Canada: Directors fiduciary duty in a pandemic: You need a protocol!
COVID-19 has had and will continue to have impacts on virtually every corporation in Canada and globally.
The month of February 2020 has seen the passing of a number of bills implementing recommendations from the financial services Royal Commission, including measures strengthening the Australian Securities and Investments Commission’s (ASIC) licensing, search warrant and banning powers as well as reforms to protect consumers. February has also seen the welcoming of proposals from both ASIC and the Australian Prudential Regulatory Authority (APRA) as co-regulators of the superannuation industry as well as the passing of the anticipated bill broadening the scope of Australia’s Fintech sandbox.
As addressed in our previous updates, ASIC released proposals in July 2019 to change the licensing relief afforded to FFSPs that service wholesale clients in Australia. FFSPs that currently rely upon the ‘sufficient equivalence relief’ and the ‘limited connection relief’, are reminded that these existing exemptions are due to expire on 31 March 2020.
While ASIC has not yet finalised the proposed new regime, it is intended that a 24 month transition period (from 1 April 2020 until 31 March 2022) will be available for FFSPs relying upon the sufficient equivalence relief. ASIC has also proposed a transition period of 6 months until 30 September 2020 for FFSPs relying on the limited connection relief as at 31 March 2020. However, in order to rely upon the relief during the transition periods, FFSPs must be already relying on the relevant relief. If you have any queries on the transition periods, the proposed new licensing regime or need assistance with applying for the sufficient equivalence relief before 31 March 2020, please do not hesitate to contact us.
On 17 February 2020, the Financial Sector Reform (Hayne Royal Commission Response—Stronger Regulators (2019 Measures)) Act 2020 (Stronger Regulators Act) and Financial Sector Reform (Hayne Royal Commission Response - Protecting Consumers (2019 Measures)) Act 2020 (Protecting Consumers Act) received royal assent.
The new legislation provides ASIC with new search warrant powers for contravention of certain indictable offences, expands the grounds on which ASIC can make a banning order against a person, and empowers ASIC staff as well as interception agencies to lawfully intercept and access material as part of the investigation of serious offences. Furthermore, all licensees are required to commence business within 6 months of ASIC granting a licence, with ASIC able to cancel a licence should it not commence within this time.
The Stronger Regulators Act also updates the Australian financial services licensing (AFSL) regime by replacing the previous requirement that a person be of “good fame and character” with a new requirement that they be a “fit and proper person”. The new test also applies to all officers, partners, trustees and/or controllers of an applicant seeking an AFSL or an Australian Credit Licence (ACL).
As part of these changes, ASIC requires all new AFSL and ACL applications to submit an appropriate national criminal history check, bankruptcy check and Statement of Personal Information in respect of such persons. ASIC has indicated that it is in the process of updating its Information Sheet 240 AFS licensing – Requirements for certain applicants to provide further information (INFO 240) as well as its AFSL Kit to reflect these changes.
The Protecting Consumers Act implements a number of recommendations out of Royal Commission in Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission), by extending the unfair contract terms regime to insurance contracts, banning conflicted remuneration for mortgage brokers and intermediaries, and subjecting mortgage brokers to the requirement to act in the best interests of consumers in relation to credit assistance in credit contracts. Parliament of Australia’s website contains further information about the Stronger Regulators Act and Protecting Consumers Act.
ASIC and APRA issued a joint letter on 14 February 2020 to all registrable superannuation entities (RSE) licensees welcoming proposals to increase ASIC’s role within the superannuation sector.
As a response to the recommendations of the Royal Commission, Treasury released a number of exposure draft legislations for consultation, including ASIC and APRA carrying out their roles as co-regulators in superannuation. The proposed reforms will enable ASIC to regulate superannuation trustee conduct, with APRA retaining its role as the prudential and member outcomes regulator.
It is also proposed that a new financial service will be created of ‘providing a superannuation trustee service’ as well as requiring all APRA-regulated trustees to hold an AFSL to operate a superannuation fund (by removing exemptions for non-public offer trustees). Further information on the proposals to strengthen ASIC’s role as a conduct regulator in superannuation is available on ASIC’s website.
On 10 February 2020, the Treasury Laws Amendment (2018 Measures No. 2) Bill 2019 (Bill) was passed by both houses but has yet to come into effect. The Bill seeks to enhance and broaden the scope of our current Fintech sandbox currently in place since 2016 as well as driving the Government’s commitment to promote Australia’s Fintech capability and strike a better balance between innovation and consumer protection, as outlined in the 2017-18 Budget.
The enhanced regulatory sandbox seeks to allow more businesses to test a wider range of credit and financial products without holding a licence from ASIC for a longer period of time. New regulations have yet to be introduced, but may provide for conditional exemptions from the requirement to hold an AFSL or an ACL. Further information about the enhanced regulatory sandbox is available on Parliament’s website.
ASIC released on 26 February 2020 its six monthly update on its regulatory and enforcement work arising from the Royal Commission’s recommendations. In particular, ASIC addresses its enhanced supervision program, expansion of its Office of Enforcement and the use of its new regulatory powers in order to address misconduct and poor consumer outcomes.
The update also provides a table outlining ASIC’s response to the recommendations from the Royal Commission as well as further actions undertaken by the regulator since September 2019. Further information about ASIC’s six monthly regulatory and enforcement update is available on ASIC’s website.
Following the outbreak of the Coronavirus (COVID-19) in December 2019, APRA’s Prudential Practice Guide CPG 233 – Pandemic Planning (CPG 233) serves as a timely reminder on prudentially managing risks posed by widespread outbreak of contagious diseases that could affect the operations of regulated institutions. APRA’s CPG 233 supports its other standards and guidance on Business Continuity Management, which sets out requirements for continuity management for authorised deposit-taking institutions, RSE licensees, life companies and general insurers.
CPG 233 stipulates that institutions’ pandemic plans should typically address the following considerations: alternative work arrangements, staff health and welfare measures, alternative processing arrangements, controls and compliance, technology options, communications plans, resource priorities, succession and decision planning, as well as testing of the plan. For more information on and access to APRA’s guidance on pandemic planning, please visit APRA’s website.
ASIC released Report 655 Review of member communications: Protecting Your Superannuation package (PYSP) reform (Report 655) on 12 February 2020 providing details of the review of trustee communication to superannuation fund members. The Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 came into effect on 1 July 2019 requiring superannuation trustees to cap administration and investments fees at 3% for accounts with balances below $6,000, cancel insurance accounts that have been inactive for 16 months, and transfer to the ATO accounts with balances below $6,000 that have been inactive for 16 months (unless the member acts in any of these circumstances).
Report 655 highlights ASIC’s review of communications provided by 12 superannuation funds with a high number of inactive accounts, with some communications failing to providing sufficient context or adequately explain the changes for members. More information on PYSP reforms as well as Report 655 is available on ASIC’s website.
APRA published a letter to all APRA-regulated entities on 24 February 2020 outlining its plans to develop a prudential practice guide on climate-related financial risks as well as a climate change vulnerability assessment. It is intended that the guidance will not impose new obligations but rather will assist entities in complying with their obligations set out in Prudential Standard CPS 220 Risk Management.
The cross-industry guidance will provide APRA’s views on the prudent management of climate change financial risks, aligned with the recommendations from the Financial Stability Board’s Task Force on Climate-related Financial Disclosures, including governance, strategy, risk management, metrics and disclosure.
It is anticipated that APRA will consult local and international regulators as well as industry participants, with the draft guidance expected to be released in mid-2020 and final guidance to be published before the end of the year. Further information about APRA’s proposed guidance on managing financial risks of climate change is available here.
APRA’s Deputy Chair Helen Rowell spoke at the Australian Institute of Company Directors on 20 February 2020, reflecting on APRA’s efforts to enhance accountability among financial institutions and regulators one year on from Commissioner Hayne’s final report of the Royal Commission.
In particular, Mrs Rowell reflected on the Financial Accountability Regime (FAR) proposals which extends the Banking and Executive Accountability Regime (BEAR) to APRA-regulated entities, as well as the introduction of a strengthened prudential standard on remuneration, in order to drive positive cultural change and discourage misconduct and poor performance.
APRA and ASIC are also working with the Government to ensure that the new oversight body, the Financial Regulator Assessment Authority, will provide greater transparency and an assessment of the regulators performance against their respective mandates. A copy of Mrs Rowell’s speech is available on APRA’s website.
COVID-19 has had and will continue to have impacts on virtually every corporation in Canada and globally.
As business resumes in the workplace and circumstances change, American companies must be ready.