The month of July 2020 has seen a number of regulatory updates, guides and reminders to the financial services industry addressing the continuing challenges due to the impact of COVID-19. In particular, ASIC has released an update to its Regulatory Guide 97 Disclosing fees and costs in PDSs and periodic statements amending transitional arrangements due to COVID-19, as well as ASIC proposing to use its product intervention powers in the continuing credit industry. Both ASIC and APRA continue to publish guidance and frequently asked questions aimed at responsible entities and superannuation trustees addressing expectations and obligations during these challenging times.
ASIC releases update to Regulatory Guide 97 Disclosing Fees and Costs in PDSs and Periodic Statements
On 24 July 2020, ASIC released amendments to Regulatory Guide 97 Disclosing fees and costs in PDSs and periodic statements (RG 97) as well as ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 and ASIC Corporations (Amendment and Repeal) Instrument 2020/579. Due to the impact of COVID-19, the transitional arrangements for product disclosure statements (PDSs) given by issuers of superannuation and managed investment products have been amended whereby:
- PDSs given on or after 30 September 2022 must adhere to the new requirements;
- issuers can choose to apply the new requirements to PDSs from 30 September 2020; and
- once an issuer has chosen to apply the new requirements, all subsequent PDSs must comply with these new requirements.
The amendments made to RG 97 confirm ASIC’s policy position with respect to:
- periodic statements for managed investment products whereby buy-sell spreads do not need to be disclosed through the reinstatement of ASIC Class Order [CO 14/1252];
- the treatment of derivative costs;
- the disclosure of performance fees; and
- the requirements with respect to significant event notices.
More information on the amendments to RG 97 including the updated regulatory guide and ASIC Instruments are available on ASIC’s website.
ASIC proposes to use product intervention order in the continuing credit industry
On 9 July 2020, ASIC released its Consultation Paper 330 (CP 330) and draft instrument on its proposed use of its product intervention powers to address significant consumer detriment in the continuing credit industry. In accordance with the National Credit Code, a ‘continuing credit contract’ is a credit contract where multiple advances of credit are contemplated and the amount of available credit increases as the amount of credit is reduced.
The regulator has highlighted in its CP 330 that continuing credit products are likely to result in significant consumer detriment due to excessive costs incurred compared to the loan amount, particularly for vulnerable customers experiencing financial difficulty. CP 330 is open for public consultation until 6 August 2020. ASIC’s CP 330 and draft instrument is available here, as well as further information in ASIC’s Media Release.
APRA publishes letter to registrable superannuation entity (RSE) licensees on upcoming legislative obligations
In a letter published to RSE licensees on 23 July 2020, APRA has reiterated the need for focus on improving outcomes for superannuation members, particularly through the implementation of SPS 515 Strategic Planning and Member Outcomes. APRA has reminded trustees of their new obligations including to:
- undertake a Business Performance Review (BPR) by 31 December 2020 (and within 12 months thereafter) which requires trustees to assess its performance in achieving its strategic objectives across its business operations; and
- conduct an outcomes assessment which requires RSE licensees to conclude whether members’ financial interests are being promoted in the product they hold by 28 February 2021 (and as part of the BPR thereafter). The results of the outcomes assessment will be published with 28 days.
RSE licensees must demonstrate, as part of their review of strategic objectives and business planning, how they will respond to policy changes and pandemic impacts on future revenue streams. APRA commented that declining returns, reductions in asset values and member account numbers, and cost pressures may challenge funds’ ability to continue to provide value to members. The COVID-19 impact for some funds will be significant, accelerating sustainability challenges that would otherwise have emerged over time, accelerating both product and fund consolidation.
Further information about the superannuation industry’s efforts to promote members’ interests and APRA’s close engagement with RSE licensees during a challenging and volatile environment, including APRA’s letter to RSE licensees, is available on APRA’s website.
ASIC issues temporary no-action position for Australian Financial Services Licensee financial resource requirements
ASIC issued a temporary no-action position on 7 July 2020 with respect to potential breaches of the financial resource requirements for Australian financial services (AFS) licensees that arise from recent changes to the accounting treatment of lease assets. Due to the introduction of accounting standard AASB 16 Leases, all leases will now be reflected on a lessee’s balance sheet by way of a lease liability and a right-of-use asset.
The no-action position allows AFS licensees to use right-of-use lease assets in order to count towards their financial resource requirements and ASIC will not take regulatory action against licensees that have previously breached the financial resource requirement due to not being able to count the right-of-use lease assets towards those requirements. The no-action position applies until further notice and more information is available on ASIC’s website.
APRA publishes industry and fund-level data on the temporary early release of superannuation due to COVID-19
APRA has continued to publish industry-level and fund-level data on the temporary early release of superannuation scheme due to the impacts of COVID-19. In its publication on 27 July 2020, the Early Release Scheme has made approximately $28 billion in payments, with the average payment of $7,719 made within 3.3 business days. At a fund-level, the data shows that 151 of the 176 superannuation funds submitted data on early release payments, with the top 10 funds making the highest number of applications making 2.4 million payments totalling $18.3 billion. Further details on the Early Release Scheme is available on APRA’s website.
Superannuation trustees provided with further clarity on regulatory obligations and protecting members during COVID-19
ASIC has reiterated the role of superannuation funds in facing the challenges of the COVID-19 pandemic with a particular focus on trustee obligations and delivering for members. As highlighted in our previous update, the regulator has highlighted its priorities as published in its Interim Corporate Plan, and has reiterated supporting members through good communication as well as a number of relief instruments and no-action positions. In particular, ASIC have recently reviewed superannuation trustees’ websites and some other public communications to members about COVID-19 matters and reached out to trustees expressing concerns and requiring amendments with respect to:
- early release modelling – trustees must ensure that estimates around the impact of early release on retirement balances use reasonable assumptions and provide estimates in today’s dollars to prevent presenting misleading information;
- disclosure requirements – where superannuation members have a zero-balance due to early release payments, depending upon the fund’s governing rules the trustee may need to provide the member with an exit statement and a new product disclosure statement for any subsequent contributions;
- insurance in super – sufficient detail must be communicated to members about the potential loss of insurance as well as their options to reinstate cover.
Further information about the rule of superannuation funds during the COVID-19 pandemic is available on ASIC’s website.
ASIC provides series of frequently asked questions (FAQs) on operating a managed investment scheme during COVID-19
On 7 July 2020, ASIC provided responsible entities (REs) of managed investment schemes with greater clarify on regulatory issues emanating from the impact of COVID-19. In particular, the regulator has published a series of FAQs addressing what REs need to do when lodging documents, what documents have been electronically submitted, the use of electronic signatures and how to submit relief applications. More information on the duties of REs during the COVID-19 pandemic is available in ASIC’s News Hub as well as ASIC’s FAQs.
APRA publishes guidance to superannuation trustees on Pandemic Data Collection requirements
APRA published FAQs on 22 July 2020 providing guidance to superannuation trustees on the Pandemic Data Collection (PDC) requirements as a response to COVID-19. The purpose of the PDC is to allow APRA and the government to appreciate and understand the impact of COVID-19 on the superannuation industry. In particular, the PDC will provide:
- APRA with enhanced earlier release superannuation data as well as demographic data;
- APRA and ASIC with monthly data on insured member accounts which have been cancelled, insurance claim activity, data on complaint, as well as intra-fund advice provided; and
- APRA with quarterly data on foreign currency exposure and hedging, investment options and member switching.
The first submission is due on 31 July 2020 and will continue until issues faced by registrable superannuation entity (RSE) licensees due to COVID-19 have abated, with a review of the continued need of the PDC scheduled in for late September 2020. Further information on the PDC requirements is available in our previous update, on APRA’s website and in APRA’s FAQs.
Updated guidance provided on complaints handling
ASIC updated its guidance on 30 July 2020 as to how financial firms address and deal with consumer and small business complaints in accordance with their Internal Dispute Resolution processes. Regulatory Guide 271 Internal dispute resolution (RG 271) has been released in order to drive fair and timely complaint outcomes, and:
- has introduced reduced timeframes in order to respond to complaints, including superannuation complaints, as well as timeframes for customer advocate reviews of appeals made against internal dispute resolution (IDR) decisions;
- provides what information firms must include in written IDR responses to provide consumers with further information in deciding whether to escalate complaints; and
- provides guidance as to how firms can deal with representatives who are not acting in consumers’ best interests.
To supplement RG 271, the regulator will publish a legislative instrument to clarify the enforceable IDR requirements, with the industry to comply with the new standards and requirements from 5 October 2021. Further information about the new IDR requirements as well as RG 271 is available in ASIC’s Media Release.
ASIC provides information on financial reporting focus areas during COVID-19
ASIC has provided further information on its focus areas for financial reporting during COVID-19 conditions for years ending 30 June 2020. Due to the material impact of COVID-19, ASIC has indicated that directors, auditors and preparers should focus on the following areas:
- asset values;
- solvency and going concern assets;
- events occurring after year end and before the completion of the financial report; and
- disclosures in the financial report and Operating and Financial review.
The regulator will review the full year financial reports of approximately 200 listed entities and other public interest entities, with a particular focus on entities and industries adversely affected by COVID-19. As previously indicated, ASIC has extended the deadline to lodge financial reports for listed and unlisted entities under Chapters 2M and 7 of the Corporations Act by one month for certain balance dates up to and including 7 July 2020 balance dates. ASIC’s updated ‘frequently asked questions’ provides additional information on audits and financial reports. Further information on focuses for financial reporting during COVID-19 is available in ASIC’s Media Release.