AUSTRALIAN FINANCIAL SERVICES REGULATORY AREAS OF FOCUS - MAY 2020 - PWC AUSTRALIA
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Australian Financial Services Regulatory Areas of Focus All financial services CPS 234 Information Security Institutions are also encouraged to communicate and highlight Current regulatory priorities Insurance the potential impacts of LIBOR transition to their stakeholders, Requires organisations to develop and maintain information security capabilities that reflect the importance of the data including end consumers, to raise awareness of the issues more they hold, and the significance of the threats they face. broadly. Institutions that responded to the letter have been APRA Prudential standards separately provided with specific feedback from ASIC and APRA No deferral for the various Australian Prudential Regulation The third party vendor assessments component of CPS 234 is on their transition preparations. Authority (APRA) Prudential Standard Reviews already in being extended on a case by case basis by six months but place e.g. CPS 220 – Risk Management Framework (RMF) requires entities to apply to APRA for extension. Design and Distribution Obligations – 5 October 2021 reviews relevant across insurance, superannuation and Licensing APRA & ASIC Requires issuers of financial products to retail consumers to banking entities to assess whether the RMF is appropriate to design and distribute products that are consistent with the likely APRA has a temporary hold on granting of new licenses and the size, business mix and complexity of the organisation. objectives, financial situation and needs of the consumer for whom says this could last at least six months and delay granting of The Australian Securities and Investments Commission (ASIC) they are intended, with deferral of implementation granted by new APRA licences by at least this timeframe. During this time, ASIC’s equivalent RG259 governs risk management systems ASIC by 6 months to 5 October 2021 and final guidance expected however APRA will continue to assess current licence for responsible entities. mid 2021. applications so the delay on launching when the hold is lifted is APRA has made multiple announcements covering changes to minimised. ASIC will continue to receive and assess RG165 Internal Dispute Resolution reporting priority, extensions in submission dates, lengthening applications for Australian Financial Services and credit ASIC’s review of internal dispute resolution (IDR) standards of parallel run reporting under EFS, and deferrals of upcoming licences and audit-related professional registrations. to align with new statutory requirements for IDR, reflecting the standards not yet effective including certain data collections. LIBOR standards for effective complaints handling in AS/NZS In April, the new ARS 920.0 Australian Government Small and 10002:2014. Includes the definition of complaints, expressions Medium Enterprise (SME) Guarantee Scheme reporting ASIC has released feedback on responses to the ‘Dear CEO’ of dissatisfaction on social media, consideration of members' standard was introduced to facilitate the scheme where the letter from selected major Australian financial institutions, satisfaction and a reduction in response timeframes. The release Government will provide a guarantee of 50 per cent to small detailing their preparation for the end of London Interbank of the new standards will be delayed, no new date has been and medium enterprise lenders for new unsecured loans to be Offered Rate (LIBOR) – an initiative supported by APRA, and confirmed. used for working capital. the Reserve Bank of Australia (RBA).The feedback highlights the need for all institutions to plan for LIBOR transition, the At the same time APRA also announced multiple deferrals aspects to consider in transition and the importance of including the APS 220 Credit Risk Management. Refer to page addressing the related issues early. The regulators recognise 6 for details on the deferral of some of the upcoming that disruptions from the COVID-19 outbreak may affect the prudential/reporting standards until 2021/2022. timing of some aspects of institutions’ transition plans. Financial Services Regulatory May 2020 PwC 2
Australian Financial Services Regulatory Areas of Focus All financial services (cont’d) Enforceable Undertakings and Reporting of remediation However, it is recognised that there may be some changes to Current regulatory priorities Insurance programs the timing and process of investigations to take into account Unless ASIC has indicated to a licensee that it should adopt a the impact of COVID-19. There will also be changes due to, different approach for a particular remediation program, it is among other things, constraints created by variations to usual Financial Accountability Regime FAR court procedures. Key functions will remain available to those acceptable for licensees to provide ASIC with updates consistent Extension of the concepts of the Banking Executive with their internal firm reporting in lieu of the current form and who rely on them, including registry operations and services, Accountability Regime (BEAR) to superannuation and insurance, scheduling of reporting arrangements. ASIC expects that once receipt of whistleblower, breach and misconduct reports, and as recommended by the Royal Commission is likely to be the situation normalises the existing reporting arrangements general contact points for industry. delayed until after 30 September 2020, legislation was originally would resume. expected to be introduced in Spring sitting of Parliament 2020. Financial Advice Many APRA regulated insurers and RSE licensees are preparing Close and Continuous Monitoring Temporary relief has been provided to: draft Accountability Statements and Maps and starting to think Onsite supervisory work, such as the enhanced approach of • Facilitate advice to individuals financially affected by about how they meet their obligations and take reasonable steps ASIC’s Close and Continuous Monitoring Program (CCM), is COVID-19 about early access to superannuation to discharge their responsibilities now not possible and is being deferred. However, ASIC will • Extend the period for giving time-critical Statements of Strengthening breach reporting continue to monitor firms remotely, including through close Advice working and information sharing arrangements with APRA. Designed to address the delays of the licensee in the • Allow a Record of Advice to be given instead of a Statement ASIC is deferring the publication of ASIC’s observation of firms’ identification and reporting of significant breaches and the of Advice in certain circumstances. practices from the CCM program. ASIC will continue to work remediation of customers, will commence 1 April 2021. closely with other Council of Financial Regulators agencies to Review of changes to grandfathered commissions CPS 511 Remuneration monitor its largest financial institutions in other forms, particularly ASIC is deferring work on grandfathered conflicted Sets outs APRA’s expectations for remuneration policy and where there is a risk of consumer detriment or to market remuneration until further notice. ASIC will not ask product governance practices, with the aim of ensuring remuneration resilience. ASIC will progress its preparation for future thematic issuers for data at this time. In the meantime, as ASIC has arrangements promote effective management of both financial onsite reviews. communicated to product issuers, ASIC expects product and non-financial risks, sustainable performance, and long-term Impact of COVID-19 on ASIC’s markets supervision work issuers to turn-off their grandfathered commission soundness. Originally due 1 July 2021, still waiting confirmation arrangements as soon as possible and by no later than 1 ASIC has stated it will heighten its support for consumers who from APRA. January 2021. All rebates and/or reductions in fees should may be vulnerable to scams and sharp practices, receive poor be passed on to consumers as quickly as possible. ASIC’s report on Executive Remuneration advice, or need assistance in finding information and support should they fall into hardship; and will identify other actions Best interests duty and remuneration reforms ASIC will provide feedback to the individual entities on the subject needed to support firms such as facilitating the timely completion The Royal Commission made recommendations to provide of this review and continue to monitor executive remuneration of capital raisings and other urgent transactions, providing that, when acting in connection with home lending, mortgage developments. Otherwise ASIC is deferring this work until further regulatory relief, where appropriate, and identifying measures brokers must act in the best interests of the intended borrower. notice. to support small businesses. Enforcement action will continue. The implementation of these changes were recently deferred Financial Services Regulatory to 1 January 2021. May 2020 PwC 3
Australian Financial Services Regulatory Areas of Focus Current regulations Insurance Asset management, Banking and capital markets superannuation and advisory Capital management APRA Superannuation Prudential Standard comprehensive Banking Executive Accountability Regime (BEAR) APRA has written to all insurers to provide guidance on capital reviews – no deferrals Focuses on improving accountability through a sound risk culture, management during the period of significant disruption caused by Includes reviews over Trustees’ risk management, investment effective corporate governance and impose stronger consequences, the COVID-19. governance, conflicts of interest and insurance in super; the majority Financial Accountability Regime FAR will replace BEAR (see page 1 ). In a letter to general insurers, life companies and private health of these reviews were completed in 2019, but ongoing reviews must APRA reporting standard RRS 710.0 for Registered insurers, APRA outlined its expectations that these institutions limit still be completed. Financial Corporations – EFS Collection (RRS 710.0) discretionary capital distributions in the months ahead, including RG132 Funds management: Compliance With mandatory audit requirements in relation to the Economic and deferrals or prudent reductions in dividends. Outlines ASIC’s expectations on the compliance management system, Financial Statistics (EFS) Collection for Registered Financial Private Health Insurance oversight and compliance plans to enhance compliance with legal and Corporations (RFCs) commencing since July 2019, there is continued APRA has postponed the implementation of Reporting Standard HRS regulatory obligations. focus on ensuring compliance with new reporting obligations. 605.0 Private Health Insurance Reforms Data Collection (HRS 605.0) Furthermore, some organisations are continuing to identify and register SPS 515 Member Outcomes RFC entities within their group structures. to allow private health insurers (PHIs) to focus their resources on handling the impacts of COVID-19. Implementation of the new Trustees have to demonstrate their strategic planning processes, meet APRA’s principles and undertake an annual assessment of outcomes Capital Management reporting standard was initially scheduled to commence for the quarter ending June 2020. delivered to members. APRA has indicated that member outcomes is APRA has written to all authorised deposit-taking institutions (ADIs) and now ‘business as usual’ and that trustees must proceed with planned insurers to provide guidance on capital management during the period Life Insurance Advice Reforms activities under SPS 515.Trustees are encouraged to complete a trial of significant disruption caused by COVID-19. ASIC is deferring its review of life insurance advice as part of the Life outcomes assessment where they have capacity to do so. In a letter to ADIs, general insurers, life companies and private health Insurance Framework review until further notice. Revised RG97 Fees and cost disclosures in PDS and insurers, APRA outlined its expectations that these institutions limit periodic statements discretionary capital distributions in the months ahead, including deferrals or prudent reductions in dividends. Release of revised RG to drive greater transparency and consistency in fees and cost disclosures. ASIC is considering amending the Review of lender responses to consumers experiencing transitional arrangements for Product Disclosure Statements (PDSs) financial difficulty to allow entities to come into the new disclosure regime from 30 ASIC is deferring the next stage of this work until 30 September 2020. September 2020 and requiring any PDS given after 30 September 2022 to comply with the new disclosure regime. ASIC is continuing to Basel III reforms in Australia monitor and may take action where it identifies non-compliance with Consistent with the Basel Committee on Banking Supervision (BCBS), the current regime. ASIC will continue to develop its proposals on fees APRA agreed to defer, from January 2022 to January 2023, the and costs disclosure for platforms. However, the public consultation internationally agreed start dates for the Basel III standards. paper is deferred until further notice. Financial Services Regulatory May 2020 PwC 4
Australian Financial Services Regulatory Areas of Focus Upcoming/deferred regulations Insurance Asset management, Banking and capital markets superannuation and advisory Natural disaster working group Recurrent managed funds data pilot Basel III reforms in Australia (cont’d) ASIC will continue to monitor claims handling and outcomes, ASIC will continue its analysis of the pilot data but is deferring The announcement does not impact the level of capital ADIs are utilising existing data sources and reports of misconduct, and its industry activities in relation to the recurrent managed funds required to hold, but rather defers adjustments to the re-allocation will take further action if necessary. Detailed data requests will data pilot until further notice. of capital across various portfolios. be deferred until further notice. Insurers should be prepared to While APRA is still consulting on the majority of these standards, Temporary no-action position on ‘intra-fund advice’ respond to future data collection notices. the revised operational risk capital requirements were finalised in ASIC has issued a temporary no-action position for Consumer credit insurance (CCI) lender review (follow up December 2019. APRA will defer the commencement of APS 115 superannuation trustees to expand the scope of personal to REP 622) for all ADIs until 1 January 2023, but will allow banks currently using advice that may be provided by, or on behalf of, the the advanced measurement approach to operational risk (AMA Apart from overseeing remediation, ASIC is deferring other superannuation trustee as 'intra-fund advice'. banks) to opt-in to the new standardised approach for an earlier follow up work until further notice. ASIC plans to issue a data Portfolio Holdings Disclosure implementation from 1 January 2022 should they wish to do so. request but will not seek to collect the data until further notice. ASIC will defer the first reporting date for portfolio holdings School banking review Total and permanent disability insurance industry disclosures, recognising that current conditions may make it responses (follow up to REP 633) ASIC is providing school banking providers additional time until difficult for trustees to prioritise the development of appropriate 31 July 2020 to respond to ASIC’s review findings. ASIC will ASIC will contact insurers by the end of April 2020 to seek disclosures. continue work on drafting the school banking review report. information about the steps taken so far to meet the Annual member meetings for super funds expectations outlined in their report. Review of the ePayments Code ASIC is not intending to defer this requirement or provide relief Travel insurance review This work will continue, but ASIC is deferring the release of its at this time. second consultation paper on the Code until the second-half of 2020. ASIC is deferring this work until further notice; however, ASIC Insurance in super will consider travel insurance as part of the future review of Fees in deposit and savings account industry review unfair contract terms under the Royal Commission program of ASIC will continue working on this review as capacity allows, ASIC will continue to monitor developments and analyse the work. but publication of any report will be deferred until further notice. information it has already received. ASIC is deferring the Trustee oversight of advice fee deductions collection of further data for the purposes of this work. ASIC, in agreement with APRA, is deferring public Recurrent mortgage data collection pilot communication of the industry-level findings for six months. ASIC will continue its analysis of the pilot data but is deferring its industry engagement activities until further notice. Financial Services Regulatory May 2020 PwC 5
Australian Financial Services Regulatory Areas of Focus Upcoming/deferred regulations (cont’d) Banking and capital markets Original implementation date Revised implementation date APS 110 Capital Adequacy 1 January 2022 1 January 2023 APS 112 Capital Adequacy: Standardised Approach to Credit Risk 1 January 2022 1 January 2023 APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk 1 January 2022 1 January 2023 APS 115 Capital Adequacy: Standardised Measurement Approach to Operational Risk 1 January 2021 (AMA banks) 1 January 2023 1 January 2022(all other ADIs) APS 116 Capital Adequacy: Market Risk 1 January 2023 1 January 2024 APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book 1 January 2022 1 January 2023 APS 330 Public Disclosures 1 January 2022 1 January 2023 CPS 226 Margining and Risk Mitigation for Non-Centrally Cleared Derivatives 1 September 2020, 2021 1 September 2021, 2022 (phase-in of initial margin requirements) CPS 234 Information Security (third-party arrangements transition provision) 1 July 2020 Six month extension to 1 January 2021 available on a case-by-case basis APS 220 Credit Risk Management 1 January 2021 1 January 2022 APS 222 Associations with Related Entities 1 January 2021 1 January 2022 ARS 222.0 Exposures to Related Entities ARS 222.2 Exposures to Related Entities – Step-in risk Financial Services Regulatory May 2020 PwC 6
Sarah Hofman Craig Cummins Rob Spring Regulatory Assurance Leader Superannuation, Asset & Wealth Banking and Capital Markets E: sarah.hofman@pwc.com Management Leader Financial Assurance Sector Leader P: 0403 068 645 E: craig.cummins@pwc.com E: rob.spring@pwc.com P: 0408 231 179 P: 0429 213 098 Rod Balding Bianca Buckman Deanna Chesler Insurance Financial Assurance Sector Real Estate Financial Assurance FS Risk, Regulation and Compliance Leader Sector Leader Partner E: rodney.balding@pwc.com E: bianca.buckman@pwc.com E: deanna.chesler@pwc.com P: 0431 484 638 P: 0431 340 546 P: 0414 914 834 Nathan Bonarius Director E: nathan.bonarius@pwc.com P: 0487 887 474 www.pwc.com.au © 2020 PricewaterhouseCoopers. All rights reserved. PwC refers to the Australia member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. Liability limited by a scheme approved under Professional Standards Legislation. PWC200087980
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