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Horizon Scanning: Investigations and Enforcement
In this horizon scan, we focus on key developments affecting companies operating in the UK, including in light of the recent change in UK government.
Author:
Australia | Publication | August 2021
This article was co-authored with Caterina Presutti.
The month of July 2021 saw the release of various anticipated consultations for the financial services sector. Most notably, ASIC released consultation on the Financial Accountability Regime draft bill which is set to improve the risk and governance cultures of the banking, insurance and superannuation sectors. Other significant updates include guidance on hawking reforms and the add-on insurance deferred sales model, Treasury consultation on relief to Foreign Financial Service Providers (FFSPs) and a review of the risk management frameworks for business interruption claims.
On 16 July 2021, the Federal Government released for consultation the draft Financial Accountability Regime Bill 2020 (Cth) (FAR), the Policy Proposal Paper in relation to the list of prescribed responsibilities and positions in FAR, an Information Paper on the joint administration of FAR by ASIC and APRA (Regulators), and a Q&A in relation to FAR and the consultation process. Following the recommendations from the Royal Commission, FAR is intended to replace the existing Banking Executive Accounting Regime (BEAR) and extends to all APRA-regulated insurers and registrable superannuation entity licensees.
FAR imposes four core sets of obligations on entities:
Consultation on the Bill is open until 13 August 2021. A link to our more detailed updates can be found here and here, and a link to the draft legislation and additional information can be found here.
On 9 July 2021, the Government released a consultation paper on relief for Foreign Financial Service Providers (FFSPs). The paper seeks to assess the options available in providing licensing relief to FFSPs and options to fast track the licensing process.
Specifically, the paper seeks stakeholder feedback on options that aim to:
Submissions were due by 30 July 2021. For further information, please visit the Treasury’s website here.
On 1 July 2021, ASIC released Consultation Paper 344 (CP 344) proposing to remake Class Order [CO12/1482] When debentures can be called secured notes (Class Order) which is due to expire on 1 April 2022.
ASIC is seeking feedback on CP 344 as to:
Submissions on the consultation paper were due by 29 July 2021. A link to the update, CP 344 and draft ASIC Instrument can be found here.
On 2 July 2021, the Government released a consultation paper on the 2021 review of the Terrorism Insurance Act 2003 (the Act). The consultation paper seeks stakeholder feedback on the following:
Interested parties were invited to comment on the paper by 30 July 2021. Please view the Treasury website for more information.
On 9 July 2021, ASIC released Consultation Paper 345 Litigation Funding schemes: Guidance and Relief (CP 345) and is seeking feedback about whether the proposed guidance is necessary and adequate, and whether the proposed relief addresses industry concerns about the workability of the managed investment scheme (MIS) regime for litigation funding schemes.
The consultation paper proposes to:
Submissions on CP 345 are due on 20 August 2021. Following consultation, ASIC will issue a feedback report outlining its final positions. Further details can be found on ASIC’s website.
In preparation for the implementation of the Government’s mandatory IDR reporting framework, on 19 July 2021, ASIC released its internal dispute resolution (IDR) reporting documents which will be tested as a pilot for financial firms in late 2021. The pilot documents contain a data dictionary, which sets out the information that financial firms will be required to collect and report to ASIC, and a data glossary, which provides explanations about the key terms in the data dictionary.
IDR data reporting is intended to improve transparency in the IDR system, assist consumer decision making and allows firms to benchmark themselves against their peers. It is also intended to assist ASIC in identifying emerging issues.
The documents have been developed after two rounds of public consultation and are designed to align with AFCA’s reporting approach. The key changes made in response to the consultations include:
Financial firms should now consider how to map their own complaints systems to the data dictionary. Further information on ASIC’s response to the reporting of IDR data can be found here.
On 16 July, APRA published additional FAQs for registrable superannuation entity (RSE) licensees to provide further guidance on meeting the Reporting Standards for Phase 1 of the Superannuation Data Transformation. The FAQs and worked examples clarify reporting issues raised by RSEs and confirms that historical reporting requirements apply to quarterly and annual reporting.
The FAQs are available on the APRA website here.
In light of the business interruption (BI) claims that have arisen as a result of COVID-19, APRA has written to a number of general insurers asking them to undertake a self-assessment of their risk management frameworks in the context of BI so as to prevent similar problems from arising in the future. The focus of the review will be on cyber risks; however, APRA expects that insurers will ensure that their risk frameworks are robust across all product areas and potential exposures.
APRA expects the review will help examine the root causes of the BI problems and help identify whether similar hidden issues exist in other insurance products. If necessary, APRA will consider whether further supervisory action is warranted.
The self-assessments are due by 30 November 2021. For further information, please visit the APRA website.
On 21 July 2021, APRA published its annual General Insurance Claims Development Statistics for the December 2020 reference period. The data covers long tail, short tail, other direct classes and reinsurance.
In summary, the statistics found the following:
For a more comprehensive analysis of the 2020 statistics, visit the APRA website.
On 20 July 2021, in response to the Royal Commission’s recommendations to improve reference checking in the financial advice and mortgage broking industries, ASIC released its ASIC reference checking and information sharing protocol (ASIC Protocol). The ASIC Protocol sets out obligations for licensees to undertake a reference check and share information on an individual seeking to be employed or authorised as a financial adviser or mortgage broker.
The purpose of the reforms is to promote better information sharing about the performance history of financial advisers and mortgage broker by focusing on compliance, conduct and risk management.
To help licensees comply with the new obligations under the ASIC Protocol, ASIC has also released guidance documents and an information sheet.
A link to the full update along with the supporting documents can be found here.
On 21 July 2021, ASIC announced that it would consult on proposed updates to its guidance on the prohibition of the hawking of financial products, which is due to commence on 5 October 2021. The reforms follow the recommendations by the Royal Commission and aim to give consumers greater control over the circumstances in which they are offered products as well as preventing consumers from being approached with unwanted products on cold-calls or unsolicited contacts.
Announcing the consultation, ASIC Commissioner Danielle Press said, 'These reforms strengthen and consolidate the three existing hawking prohibitions into a single prohibition covering all financial products. The reforms take a technology neutral approach, meaning the ban applies to all forms of real-time communication. The prohibition incorporates for the first time a definition of unsolicited contact, requiring that consent given by a consumer be positive, voluntary and clear'.
Interested stakeholders have until the 17 August 2021 to provide feedback. ASIC will publish its final guidance in September 2021, before the revised prohibitions commence on 5 October 2021. A link to the full update can be found here.
On 23 July 2021, ASIC published its draft Cost Recovery Implementation Statement (CRIS) for 2020-21. The CRIS outlines ASIC’s estimated regulatory costs and how it will be recovered from each industry. The CRIS includes:
Final levies will be published in December 2021 and invoiced in January 2022. Feedback on the draft CRIS is due by 13 August 2021. For further information, please visit the ASIC website.
Following initial consultation, ASIC has released its new regulatory guide and final customer information requirements for the new deferred sales model for add-on insurance (RG 275). The deferred sales model, first introduced in December 2020 following the Royal Commission, requires a mandatory four-day pause between the sale of a principal product or serve and the sale of add-on insurance.
RG 275 provides guidance to the industry about what information must be given to a customer to start the four-day deferral period, and how that information must be given. The guide also explains the scope of the deferred sales model, including what products and persons are subject to the model, and ASIC’s powers to grant individual exemptions.
The deferred sales model will take effect from 5 October 2021. For more information and a link to RG 275, please visit the ASIC website here.
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