Financial Services in Focus – Issue 37

Insights3 Apr 2020

Financial Services in Focus is a fortnightly round-up of legal and regulatory developments in the financial services sector in Australia. Read more here.

Funds and financial products

ASIC issues disclosure relief to facilitate capital raisings during COVID-19

On 31 March, ASIC announced that it will provide temporary relief to enable certain ‘low doc’ offers (including rights offers, placements, and share and interest purchase plans) to be made to investors, even if they do not meet all the normal requirements.

The existing ‘low doc’ capital raising regime is not available if the quoted securities or managed investment products have been suspended for a total of more than five days in the previous 12 months. The new relief extends this to a total of more than 10 days.

The relief instruments, ASIC Corporations (Trading Suspensions Relief) Instrument 2020/289 and ASIC Corporations (Amendment) Instrument 2020/290, were registered on 1 April and come into effect on 2 April.

For more information see our earlier article.

ASIC issues information sheet on funeral expenses facilities

On 31 March, ASIC issued Information Sheet 234 Licensing requirements for providers of funeral expenses facilities (INFO 234).

In Issue 34, we reported that the Corporations Regulations were amended to remove the exemption for funeral expenses policies from the definition of financial products under the Corporations Act (which also exempted providers of funeral expenses policies from the requirement to hold an AFSL). INFO 234 outlines the licensing requirements that now apply to providers of funeral expenses facilities.

Treasurer announces temporary changes to the foreign investment review framework

On 29 March, the Treasurer, Josh Frydenberg, announced that all proposed foreign investments in Australia subject to the Foreign Acquisitions and Takeovers Act 1975 (Cth) (Act) will require approval. The Treasurer states that these measures will remain in place for the duration of the current crisis caused by COVID-19.

According to the Foreign Investment Review Board (FIRB), in relation to relevant foreign investments made on or after 10:30pm (AEDT) 29 March, the threshold amounts used to determine whether they will be subject to Australia’s foreign investment framework are $0.

All proposed acquisitions of, or investments in, Australian land, assets or businesses by ‘foreign persons’ under the Act will need to be notified to the FIRB and receive a statement of no objection before they can proceed, regardless of the value or nature of the investment.

We outline the changes in our article here (in English) and here (in Mandarin).

FIRB has also released a Q&A in relation to the change.

Changes to corporations law in response to COVID-19

On 24 March, the Coronavirus Economic Response Package Omnibus Act 2020 (Cth), received Royal Assent.

According to the Explanatory Memorandum to the Bill relating to the Act, the Act amends the Corporations Act to establish a temporary mechanism to provide short-term regulatory relief to classes of persons that, due to COVID-19, are unable to meet their obligations under the Corporations Act or the Corporations Regulations. It also provides for short-term regulatory changes to facilitate continuation of business or mitigate the economic impact of COVID-19.

The Treasurer may, by disallowable legislative instrument, temporarily exempt specified classes of persons from the operation of specified provisions, or temporarily modify the operation of specified provisions of the Corporations Act or the Corporations Regulations due to COVID-19.

This mechanism is temporary and will be operative for six months only. Any relief from specific obligation only has effect for a maximum period of six months.

ASIC releases new regulatory framework for foreign financial services providers

On 10 March, ASIC released a suite of legislative instruments and an updated Regulatory Guide, which will replace the existing legislative framework, and which replaces the current guidance, applicable to foreign financial services providers (FFSP) providing financial services in Australia to wholesale clients.

In brief, under the new framework:

on and from 1 April 2020, a new foreign Australian financial services licensing regime will replace the ‘sufficient equivalence’ class order relief for FFSPs, subject to a 24-month transition period; and
on and from 1 April 2022, a new funds management relief will replace the limited connection to Australia class order relief for FFSPs. The current limited connection class order relief expires on 31 March 2022.

We explain the new regulatory framework in an earlier here.

Financial product advice

ASIC consults on advice fee consents and independence disclosure

On 10 March, ASIC released a consultation paper on ASIC’s proposed approach to implementing aspects of recommendations made by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission) relating to advice fee consents and independence disclosure.

Under Consultation Paper 329 Implementing the Royal Commission recommendations: Advice fee consents and independence disclosure, ASIC consults on:

draft legislative instruments that deal with advice fee consents and independence disclosure; and
its proposal to issue more guidance in Regulatory Guide 245 Fee Disclosure Statements to help industry meet obligations around ongoing fee arrangements, including renewal notices and fee disclosure statements.

According to ASIC, the draft legislative instruments are subject to change depending on the enabling legislation, and will not commence until the legislation takes effect.

The Treasury released exposure drafts of the enabling legislation for public consultation on 31 January 2020, along with exposure draft legislation implementing other Royal Commission recommendations. We listed these recommendations in Issue 35.

Consultation closes on 7 April.

Financial markets

ASIC publishes a special COVID-19 issue of Market Integrity Update

On 31 March, ASIC published Market Integrity Update Issue 113 COVID-19 Special Issue, which sets out ASIC’s expectations that directors of listed companies that intend to raise capital due to COVID-19 must continue to act in the best interests of the company.

In this issue, ASIC also states its expectations in relation to the business continuity and supervision arrangements of market intermediaries.

ASX issues compliance update in relation to COVID-19 and other issues

On 31 March, the ASX issued a compliance update to support listed companies and investors during the COVID-19 pandemic, including:

practical guidance on disclosure obligations, including earnings guidance and decisions not to pay a dividend or distribution;
temporary emergency capital raising measures to help facilitate capital raisings in the short-term (until 31 July 2020) – we outline these measures in our earlier article;
action on misleading COVID-19 announcements, including suspension and censure;
reporting deadline relief on a case-by-case basis for listed entities with a 30 September, 31 December or 31 March balance date (those with a 31 May or 30 June balance date will be reviewed in due course);
support for ASIC’s ‘no action’ position on upcoming annual general meetings;
reporting relief for ASX/NZX dual-listed entities to facilitate the operation of the class waiver announced by the New Zealand Financial Markets Authority; and
reminder about the requirement for market announcements to be given to ASX for release to the market first.

The ASX has also created a hub to notify ASX participants of actions taken in relation to COVID-19.

Anti-money laundering

AUSTRAC announces it will not take action against late reporting

On 27 March, AUSTRAC announced that it will not take compliance action in relation to the late submission of the annual compliance report by reporting entities.

The 2019 compliance report is due by 31 March, however AUSTRAC states that it will not take compliance action in relation to reports submitted until 30 June.

AUSTRAC also states that it will not take any compliance action if small to medium businesses are unable to submit the report, where the business is restricted from opening due to COVID-19 social distancing measures.

Consumer credit

Temporary exemption from responsible lending obligations for small business credit

On 2 April, the National Consumer Credit Protection Amendment (Coronavirus Economic Response Package) Regulations 2020 (Cth) was registered. The Instrument temporarily exempts credit licensees from certain responsible lending obligations. The exemption operates in limited situations where a consumer seeks credit or goods under a consumer lease for purposes that include a purpose of a small business operated by the consumer. The exemption is temporary and applies for a period of 6 months only.

Earlier, on 20 March, the Treasurer, Josh Frydenberg, announced that the Government will provide a six month exemption from responsible lending obligations where lenders provide credit to small businesses, provided there is an existing borrowing relationship and some proportion of that credit is used for business purposes. According to the Treasurer, while responsible lending obligations currently do not apply to lending that is predominantly for business purposes, lenders are required to undertake due diligence to confirm that the borrowed money meets this test. The purpose of the temporary exemption is to enable small business to access credit more quickly by removing the need for lenders to be satisfied that the test is met.

Banking

Treasurer announces Coronavirus SME Guarantee Scheme

On 22 March, the Treasurer, Josh Frydenberg, announced that the Government will establish a guarantee scheme to facilitate small and medium enterprise access to working capital in light of the impact of COVID-19 (Coronavirus SME Guarantee Scheme).

According to the Treasury, the Government will guarantee 50% of loans issued by ADIs and non-ADI lenders to small to medium enterprises (up to $40 billion worth of loans) where the loan:

is issued to small to medium enterprises (including sole traders) with a turnover of up to $50 million;
has a maximum total size of $250,000 per borrower;
has a term of up to three years, with an initial six month repayment holiday; and
is unsecured.

The enabling legislation, the Guarantee of Lending to Small and Medium Enterprises (Coronavirus Economic Response Package) Act 2020 (Cth), was assented to on 24 March.

For more information, see our earlier article.

ABA announces deferral of loan repayments for small businesses

On 20 March, the CEO of the Australian Banking Association (ABA) announced that its members will defer loan payments for six months for small businesses.

New Structured Finance Support Fund to support small ADIs and non-ADI lenders

On 19 March, the Hon Josh Frydenberg announced that the Government will provide $15 billion to the Australian Office of Financial Management (AOFM) to be invested into wholesale funding markets used by small ADIs and non-ADI lenders. The investments will be made by the AOFM through the Structured Finance Support Fund (SFSF).

The Structured Finance Support (Coronavirus Economic Response Package) Act 2020 (Cth), which enables the establishment of the SFSF, was assented to on 24 March. The Treasurer has also made three legislative instruments which prescribe matters under the enabling legislation, delegate functions to the AOFM, and issue investment-related directions.

According to the Treasury and the AOFM, the SFSF will primarily support non-ADIs. It will complement the term funding facility announced by the RBA on 19 March, which will support ADIs (discussed below).

RBA announces new term funding facility to support ADI lenders

On 19 March, the Reserve Bank of Australia (RBA) announced that it will provide a term funding facility that will make at least $90 billion in funding available to ADI lenders at a fixed interest rate of 0.25%. The facility will also provide additional incentives to banks in relation to business lending (particularly to small and medium enterprises).

According to the RBA, ADIs will be able to access the facility from 16 April.

On 30 March, APRA announced that it will allow ADIs to include certain components of the facility (where the ADI will have access to these components) to satisfy their prudential requirements.

Other financial services regulation

ASIC and APRA issue joint letter to superannuation trustees about COVID-19

On 1 April, ASIC and APRA issued a joint letter to superannuation trustees to provide guidance to trustees on how to manage financial and operational challenges associated with COVID-19 while continuing to meet their best interests duty to members.

The joint letter addresses the regulators’ expectations in relation to liquidity, communication with members and regulators, trustees’ understanding of life insurance cover provided through superannuation, scams and fraud awareness, and trustees’ compliance with ongoing legal, regulatory, and reporting obligations.

ASIC and APRA also released FAQs that provide answers to frequently asked questions about regulatory issues arising from COVID-19.

APRA temporarily suspends non-critical activities in response to COVID-19

On 23 March, APRA announced that it will suspend all the majority of its planned policy and supervision initiatives in response the impact of COVID-19 until 30 September 2020, subject to review. APRA stated that:

it will suspend all substantive public consultations and actions to finalise revisions to the prudential framework that are currently underway or upcoming;
it may continue to progress certain data reporting initiatives where they are critical to meeting APRA’s mandate in the current environment, including new data collections related to the impacts of COVID-19;
its primary supervision focus over the period ahead will be on monitoring the impact of COVID-19 on the financial and operational capacity of regulated institutions; and
it is reconsidering implementation dates and transition timeframes for prudential and reporting standards that have recently been finalised but not yet implemented.

APRA has announced steps including a temporary change to its expectations regarding bank capital ratios, specific reporting requirements in relation to loans that are subject to COVID-19 support packages offered by authorised deposit-taking institutions, a temporary suspension of its program to the Direct to APRA (or D2A) data collection tool with APRA Connect, a deferral of its scheduled implementation of Basel III capital reforms, a postponement of its scheduled implementation of new reporting standards to private health insurers, and temporary changes in reporting obligations for authorised deposit-taking institutions and registered financial corporations.

ASIC takes steps in response to impact of COVID-19

On 23 March, ASIC announced that it will focus its regulatory efforts on challenges created by COVID-19 while affording priority to matters where there is a risk of significant consumer harm, serious beaches of the law, risks to market integrity, and time-critical matters, until at least 30 September. ASIC stated that it:

has suspended a number of near-term activities that are not time-critical, including consultation, regulatory reports, and reviews;
has suspended its enhanced on-site supervisory work;
will issue relief or waivers from regulatory requirements where warranted (on 20 March, ASIC indicated a ‘take no action’ stance in relation to the timing of annual general meetings (AGM) for public companies until 31 July and the conduct of AGMs by electronic means);
will work with financial institutions to accelerate the payment of outstanding remediation to customers;
will take account of circumstances in which lenders, acting reasonably, are currently operating when administering the law; and
maintain its enforcement activities, however ASIC will focus on action necessary to prevent immediate consumer harm, egregious illegal conduct, and other time-critical matters.

Earlier on 16 March, ASIC announced that it issued directions under the ASIC Market Integrity Rules to a number of large equity market participants to require those participants to limit the number of trades executed each day until further notice.

Changes to superannuation in response to COVID-19

On 22 March, the Treasurer, Josh Frydenberg, announced that changes will be made to the superannuation framework to allow for a limited early release of superannuation benefits for financial stress and a temporary reduction in pension minimum drawdown rates.

The amending Act, the Coronavirus Economic Response Package Omnibus Act 2020 (Cth), was assented to on 24 March.

For more information, see our earlier article.

On 27 March, AUSTRAC announced that it will introduce a rule under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) to ensure that superannuation funds making payments to their members under the initiative, where it is approved by the ATO and processed through MyGov and ATO online, will not be required to conduct additional customer verification under the AML/CTF Act.

On 30 March, the ATO issued CRT Alert 004/2020 COVID-19 economic response package – early release of super, which provides information about the application process for individuals and notification process for superannuation funds in relation to the early release of superannuation.

APRA updates MySuper Heatmap FAQ

On 19 March, APRA released a new set of frequently asked questions in relation to the MySuper Heatmap. They relate primarily to when the heatmap will be updated to reflect resubmitted historical data, and when newly submitted data will be included in the heatmap.