Regulators relax the rules at least temporarily

Regulators in Asia Pacific have been easing up on their programs to allow insurers to better focus on the challenges of COVID-19. 

But while the majority of site inspections have been cancelled, they are still keeping a close eye on insurers across the board.

AUSTRALIA: HAYNE REPORT RECOMMENDATIONS ON HOLD

With COVID-19 placing unprecedented pressure on the financial sector, Australia’s government and regulators have put their regulatory agendas on hold for six months to give insurers breathing space to manage the pandemic’s fallout.

Measures on hold include implementing the Hayne royal commission’s 76 recommendations as well as a series of reviews and reforms planned by the Australian Securities and Investments Commission and Australian Prudential Regulation Authority (APRA).

In early April, APRA suspended most of the policy and supervision initiatives on its table — and the issuance of insurance licences — for at least six months. 

It has also deferred reviews into life insurance advice reforms and travel insurance, instead concentrating its efforts on monitoring the capital and liquidity of insurers and other financial institutions. 

In addition, the prudential regulator has sharpened its focus on general and life insurers to ensure they are taking a fair and efficient approach to claims handling during COVID-19 and are clearly communicating changes in cover to policyholders.

Meanwhile, the Australian Competition and Consumer Commission announced in April that insurance companies and brokers would be able to work together to implement relief measures for some small business customers.

Those suffering hardships can defer premium payments for up to six months and will be refunded unused premiums for any insurance policy they
need to cancel because of COVID-19.

‘While COVID-19 has pushed out the timeline for a number of regulatory changes that were meant to take place this year and early next year, the Australian Financial Complaints Authority’s mandate has not changed,’ warns Ray Giblett, a partner at Norton Rose Fulbright Australia.

‘Insurers need to ensure they are acting efficiently, honestly and fairly in their dealings with customers.’

And, while it is still too early to predict the post-COVID-19 regulatory landscape, Avryl Lattin, a partner at Clyde & Co in Sydney, notes that the Australian Government has flagged deregulation could be an important pillar of recovery.

‘This may involve a combination of tax, industrial relations and health industry reforms,’ she says. 

‘There are also plans to work together with the states and territories to consider potential deregulation initiatives. Whether this will result in any of the royal commission recommendations being put aside permanently will remain to be seen.’

NEW ZEALAND: RBNZ DELAYS COFI LEGISLATION

The Hayne royal commission in Australia led to New Zealand’s two main financial regulators, the Financial Markets Authority (FMA) and the Reserve Bank of New Zealand (RBNZ), launching their own banking inquiry.

A review of 16 life insurers followed between June and November 2018, in which the regulators found extensive weaknesses in systems and controls and identified several instances of poor conduct and potential misconduct.

This led to the introduction in early 2019 of the Financial Markets (Conduct of Institutions) Amendment Bill (COFI). 

This draft legislation proposes a new regime for financial institutions and requires licensed entities and intermediaries to have policies, processes, systems and controls in place to ensure they’re considering consumers’ interests and treating them fairly in all aspects of their businesses.

 ‘COFI is still going through various readings in Parliament, but along with everything else that was on the legislative and regulatory timetable, it got deferred due to COVID-19,’ says Richard Klipin, CEO of the Financial Services Council of New Zealand.

It is one of many regulatory initiatives that the RBNZ has delayed or slowed down for at least six months, including several bills, consultations and new regimes.

The New Zealand Government has also pushed back the start date for the new financial advice regime until early 2021. The transitional licensing application window remains open until then. 

In the meantime, the current Financial Advisers Act 2008 continues to apply.

As part of this regime, the Financial Services Legislation Amendment Act was passed into law in April 2019. 

Among its many conditions, it requires that financial advisers meet certain standards of competency and skill, prioritise customers’ interests and ensure clients understand the advice given to them.

It removes the current complicated classifications for advisers and advice firms, such as QFE, AFA and RFA, obliging all advisers to meet the same standards. 

It is also accompanied by a principles-based Code of Professional Conduct for financial advice services. ANZIIF has developed several pathways for brokers to comply with this Code, which was originally expected to apply from the second quarter of 2020.

In a similar move, the FMA announced a two-month delay in listed company reporting deadlines and its planned thematic review on liquidity for managed investment schemes.

HONG KONG: IA REMOVES FACE-TO-FACE DISTRIBUTION METHODS

The Hong Kong Insurance Authority (IA), established in December 2015, has gradually grown into its role as the primary regulator of Hong Kong’s insurance market and has been quick to implement several measures in response to the COVID-19 outbreak.

In February, it introduced its first set of temporary facilitative measures (TFMs), allowing insurers and intermediaries to sell certain types of long-term insurance by non-face-to-face methods during COVID-19, a departure from the face-to-face distribution usually required.

In March, the IA announced a second phase of TFMs, widening the types of life insurance products that could be distributed through non-face-to-face methods until 30 June 2020.

Measures were also put into place to protect policyholders, including mandatory up-front disclosures at the point of sale and an extended cooling-off period of no less than 30 days.

Also in March, two new bills were gazetted which will have an impact on Hong Kong’s insurance market.

The first provides for a bespoke, streamlined regulatory framework for the issuance of insurance-linked securities (ILS) through the formation of special purpose insurers.

‘The central government has announced support for mainland insurers to issue catastrophe bonds in Hong Kong,’ said IA chairman Dr Moses Cheng at the time.

‘The proposed legislative amendments will pave the way for Hong Kong to become the preferred domicile for ILS, in particular catastrophe bonds.’

The second bill gives the IA direct regulatory powers over the holding companies of multinational insurance groups. At present, it regulates such insurance groups indirectly, through subsidiaries licensed by the IA.

‘Using a principle-based, outcome-focused approach, the new framework will put Hong Kong on a par with international standards and practices, thus strengthening its competitiveness in the global insurance market and reinforcing its position as a regional insurance hub,’ added Cheng.

SINGAPORE: MAS POSTPONES INDUSTRY PROJECTS

In the first week of April, the Monetary Authority of Singapore (MAS) announced it would adjust selected regulatory requirements and supervisory programs to enable financial institutions to focus on dealing with issues related to COVID-19.

Stephanie Magnus, co-chair of the Asia-Pacific Financial Institutions group at Baker McKenzie, says MAS has deferred several regulatory initiatives in response to the pandemic, including the implementation of Guidelines on Individual Accountability and Conduct and the publishing of an information paper on Culture and Conduct Practices of Financial Institutions.

MAS has also postponed non-urgent industry projects, such as the launch of a new electronic system for banks and insurers to submit applications for approval of key appointment executives. 

And it has provided financial institutions with more latitude on submission timelines for regulatory reports and has given them longer response times to provide feedback to ongoing public consultations of new policies.

Looking ahead, Magnus says: ‘We expect that MAS will review certain areas such as operation and enterprise risk management to ensure that insurers are adequately prepared for future pandemics and have sufficient plans to deal with future occurrences.

‘We can also expect insurers to have an added impetus to continue in their investment into automation and digitalisation of their end-to-end processes, with lessons learnt from current COVID-19 challenges.’