provided with a record of advice, the advice fee (if any) is capped at $300, the advice provider must establish that the client is permitted to access the early release of superannuation, and the client must have approached the advice provider seeking advice. As part of its temporary relief measures, ASIC has also allowed advice providers to give an SOA up to 30 business days (rather than five business days) after time-critical advice is provided.
The third temporary relief measure also allows the provision of an ROA to existing clients even though the clients’ personal circumstances have changed due to COVID-19 and the client sees an adviser from the same AFS licensee or practice, not their original adviser. Further information about ASIC’s temporary relief measures are available in their Media Release and Frequently Asked Questions.
APRA publishes new frequently asked questions on temporary release of superannuation in response to COVID-19
APRA updated its frequently asked questions (FAQs) on 16 April 2020 which sets out its expectations for superannuation trustees on the release of superannuation benefits due to COVID-19. In accordance with the Superannuation Industry (Supervision) Regulations 1994 (Cth), RSE licensees must pay benefits which are released on compassionate grounds (i.e. as a result of COVID-19) as soon as practicable, having regard to the Australian Tax Office’s (ATO) determination. APRA expects, in complying with this requirement, that RSE licensees will generally made such payments within five business days (subject to no red flags being identified), and where red flags are identified and additional fraud or verification steps are required, the process may take longer but must be done as expeditiously as possible.
Where an RSE licensees follows the approach stipulated in APRA’s FAQs but fraud nonetheless occurs, APRA has indicated that provided the RSE licensee has adequately demonstrated that it has followed the approach the regulator is unlikely to take action. Recently, the Australian Transaction Reports and Analysis centre (AUSTRAC) introduced a new rule under the Anti-Money Laundering and Counter-Terrorism Financing Act (Cth) to ensure that RSE licensees that are making payments to their members under the early release of superannuation scheme due to COVID-19 will not have to undertake additional customer verification under the AML/CTF regime. APRA’s updated FAQs are available on their website and further information is available on AUSTRAC’s website.
Changes to ASIC’s regulatory work and priorities as a result of COVID-19
As a result of the impacts of COVID-19, ASIC announced on 14 April 2020 changes to its regulatory ad supervisory work, as well as its priorities. The regulator has announced that it has delayed a number of activities not immediately necessary, including a number of regulatory reports, consultations and reviews. However, ASIC has stated that it has stepped up its markets supervision work to ensure markets are operated fairly and orderly to ensure investors are sufficiently informed and protected, has heightened its support for vulnerable consumers and will support firms through facilitating timely completion of capital raisings and other urgent transactions and provide relief where appropriate.
ASIC has also developed a sector-specific guide of the activities affected by the changes to the regulator’s regulatory work and priorities including but not limited to financial advice, managed funds, superannuation, retail banking, insurance and insolvency. In particular, the regulator has noted that it is considering amending the transitional arrangements under Regulatory Guide 97 (RG 97) for Product Disclosure Statements (PDSs) to allow entities to come into the new disclosure regime from 30 September 2020 and extend the compliance deadline for the new disclosure regime to 30 September 2022. The platform fees consultation under RG 97 has also been deferred until further notice. Further information is available in ASIC’s Media Release as well as sector-specific guide.
APRA launches new data collection to assess temporary early release of superannuation schemes due to COVID-19
On 21 April 2020, APRA announced the launch of its new data collection to assess the impact and progress of the Government’s temporary release of superannuation scheme. From 27 April 2020, RSE licensees will be asked to complete and submit APRA’s new Early Release Initiative (ERI) data collection form, which will collect information including the number and value of early release benefits paid to members and the processing times.
The ERI’s reporting collection template includes a number of FAQs and a worked template. The FAQs note that the ERI data collection will start from 20 April 2020 and is expected to end in the 4th quarter of 2020. Further information as well as the ERI reporting template and FAQs are available on APRA’s website.
ASIC provides additional time for unlisted entity financial reports
ASIC announced on 9 April 2020 that it will provide an additional one month for unlisted entities to submit their financial reports under Chapters 2M and 7 of the Corporations Act 2001 (Cth) (Act) for balance dates from 31 December 2019 to 31 March 2020. The extended deadline for lodgement is to assist unlisted entities with the reporting process which may take additional time due to the impacts of COVID-19.
The regulator has advised that where possible, entities should continue to lodge such documentation within the statutory deadlines to give regard to the information needs of creditors, shareholders and other users of the financial reports, or to meet borrowing covenants or other obligations. Further information on the extension is available in ASIC’s Media Release.
APRA temporarily suspends issuing new licences due to COVID-19
On 7 April 2020, APRA wrote to applicants of new banking, insurance or superannuation licences advising that it has temporarily suspended issuing new licences for at least six months due to the economic uncertainty of COVID-19. APRA noted in its letter that ordinarily it is challenging for new entrants to succeed under normal economic conditions and with the current climate of our economy, financial safety as well as stability, efficiency and competition remain a key concern for the regulator. APRA will advise current applicants when the granting of licences will restart. A copy of APRA’s letter to all licence applicants is available on APRA’s website.
Parliamentary insurance hearings
The Standing Committee on Economics (Committee) recently held public hearings on 28 and 29 April 2020 to review insurers’ response to the COVID-19 pandemic. The Committee asked insurers whether insurance policies for small business covered notifiable diseases under the Biosecurity Act 2015 (Cth) and the Quarantine Act 1908 (Cth). This attention on policy response could continue into the future as claims are made under policies. Insurers should make sure they act efficiently, honestly and fairly in respect of insurance claims and policy renewals, especially if exclusions are added onto policies at renewal. The transcripts from the hearings are available on the Parliament of Australia’s website.
APRA revises commencement dates for prudential standards CPS 226 and CPS 234
APRA announced on 16 April 2020 the new commencement dates for a number of prudential and reporting standards. With respect to the cross-industry standards, APRA CPS 226 Margining and Risk Mitigation for Non-Centrally Cleared Derivatives (phase-in of initial margin requirements) has been revised to a commencement date of 1 September 2021 and 2022, depending upon the implementation phase. APRA CPS 234 Information Security (third-party arrangements transition provisions) has also been granted a six-month extension from 1 July 2020 to 1 January 2021, which is available on a case-by-case basis. Entities that seek to rely on the six-month extension must advise APRA of the nature of their third-party arrangements, including how risks are being monitored. Further information is available in APRA’s Media Release.
Temporary exemption for distribution of debit cards
On 24 April 2020, the ASIC Corporations (COVID-19 – Distribution of Debit Cards) Instrument 202/401 (Instrument) was registered in order to provide relief to allow the distribution of debit cards to existing customers without debit cards in response to COVID-19. Due to the impact of the lockdown restrictions in response to COVID-19, consumer may have difficulties in accessing bank branches to withdraw funds. The Instrument was introduced primarily to assist vulnerable and elderly consumers who are unlikely to hold debit cards.
The changes to the hawking requirements allow authorised deposit-taking institutions (ADIs) to offer debit cards to eligible account holders through unsolicited telephone calls or unsolicited meetings at a bank’s place of business. Ordinarily this type of activity would be prohibited due to the anti-hawking prohibition under section 992A of the Act. Furthermore, the Instrument also revises the product disclosure requirements in Part 7.9 of the Act allowing ADIs to comply in relation to basic deposit products, linked non-cash payment facilities and debit cards by providing information they would typically provide no later than when the consumer receives the debit card. Similarly, the Act ordinarily requires ADIs to provide information to consumers before they bound to acquire the product. Further information on the Instrument is available here.