14 May 2020
Introduction
With COVID-19 putting unprecedented pressure on the financial sector, the Australian Government and regulators have put their ambitious regulatory agenda on hold for six months to allow businesses to focus on managing the COVID-19 crisis. However, the regulators have made it clear to the financial services industry that they remain focused on consumer outcomes and will take regulatory and enforcement action if there is a risk of significant harm to consumers.
Over the last 12 months, the Australian Government had been pursuing a rapid agenda of legislative reform to implement the 76 recommendations arising from the Final Report into the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in Australia (the Financial Services Royal Commission) in February 2019.
The Australian Securities and Investments Commission (ASIC) and Australian Prudential Regulation Authority (APRA) had also planned an ambitious agenda of reviews and reform initiatives to be undertaken in 2020.
However, the outbreak of COVID-19 has forced the Government and regulators to reconsider the speed of reform, particularly as financial services sector will be critical to support the economy through the COVID-19 crisis. New priorities have been announced, exceptions allowed and further reforms put on hold. While this offers some relief to financial service providers, regulators have made it clear that they will continue to closely monitor conduct and the prudential position of regulated entities.
Australian Government announces delay to reform agenda
The Federal Treasurer announced on 8 May 2020 that in light of COVID-19, the Government would defer all phases of implementing the recommendations from the Financial Services Royal Commission by 6 months. As a result of this deferral:
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all recommendations that were to be introduced to Parliament by 30 June 2020 will now be introduced by December 2020;
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all recommendations that were scheduled to be introduced to Parliament by December 2020 will now be introduced by 30 June 2021; and
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the commencement dates in all draft exposure legislation that were released prior to the COVID-19 outbreak will be extended by 6 months.
In announcing the deferral, the Government recognised that while there is a need to prioritise the consumer focused objectives of the recommendations, COVID-19 has presented a number of challenges for the financial services sector. This deferral is intended to allow financial services entities to focus their attention and resources to their respective COVID-19 responses and in planning for the post COVID-19 economic recovery.
ASIC to defer various reviews but continue to monitor COVID-19 related misconduct
On 23 March 2020, ASIC also announced that it would be suspending a number of its financial services initiatives for 2020. It will defer its reviews into executive remuneration, life insurance advice reforms, grandfathered commissions, dispute resolution standards and travel insurance.[1]
On 8 May 2020, ASIC announced that it will be deferring the commencement of the mortgage broker reforms from 1 July 2020 to 1 January 2021 and the commencement of the design and distribution obligations scheme from 5 April 2021 to 5 October 2021.
For the next 6 months, ASIC will be refocusing its efforts towards monitoring and investigating instances of COVID-19 related breaches of regulatory requirements, with a particular focus on significant consumer harm and market integrity risks. ASIC has also made a number of temporary adjustments to regulatory requirements to assist businesses meet their compliance obligations and better serve consumers.
ASIC has nevertheless identified certain specific areas of focus in the COVID-19 environment including:
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monitoring general and life insurers to ensure they are taking a fair and efficient approach to claims handling and clearly communicating changes to cover to their policyholders; and
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monitoring the conduct of Australian Financial Services Licensees and taking enforcement action where failure to implement remote working supervision arrangements results in staff engaging in misconduct.
APRA moves to monitor capital and support COVID-19 initiatives
On 23 March 2020, APRA announced that it would be suspending the majority of its planned policy and supervision initiatives for 2020 until at least 30 September 2020. This will result in the deferred implementation of a number of prudential and reporting standards.
During COVID-19, APRA will instead refocus its efforts on monitoring the capital and liquidity of banks, insurers and superannuation funds to ensure they can continue to lend, underwrite insurer and protect Australians' retirement savings. APRA will also be monitoring the implementation of a number of government's stimulus measures.
APRA has identified that over the next few months it will make a number of changes to its operations including:
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suspending the issue of new APRA licences for all financial institutions until at least October 2020;
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extending the notification period from 14 to 30 days for accountability statements under the Banking Executive Accountability Regime;
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introducing new reporting standards for banks and superannuation funds to monitor the government's early access to super and SME guarantee schemes;
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deferring the implementation of the Basel III banking reforms to 1 January 2023, reporting standard HRS 605 for private health insurers to March 2021 and extend the deadline for complying with CPS 234 Information Security to 1 January 2021 on a case-by-case basis;[2] and
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temporarily easing requirements for banks to comply with APRA's additional capital benchmark targets for Common Equity Tier 1 capital.
Deregulation as part of the COVID-19 response
While it is still too early to predict the post-COVID-19 regulatory landscape, the Australian Government has flagged that it is looking at deregulation as an important pillar of recovery. This may involve a combination of tax, industrial relations and health industry reforms. There are also plans to work together with the States and Territories to consider potential deregulation initiatives. Whether this will result in any of the Royal Commission recommendations being put aside permanently will remain to be seen.
We will continue to monitor key regulatory developments and keep you updated.
For further information, please contact:
Avryl Lattin, Partner, Clyde & Co
avryl.lattin@clydeco.com
[1] For a complete list of ASIC's currently announced changes to its regulatory priorities, see https://asic.gov.au/regulatory-resources/find-a-document/regulatory-document-updates/changes-to-regulatory-work-and-priorities-in-response-to-covid-19/.
[2] For a complete list of currently announced deferred APRA prudential and reporting standards, see https://www.apra.gov.au/news-and-publications/apra-announces-new-commencement-dates-for-prudential-and-reporting-standards.
