Weekly Global Regulatory tracker

ASIC defers commencement of mortgage broker reforms and design and distribution obligations

Key details

• ASIC will defer the commencement date for the mortgage broker reforms (including the best interest duty) until 1 January 2021.
• ASIC will defer the commencement date for the design and distribution obligations until 5 October 2021.
• The deferral of these reforms is consistent with the Government's announcement to defer by six months the implementation of commitments associated with the Royal Commission as a result of the impacts of COVID-19.
• ASIC will continue to work towards releasing final guidance on both reforms by mid-2020.

ASIC releases market analysis during COVID-19 period

ASIC has released a paper analysing market activity between 24 February 2020 to 3 April 2020, revealing a substantial increase in retail activity across the securities market, as well as greater exposure to risk.

ASIC's data also indicates a significant increase in trading in Contracts For Difference (CFDs) between 16 to 22 March 2020. In this unpredictable climate, ASIC is particularly concerned by the significant increase in retail investors’ trading in complex, often high-risk investment products. These include highly-geared exchange traded products and CFDs.

APRA: Early release of superannuation scheme

APRA has published its first industry-level data related to benefits paid to members through the Government’s COVID-19 temporary early release of superannuation scheme.

The data shows that in the first week of the scheme, superannuation trustees:

• received 665,310 applications for early release;
• processed 162,879 applications; and
• paid members $1.3 billion. The average benefit paid was $8002.

For applications paid in the first week of the scheme, trustees took an average of 1.6 days to make payments to eligible members after receipt of their applications from the ATO. Given this was the first week of the early release initiative, trustees had no applications that were more than five business days old.

APRA intends to publish updated data every Monday, and will expand the publication next week to include fund-level data.

ASX releases Listed@ASX update no 05/20

Key issues

• Given the challenges listed entities may be facing due to COVID-19, ASX announced that it has staggered the annual listing fees for FY 2021 over six months. The fees will be payable by all listed entities in two equal instalments (instead of the usual one). The first instalment is due at the end of July 2020 and the second instalment is due at the end of January 2021.
• ASX has amended the temporary emergency capital raising relief to address some drafting issues. The updated class waivers can be located on the ASX website.
• ASX reminded listed entities that in order to rely on a class waiver, they must notify ASX that they intend to rely on the class waiver and explain the circumstances in which they are doing so, including whether the class waiver is proposed to be used to raise capital to address issues arising in relation to COVID-19.

In light of some recent activity by listed entities in relation to collateral notes and collateral shares, ASX reminded listed entities of the obligations under listing rule 6.1, and the guidance in section 5.9 of Guidance Note 21.

Financial Services Agency: Meeting of liaison council

The meeting of a liaison council on response to corporate accounts and audits, etc., taking into account the effects of COVID-19 was held on 8 May 2020.

SFC defers IM requirements for non-centrally cleared OTC derivative by one year

The SFC issued a circular to licensed corporations regarding the deferred introduction of initial margin (IM) requirements for non-centrally cleared over-the-counter (OTC) derivative transactions to provide operational relief amidst the COVID-19 situation.

Subject to specified thresholds, the IM requirements for LCs which are contracting parties to non-centrally cleared OTC derivative transactions entered into with a covered entity were originally to be phased in starting from 1 September 2020.

The implementation periods have now been extended as follows:

This echoes previous announcement by the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) on 3 April 2020 of a one-year extension of the deadlines for completing the final implementation phases of the IM requirements for non-centrally cleared OTC derivatives.

For the avoidance of doubt, the variation margin requirements will still become effective on 1 September 2020.

SFC reminds LCs to properly manage cybersecurity risks associated with remote office arrangements

Following a recent incident of cybersecurity breach reported by a licensed corporation, the SFC has issued a circular to remind licensed corporations to assess their operational capabilities and implement appropriate measures to manage the cybersecurity risks associated with remote office arrangements.

Temporary measures announced by regulators in relation to right issues and takeovers

The MAS, SGX and the Securities Industry Council (SIC) have jointly announced temporary measures to allow listed issuers and parties involved in rights issues and take-over or merger transactions the option to electronically disseminate Offer Documents through publication on SGXNET and their corporate websites with immediate effect until 30 September 2020. There is no need to despatch hardcopy Offer Documents as required under the Securities and Futures Act, the Singapore Code on Take-overs and Mergers, and the SGX Listing Rules.

The temporary measures are effected through the introduction of the Securities and Futures (Offers of Investments) (Temporary Exemption from Sections 277(1)(c) and 305B(1)(b)) Regulations 2020 by the MAS for rights issues and the adoption of alternative arrangements by the SIC for takeover and merger transactions. SGX Listing Rules that require delivery of physical documents will also not be applicable during this period.

French Government: Extension of state of health emergency

The Government has decided to extend the state of health emergency for two more months, until 24 July. A bill will go before the Sénat and the Assemblée Nationale, and is expected to become law by the end of the week.

This decision implies, in particular, a further extension of the "reference period" during which statutory time limits are suspended. Pursuant to the previous ordinances of 25 March 2020 and of 15 April 2020, time limits are suspended which were due to expire between 12 March 2020 and the expiry of a period of one month from the date of the declaration of cessation of the state of health emergency. After that period, time limits will start to run again from the beginning, but only for a maximum of two months.

However the time limits remain for the following cases:

• financial obligations benefiting from the French favourable regime resulting from the Collateral Directive (including e.g. derivatives) and relevant collateral arrangements;
• asset-freezing obligations and reporting obligations to Tracfin (the French AMF-FT agency) of financial entities;
• reporting obligations to ORIAS (the French register of insurance intermediaries);
• reporting and notification obligations of entities and operations that are under the supervision of the AMF, as well as statutory significant shareholding disclosure obligations; and
• obligations to declare to the customs administration physical transfers of funds from and to another EU member state

Bank Of Spain: MREL-flexibility

The Bank of Spain has issued a communication undertaking the commitment to apply to supervised entities the recently announced Single Resolution Board's measures regarding MREL transitional phases and intermediate requirements, aimed at preventing short-term MREL requirements (mainly as per BRRD2 and CRR5) from weakening the financing capacity of credit institutions.

Spanish Stock Exchange Commission (CNMV): CNMV-2020 Activities' Plan

On 4 May 2020, the CNMV has published its 2020-Activities' Plan, adjusted to the current Covid-19 circumstances. Particularly, the CNMV has decided to maintain 33 of the 44 objectives initially planned for 2020, the remaining 11 being postponed to the following exercise (without prejudice to what may be decided when the 2021 Business Plan is drawn up) and 2 new objectives have also been added (remote working contingency plan and online examinations for the evaluation of the knowledge and competencies of staff performing financial information and advisory functions as stated in its Technical Guide 4/2017 following MiFIDII requirements).

Statement by the Prudential Regulation Authority on prioritisation in light of COVID-19

This statement, released on 7 May 2020 follows the Bank of England's March 2020 announcement and confirms that the PRA will be delaying certain initiatives related to: LIBOR transition; and insurance stress test. It also confirms that the launch of the Climate Biennial Exploratory Scenario has been postponed.

PRA: Statement by the Bank of England and Prudential Regulation Authority on resolution measures and COVID-19

This statement confirms changes to resolution measures in response to the Covid-19 outbreak and also provides further details on the Minimum Requirement for Own Funds and Eligible Liabilities (MREL).

• Resolvability Assessment Framework: The BRRD confirms that firms will now be required to submit their first reports to the PRA by October 2021 and make public disclosures by June 2022. The Bank of England will also make its first public statement on these firms’ resolvability by June 2022.
• Variation in resolution. The compliance deadline for the Bank’s Statement of Policy on valuation capabilities to support resolvability has been extended by three months to 1 April 2021. The deadline for firms to implement the BoE's other Statements of Policy relevant to resolvability remains 1 January 2022.
• Resolution plan reporting. Firms will not be required to submit certain resolution pack information under PRA Supervisory Statement SS19/13 "Resolution Planning" until the end of 2022, unless notified otherwise on an individual basis by the PRA.
• Minimum Requirement for Own Funds and Eligible Liabilities (MREL). The PRA refers to its statement on policy changes to Pillar 2A capital setting and states that 2021 MRELs will reflect the PRA’s policy changes to Pillar 2A capital setting. It also confirms that the BoE will also continue to keep MRELs under review and monitor market developments carefully in Q3 of 2020 to inform its approach in Q4 2020 to setting January 2021 MRELs. 

PRA: Statement by the PRA on conversion of Pillar 2A capital requirements from RWA percentage to nominal amount

In this statement, released on 7 May 2020, the PRA confirms that it will be setting all Pillar 2A requirements as a nominal amount, instead of a percentage of total Risk Weighted Assets (RWAs). The PRA confirms that it does not consider RWAs to be a good estimate for the changing risks captured in Pillar 2A. The PRA will set Pillar 2A as a nominal amount in the 2020 and 2021 Supervisory Review and Evaluation Processes (SREPs). Firms that do not have a SREP assessment due in 2020 are encouraged to apply for a conversion of their current Pillar 2A requirement into a nominal amount using RWAs as of end-December 2019.

Bank of England/FPC: Interim Financial Stability Report

The interim Financial Stability Report, released on 7 May 2020, outlines the Financial Policy Committee’s (FPC’s) assessment of the risks posed to UK financial stability and the resilience of the UK financial system by COVID-19. It covers the following items: recent performance of the financial system after the COVID-19 shock; UK banking sector resilience and COVID-19; and UK corporate sector financing and Covid-19.

The FPC states that the banking system has the capacity to support the UK economy but also refers to an abrupt "dash for cash" in markets which has seen investors selling assets such as long-term government bonds so as to obtain short-term highly liquid assets. The FPC also observed that, during this period, non-banks tried to raise cash to meet margin calls on derivative positions, leveraged investors withdrew from government bond markets, and dealers moved back from repo markets. The FPC confirms that it will continue to monitor the situation.

Bank of England: Record of the Financial Policy Committee

This statement, released on 7 May 2020, summarises the main points of the Financial Policy Committee meeting held on 5 May 2020. The statement notes that the FPC has adopted a number of decisions,by written procedure since March 2020, designed to limit the operational burden on the Bank of England and banks in general in light of COVID-19. These include the leverage ratio treatment of guaranteed lending under Government schemes; Systemic Risk Buffer rates; and computation of exposure measure for leverage ratio.

FCA: Updated webpage: Payment Accounts Directive

The FCA has updated the webpage in relation to reporting under the Payment Accounts Regulations (SUP 16.22). The FCA notes that submissions covering the reporting period 1 March 2018 to 29 February 2020 are due and that, in normal circumstances, these would have been submitted within 2 months of the end of the relevant reporting period (i.e. by 30 April 2020). The FCA, however, confirms that it has extended the deadline to 30 June 2020.

Monetary Policy Summary and minutes of the Monetary Policy Committee meeting

The MPC confirms that, at its meeting ending on 6 May 2020, it voted unanimously to maintain the Bank Rate at 0.1%. The Committee voted by a majority of 7–2 for the Bank of England to continue with the programme of £200 billion of UK government bond and sterling non financial investment grade corporate bond purchases, financed by the issuance of central bank reserves, to take the total stock of purchases to £645 billion. Two members preferred to increase the target for the stock of asset purchases by an additional £100 billion at this meeting.

PRA updated webpage: Operational Resilience - Impact tolerances for important business services

The updated webpage refers to statements made by the PRA in March 2020 concerning the extension of deadline for PRA consultations on Operational Resilience. The PRA confirms that, under current plans, firms and FMIs will not need to meet requirements resulting from the consultations before the end of 2021.

FCA updated webpage: FCA information for firms on COVID-19 response

The FCA updated its webpage on 6 May 2020 to set out key guidance for firms in relation to information security. It notes the changes in working arrangements in light of COVID-19 and growing importance of online systems. Firms are expected to prioritise information security and ensure that adequate controls are in place to manage cyber threats and respond to major incidents. The FCA also suggests enhanced monitoring to protect end points, information and firm critical processes, including network connections and video conferencing software. Firms are expected to: be vigilant to the potential increase in security breaches or cyber attacks; have appropriate governance and oversight arrangements; review the impact of coronavirus on their information and systems security defences; and ensure that the general notification requirements are followed, and significant operational/cyber incidents are reported.

ESMA public statement on COVID-19: Reminder of firms’ MiFID II conduct of business obligations in the context of increasing retail investor activity

This statement, released on 6 May 2020, outlines firms’ MiFID II conduct of business obligations in the context of increasing retail investor activity during the COVID-19 pandemic. ESMA reminds investment firms of the key conduct of business obligations under MiFID when providing services to retail investors. ESMA believes that firms have even greater duties when providing investment or ancillary services to new investors/investors with limited investment knowledge or experience. ESMA, therefore, reminds firms of their obligation to act in accordance with the best interests of their clients, and points to the most relevant conduct of business obligations under MiFID II, namely product governance, information disclosure, suitability and appropriateness. Firms are reminded to have adequate product governance arrangements. ESMA also stresses the importance of the appropriateness assessment for new clients wishing to invest in complex financial instruments during these times of intensified market volatility. Firms should also be sure they correctly categorise financial instruments for the purpose of the appropriateness assessment.

FCA updated webpage: FCA information for firms on COVID-19 response

The FCA updated this webpage on 5 May 2020 to set out advice for firms contacted by customers seeking to withdraw funds from restricted accounts. Firms are expected to:

• pay due regard to the interests of their customers and treat them fairly (Principle 6 and BCOBS 5.1)
• communicate in a way that is clear, fair and not misleading (Principle 7 and BCOBS 2.2), and
• consider the needs of vulnerable customers in their actions or communications (Principles 6 and 7).

The FCA confirms that complying with these requirements does not mean offering access to all customers, or offering unlimited access to funds in a restricted-access account. Firms are advised to form a judgement on a case-by-case basis. However, firms should note that, for some customers, the impact of coronavirus is likely to exacerbate the personal circumstances that can cause vulnerability.

FCA letter to Financial Ombudsmen Service: The Government’s Coronavirus Business Interruption Loan Scheme and the Bounce Back Loan Scheme

In this letter, released on 4 May 2020, the FCA sets out how it believes the Financial Ombudsman Service will assess lender behaviour in relation to the Coronavirus Business Interruption Loan Scheme and Bounce Back Loan Schemes. The letter notes that the Financial Ombudsman Service’s jurisdiction now includes complaints from more small and medium-sized businesses and states the vast majority of businesses covered by the Business Interruption Loan Scheme and the Bounce Back Loan Schemes will be eligible to complain to the ombudsman service about acts or omissions in relation to agreements under the Schemes.

The letter notes that new regulatory arrangements for the Bounce Back Loan Scheme will fall outside regulated lending activity. However, debt collecting in relation to BBLS loans in this category, whether by the lender itself or a third party, will be a regulated activity. This means that the usual regulatory regime that applies to regulated credit agreements, including the requirements in the Consumer Credit Act, will not apply to lending or post-lending (other than debt collecting) activity under BBLS. The letter notes that there is no requirement in BBLS for lenders to conduct creditworthiness or affordability checks. The letter also confirms that the Government will introduce primary legislation to disapply sections 140A-140C of the CCA for BBLS lending (to apply when the Scheme comes into effect ie with retrospective effect).

FCA: Updated statement: Statement on the UK Coronavirus Business Interruption Loan Scheme (CBILS) and the new Bounce Back Loan Scheme (BBLS)

This statement sets out the FCA’s approach to its regulation of firms in relation to the Government’s UK Coronavirus Business Interruption Loan Scheme (CBILS) and the newly introduced Bounce Back Loan Scheme (the Schemes). The statement applies to any loan made under the Schemes by an "accredited lender" from 4 May 2020 and sets out the impact of FCA rules.

PRA: Statement on credit risk mitigation eligibility and leverage ratio treatment of loans under the Bounce Back Loan scheme

This statement sets out the PRA’s approach in relation to the risk weighted treatment of exposures under the Bounce Back Loan scheme and, in particular, eligibility for recognition as unfunded credit risk mitigation (CRM) under the Capital Requirements Regulation (CRR). It also sets out a change to the UK leverage ratio framework. The PRA notes that, under the BBLS, the government guarantees in full loans from banks to small and medium-sized businesses. The PRA is offering a modification by consent for banks subject to the UK Leverage Ratio Part of the PRA Rulebook to exclude loans under this scheme from the leverage ratio total exposure measure. It also permits firms to exclude loans made pursuant to schemes of a similar character which are 100% guaranteed by a government or central bank of an EEA state or the ECB, provided that such loans do not exceed €60,000 per loan.

HM Treasury: Letter from the Chancellor to lenders on the new Bounce Back Loan Scheme

This letter confirms changes to the UK leverage ratio concerning loans under the BBLS and primary legislation amending the Consumer Credit Act in relation to BBLS lending. The letter confirms that the primary legislation will have retrospective effect, meaning it will apply from the start of the scheme on 4 May 2020. The letter notes that businesses will be able to borrow up to £50,000 under BBLS, capped at 25 per cent of turnover and that the minimum facility size for term loans and overdrafts under CBILS will increase to £50,001 to avoid any risk of confusion or overlap.

Financial Services and Markets Act 2000 (Regulated Activities) (Coronavirus) (Amendment) Order 2020

This Order amends article 60C of the Regulated Activities Order to provide that loans made under the Bounce Back Loan Schemes are exempt agreements under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (the RAO) and will not be subject to the regulatory provisions in the Consumer Credit Act 1974 (CCA). This new type of exempt agreement will apply to a credit agreement where: (i) the lender provides the borrower with £25,000 or less; (ii) the agreement is entered into wholly for the purpose of borrower’s business; and (iii) the agreement is entered into under the Bounce Back Loan Scheme. The Order also amends the RAO to provide that the specific activity of debt collecting will remain a regulated activity in relation to a loan under the BBLS of £25,000 or less and which is for the purpose of the borrower’s business.

FCA webpage financial crime systems and controls

On 6 May 2020, the FCA published a new webpage on firms' financial crime systems and controls during the COVID-19 pandemic alerting firms to possibility of criminals exploiting weaknesses in firms' systems. The FCA states that adequate systems and controls in relation to COVID-19 includes timely reporting of Suspicious Activity Reports (SARs) of any new threats. The FCA states that firms should not seek to address operational issues by changing their risk appetite (e.g. changing/switching-off current transaction monitoring triggers, or sanctions screening systems, for the sole purpose of reducing the number of alerts generated to address operational issues).

The FCA notes that firms may need to re-prioritise or reasonably delay some activities and adds that delay is reasonable, provided:

• the firm does so on a risk basis (e.g. reviews for high risk customers should not be delayed unless absolutely necessary); and
• there is a clear plan to return to the business as usual review process as soon as reasonably possible.

The FCA refers to requirement under Regulation 31 of the Money Laundering Regulations for a firm to close an account where information is not provided and states that it expects firms to make reasonable efforts to collect information/consider alternative means to ascertain correctly a customer's identity before taking a decision to close the account.

Firms that need to amend their controls are advised to ensure decisions are clearly risk assessed, documented and go through appropriate governance. Firms are expected to notify the FCA of any material issues impacting the effectiveness of their financial crime controls or causing significant delays to remediation plans.

FCA: Modification by consent for solo-regulated firms under SM&CR

On 6 May 2020, the FCA published a modification by consent extending the maximum period firms can arrange cover for absent senior managers as a result of the COVID-19 pandemic. This is aimed at providing flexibility to firms managing their governance arrangements during the COVID-19 pandemic. The FCA amended the rule found in chapter 10C.3.13R of the Supervision Manual by lengthening the maximum period firms can arrange cover for a Senior Manager without being approved, from 12 weeks to 36 weeks, in a consecutive 12-month period. The modification by consent will take effect from the date the firm applies for it, and will end on 30 April 2021. The FCA confirms that firms may allocate an absent Senior Manager’s prescribed responsibilities to the individual covering the role (a modification to SYSC 24.1.2).

FATF Report: COVID-19-related Money Laundering and Terrorist Financing: Risks and Policy Responses

This report, released on 4 May 2020, notes an increase in COVID-19-related crimes, such as fraud and cybercrime. The paper covers three broad themes: new threats and vulnerabilities arising from COVID-19-related crime and impacts on ML and TF risks; the current impact on AML/CFT efforts by governments and the private sector due to COVID-19; suggested AML/CFT policy responses to support the implementation of measures to respond to COVID-19, while managing new risks and vulnerabilities identified.

The report sets out challenges, good practices and policy responses to new money laundering and terrorist financing threats and vulnerabilities arising from the COVID-19 crisis. This could lead to emerging risks and vulnerabilities that could result in criminals finding ways to: bypass customer due diligence measures; increase misuse of online financial services and virtual assets to move and conceal illicit funds; exploit economic stimulus measures and insolvency schemes as a means for natural and legal persons to conceal and launder illicit proceeds; increase use of the unregulated financial sector; misuse and misappropriation of domestic and international financial aid and emergency funding; and exploit COVID-19 and the associated economic downturn to move into new cash-intensive and high-liquidity lines of business in developing countries.