AUSTRALIAN FINANCIAL SERVICES REGULATORY AREAS OF FOCUS - MAY 2020 - PWC AUSTRALIA

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AUSTRALIAN FINANCIAL SERVICES REGULATORY AREAS OF FOCUS - MAY 2020 - PWC AUSTRALIA
Australian Financial
Services Regulatory
Areas of Focus
May 2020
AUSTRALIAN FINANCIAL SERVICES REGULATORY AREAS OF FOCUS - MAY 2020 - PWC AUSTRALIA
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
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AUSTRALIAN FINANCIAL SERVICES REGULATORY AREAS OF FOCUS - MAY 2020 - PWC AUSTRALIA
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
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AUSTRALIAN FINANCIAL SERVICES REGULATORY AREAS OF FOCUS - MAY 2020 - PWC AUSTRALIA
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
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AUSTRALIAN FINANCIAL SERVICES REGULATORY AREAS OF FOCUS - MAY 2020 - PWC AUSTRALIA
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
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AUSTRALIAN FINANCIAL SERVICES REGULATORY AREAS OF FOCUS - MAY 2020 - PWC AUSTRALIA
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
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AUSTRALIAN FINANCIAL SERVICES REGULATORY AREAS OF FOCUS - MAY 2020 - PWC AUSTRALIA
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

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