Regulatory wave needs to crash against COVID-19 wall
With the recent coronavirus pandemic, the current regulatory wave may see unique changes, with lawyers and GCs needing to prepare as uncertainty sweeps through businesses.
It is no secret that the financial services industry entered this year riding a regulatory wave in the wake of the Hayne royal commission’s findings of widespread misconduct.
There has been a dramatic increase in principles-based laws such as the proposed Financial Accountability Regime (FAR), broader focus on individual liability and the key regulators have become much more hawkish in terms of enforcement activity.
However, that frenetic pace of regulatory change needs to abate given the unprecedented pressure being placed on financial services firms by COVID-19, according to financial services specialist Liam Hennessy, a director at Gadens.
Speaking exclusively to Lawyers Weekly, Mr Hennessy advised that the proposed breach reporting regime will require both financial services and credit licence holders to make breach reports to ASIC in relation to breaches or likely breaches of their “non-core” and “core” obligations.
“Credit licence holders have not previously been subject to such a regime, and the proposed one is far more prescriptive than the existing one for financial services licensees and imposes strict deadlines for reporting,” Mr Hennessy said.
“A breach or likely breach of a core obligation needs to be taken as ‘significant’ and reported where it constitutes a contravention of civil penalty provision – there is a vast number in the relevant legislation, for example a failure to provide a generic credit guide with a new credit card application.”
There are still many significant changes yet to come on the currently anticipated timetable, including an onerous new financial services breach reporting regime potentially set to take effect on 1 July 2020.
The magnitude of the proposed changes leaves little time in the ordinary course for affected organisations to prepare frameworks and policies and procedures to enable them to investigate, respond to and report breaches according to Mr Hennessy.
In particular, against the backdrop of the other major regulatory reform projects businesses are currently working on such as FAR, ASIC’s Design and Distribution Regime and changes to financial services anti-hawking rules.
Given the need for legal counsel, risk and compliance staff to marshal all of their resources towards supporting their employees, customers and other stakeholders in facing the unique challenges of COVID-19, Mr Hennessy said that major regulatory reforms such as breach reporting amendments should be deferred by the government for a minimum of six months.
Fortunately, there are early signs that the policymakers are receptive to the idea.
On 16 March 2020, The Council of Financial Regulators, which is comprised of APRA, ASIC, RBA and the Treasury, released a statement which recorded in part: “Given the disruption being caused by COVID-19, [council] members are examining how the timing of regulatory initiatives might be adjusted to allow financial institutions to concentrate on their businesses and assist their customers.”
More detail is yet to be provided as to the timing of which regulatory initiatives are to be adjusted.
Mr Hennessy is pushing for further detail to be forthcoming soon, as separate to the debate about whether insolvent trading laws should be suspended or not given COVID-19 (they ultimately were by the Morrison government on Sunday, 22 March), this course appears to be much clearer cut.
“The sooner policymakers provide clarity to financial services businesses the better, as it will enable them to distil their efforts on helping their businesses,” Mr Hennessy said.