Financial services monthly wrap-up: July 2022

ASIC announces an extension of deadline for unlisted entities to lodge financial reports

ASIC announced that it will extend the deadline to lodge their financial reports by a month for unlisted companies. The extension was intended to assist with pressures on resources for financial reporting for smaller entities, and provide sufficient time for them to complete the audit process. ASIC recognised that both the company and audit firms may face pressures due to staff shortages, and the increased need to make difficult judgments on asset values, provisions and disclosure requirements. 

ASIC stated that it will also consider similar reliefs for other entities and balance dates as appropriate. However, the current market conditions and related developments indicates that no further extensions of time is necessary for now. 

Further information on the announcement can be found here. See the relevant instrument for the extension of time here. 

ASIC releases regulatory guide for superannuation calculators and retirement estimates

ASIC announced its release of Regulatory Guide 276 Superannuation Forecasts: Calculators and Retirement Estimates and its corresponding legislative instrument to update the relief available to service providers for providing superannuation calculators and retirement estimates. These low cost forecasting tools were intended to assist consumers in understanding their financial situation and seek further advice where appropriate. The relief will mean that entities like superannuation trustees who provide these tools within the terms of ASIC’s relief will be exempt from certain regulatory requirements when providing personal financial advice to their customers.

In implementing these reliefs, ASIC provided a six months transition period, where providers of superannuation forecasts may choose to rely on either the existing relief or the new relief. After 1 January 2023, providers will only be able to rely on the new relief. 

ASIC Commissioner Danielle Press said that the new regulatory guide will give greater clarity to trustees about how they can use calculators and retirement estimates as part of their strategies. She also said that these updated reliefs also provide more flexibility in how trustees can give retirement estimates to their members and introduces a single framework for setting economic and financial assumptions across both retirement estimates and superannuation calculators.

ASIC announces that it will routinely communicate negative audit review findings to directors

On 1 July 2022, ASIC announced that it will routinely communicate negative findings from its reviews of audit files to directors, rather than on an exceptions basis. These changes were made in response to submissions received in a consultation paper regarding communication of audit findings to directors, audit committees, or senior managers, and were intended to assist audit committees and directors in asking their auditor about the steps taken to improve audit quality and ensure adequately resourcing for the audit.

ASIC intends to communicate such findings where:

1. it formed the view that an auditor has not obtained reasonable assurance that the entity’s financial report is free of material misstatements;
2. it is concerned that the auditor may not be meeting the independence requirement under the Corporations Act, and has not addressed and/or adequately reported the matter; or
3. it considers any other matter that should be drawing to the attention of the directors, audit committee, or senior management of the entity.

These changes are now reflected in the updated ASIC Regulatory Guide 260 Communicating findings from audit files to directors, audit committees or senior managers.

ASIC releases enforcement and regulatory update for April to June 2022 Quarter

On 28 July 2022, ASIC announced that it has released its report on enforcement and regulatory update from 1 April 2022 to 30 June 2022. The report details ASIC’s work in discharging its regulatory and enforcement responsibilities including court action launched against various entities for alleged misconduct and publications issued to help entities understand and comply with their regulatory obligations.  

ASIC places first DDO stop order to prevent firms from offering financial products to consumers

On 28 July 2022, ASIC announced that it had placed interim stop orders against three financial firms for failing to comply with their obligations under the under the design and distribution obligations (‘DDOs’). This was the first time ASIC has exercised its powers under the DDO. The enforcement actions were taken as these firms either failed to prepared or have prepared  deficient target market determinations (‘TMD’) for their products.

ASIC’s focus has now shifted to pursuing enforcement outcomes in addressing failures to comply with DDO. ASIC Deputy Chair Karen Chester said firms need to design their financial products according to the needs of consumers in their intended target market and distribute the products accordingly. She stated that ASIC will continue to look at defective TMDs and issuers who have not made TMDs available to consumers. It will also look into how these products are distributed monitor consumer outcomes to ensure that consumers are receiving the products they need. The Deputy Chair also emphasised that ASIC can and will respond to firms who are not meeting their legal obligations to prevent consumer harm and deter non-compliance.

More information about the announcement can be found here. Our client alert is available here.

APRA announces two consultations to improve transparency on remuneration and bank disclosures

APRA announced that it has launched two separate consultations which are aimed at strengthening transparency and market discipline within the financial system.

Strengthening Remuneration Disclosure

The first consultation will focus on proposed remuneration disclosure and reporting requirements for all banks, insurers and superannuation funds regulated by APRA. These proposed changes will support the cross-industry Prudential Standard CPS 511 Remuneration, introduced last year to strengthen remuneration practices across various industries.

Key proposals include:

1. APRA-regulated intuitions to be required to disclose information about the design of their remuneration models, and how risk is factored into remuneration outcomes.
2. Large and complex financial institutions to be required to disclose material weightage placed on non-financial metrics (such as risk management and conduct) and remuneration outcomes for key executives and material risk takers.
3. APRA to publish centralised statistics to provide greater comparability of remuneration outcomes across APRA-regulated entities.
4. The proposed disclosure requirements to take effect after implementing CPS 511.

    

Updating Bank Disclosure Requirements

The second consultation will focus on proposed updates to bank prudential disclosures to align public disclosure requirements for banks with international standards and the new bank capital framework.

Key proposals include:

1. Introduction of a centralised publication of key prudential risk metrics to facilitate the comparison and analysis of capital positions and risk profiles of local banks.
2. Removal of disclosure requirements of prudential risks for small authorised deposit-taking institutions. APRA will instead introduce a centralised publication to promote transparency and reduce disclosure requirements for this segment of the banking industry.

Both consultations are open until 7 October 2022.

Further information on the announcement can be found here. Discussion paper on remuneration requirements for all APRA-regulated entities can be accessed here. Discussion paper on public disclosure requirements for authorised deposit-taking institution can be accessed here.

APRA to launch series of new superannuation data

APRA announced that it will launch a new series of publications on superannuation data from September 2022 to further enhance the quality and breadth of information available to industry stakeholders. The publication will contain new and expanded data on an industry, fund and product basis, and include information on fees and costs, asset allocation and performance data for all products and investment options, along with information on insurance arrangements, expenses and member demographics. 

The first publication of this series will be issued in September 2022 and will cover the aggregate quarterly data on the industry’s structure and profile, member demographics, and investments. A further publication will be released in Quarter 4 of 2022 which will contain the Product level data. It is anticipated that annual publication on the industry, funds and products will be released in early 2023.

Further information on this announcement can be found here.

APRA announces release of national claims and policies database

APRA announced that it has released its national claims and policies database reports for the year ending 31 December 2021. The report discusses professional indemnity and public and product liability generally as well as data on claims for APRA-regulated general insurers and Lloyd’s Australia.

APRA announces consultation on new prudential standards to strengthen operational resilience

On 28 July 2022, APRA released a discussion paper to consult on a new prudential standard designed to strengthen the management of operational risks in the banking, insurance and superannuation industries.  The operational risks concerned in this consultation are the risks of financial loss or material disruption due to inadequate internal processes, actions by people or external events like a pandemic or natural disasters. 

The proposed standard will incorporate updated requirements for service provider management and business continuity management and will also require APRA-regulated entities to:

1. Maintain effective internal controls for operational risks;
2. Being prepared and ready to ensure delivery of critical operations during periods of disruption;
3. Effective management of risks associated with the use of service providers.

APRA intends to release the final version of the standard early next year and come into force on 1 January 2024.

More information on this announcement is available here. The full discussion paper on APRA’s consultation can be accessed here.

APRA announces release of General Insurance Claims Development Statistics

APRA announced that it published its annual General Insurance Claims Development Statistics. The publication covers claims development trends across the general insurance industry for the December 2021 period.

More information on this announcement is available here. The General Insurance Claims Development publication can be accessed here.

APRA announces release of Private Health Insurance Annual Coverage Survey results

APRA announced that it has launched the results for its Private Health Insurance Annual Coverage Survey for 2021. The survey provides a snapshot at December each year of the number of people, by age, gender and state of residence, with hospital insurance.