The financial services sector – through COVID-19 Alert Level 3 and beyond

​ Please note: The content on this webpage is a short summary of our more detailed guidance, which can be downloaded here.

Many of the measures introduced over recent weeks to ease the burden of regulatory compliance on the financial services sector during the COVID-19 pandemic will remain in place through levels three and two.

We run through the various interventions, including some of the practical guidance provided by the Government and regulators to help market participants manage the challenges posed by remote working arrangements.

The Financial Markets Authority (FMA) “no action” approach

Where a market participant breaches, or expects to breach, a regulatory obligation as a result of COVID-19 and seeks relief from the FMA, the FMA’s primary approach will be to take ‘no-action’.

This does not preclude third parties from taking legal action in relation to the same conduct or conduct of that kind.

The FMA also expects market participants to take steps to mitigate any risks resulting from the breach, and where possible, to remediate breaches at a later date, so that the requirement to comply is delayed rather than removed.

It is also important to note that the ‘no-action’ approach is not intended to apply to ongoing and open-ended breaches, or where there is significant risk of customer detriment, and exemptions may be required in certain limited circumstances.

Details as to how to apply for 'no action' relief can be found on FMA’s website here.

Extension of reporting deadlines

The Financial Markets Conduct (Financial Reporting and Other Relief – COVID-19) Exemption Notice 2020 allows FMC reporting entities with balance dates between 31 December 2019 and 31 July 2020 an extra two months over the prescribed statutory timeframes to comply with a range of reporting and information disclosure requirements.

Scheme managers and other FMC reporting entities have six months, as opposed to the standard four, to produce and file audited financial statements, and scheme managers the same to produce schemes’ annual reports.

To claim the extension, certain conditions must be met, including having reasonable COVID-19-related grounds to believe that it is not reasonably practicable to comply within the original time frame.

Relevant reporting entities who rely on the extension of time for filing audited financial statements, and custodians, will have an additional two months to comply (as applicable) with the requirements for:

  • continuous issuers of debt securities or equity securities to update information about those securities
  • non-unitised restricted schemes which attribute earnings rates to members to make their fund updates available and to provide confirmation information to members
  • scheme managers of closed-ended restricted schemes to hold an annual meeting
  • issuers to have their registers audited
  • scheme custodians to complete their annual custodial assurance engagement, and
  • derivatives issuers to complete their assurance engagements.

The exemption notice provides a similar extension for the completion of custodial assurance engagements prescribed under existing exemptions for Forestry Schemes, Property Schemes and Overseas Custodians.

An entity wishing to rely on any of these exemptions must pay careful attention to the prescribed conditions, which include notifying the FMA of that fact within the original prescribed timeframe for compliance, and in some cases, lodging a copy of that notice with the Registrar of Financial Service Providers, within the required period. If reliance on the exemption would require notice to be given to the FMA on or before 30 April 2020, the notice must instead be given on or before 15 May 2020.

Reliance on this exemption notice for extended time to file audited financial statements has flow-on effects for some other filing requirements, for example the financial statement and solvency filings of insurers under the Insurance (Prudential Supervision) Act (IPSA).

The Reserve Bank has advised licensed insurers that similar regulatory relief will be available under IPSA, by way of waiver of the Reserve Bank’s right to enforce any failure of an insurer to file reports or to make related disclosures, provided the relevant revised deadlines for prudential submissions are met.

Exemption for custodian assurance engagement

The Financial Advisers (Custodian Assurance Engagement Relief – COVID-19) Exemption Notice 2020 provides custodians of FMCA registered products, both New Zealand and overseas, with an additional two months to comply with their duty to obtain their custodian assurance engagement. Again, to qualify, they must have reasonable COVID-19 related grounds to believe that it is not reasonably practicable to comply within the original timeframe. 

Also extended by two months is the time for complying with the condition that a non-NZX Broker obtains an auditor’s report regarding that broker’s compliance with the conditions in the Financial Advisers (Non-NZX Brokers – Client Money) Exemption Notice 2017.

Any custodian or non-NZX Broker wishing to rely on these exemptions must also notify the FMA of that fact within the original prescribed timeframe, and if reliance on the exemption would require notice to be given to the FMA on or before 30 April 2020, the notice must instead be given on or before 15 May 2020.

NZX relief for listed issuers

Chapman Tripp has published a Brief Counsel (‘COVID-19 unprecedented relief for NZX listed issuers’) covering the periodic reporting changes as they impact on listed issuers, as well as new timing relief for rights issues and share purchase plans.

Reminder to comply with insider trading rules

In response to concerns raised in offshore markets regarding potential misconduct by information insiders, the FMA has published a reminder for all market participants to comply with the insider trading prohibitions in sections 240 to 243 of the Financial Markets Conduct Act.

Oaths and Declarations

A significant technical problem caused by the pandemic is the administration of oaths and declarations, including the attestation of affidavits and statutory declarations, as the law contemplates that these will be done in person and in the presence of a third party (usually a lawyer).

Provision has been made through the Epidemic Preparedness (Oaths and Declarations Act 1957) Immediate Modification Order 2020 to allow the use of electronic formats such as Skype and Zoom and the FMA has produced guidance covering KiwiSaver significant financial hardship applications.

AML/CFT – identity verification

The three AML supervisors have updated their guidance on alternative steps to verify identity and financial circumstances in relation to AML/CFT obligations.

Where CDD is not possible, there is an option to delay the verification of the person’s identity until the situation normalises.

AML/CFT – bi-annual audit

COVID-19 may impact a reporting entity’s ability to have the required bi-annual audit of its risk assessment and AML/CFT programme undertaken within the statutory timeframe.

Any reporting entity unable to complete its independent audit on time due to COVID-19 should contact the FMA. The FMA has said that it will consider each entity’s circumstances on a case-by-case basis, with a view to granting targeted relief where appropriate.

Liquidity risk management guide for managed investment schemes

The FMA has published a good practice guide for managed investment schemes (MIS) on liquidity risk management. This was already a work in progress before the COVID-19 pandemic but, given current events, the FMA brought forward the publication date.

The guide:

  • reminds licensed MIS managers of the FMA’s expectations in relation to risk management and in particular liquidity risk at times of heightened market uncertainty and global volatility
  • shares good liquidity risk management practices that emerged following the GFC and are relevant to the COVID-19 pandemic crisis, and
  • provides context for licensed MIS managers in preparation for the FMA’s survey later this year of MIS liquidity.

The FMA notes that the information in the guide is also relevant to Supervisors in relation to their frontline regulatory oversight of MIS Managers.

KiwiSaver default provider review

The appointment of new KiwiSaver default providers has been delayed due to COVID-19, and the existing appointments have been extended by five months to 30 November 2021.

The Government has indicated it intends to issue a request for proposals (RFP) around September 2020 but this target timeframe is subject to change. There may be engagement with KiwiSaver providers in mid-to-late July 2020 on technical details of the review prior to the RFP, but this is also subject to change.

In the meantime, stakeholders are asked to direct any questions regarding the review to defaultkiwisaver@mbie.govt.nz.

Other financial services legislation delayed

The Financial Services Legislation Amendment Act transitional licensing start date has been delayed from 29 June 2020 to March 2021 at the earliest.

The existing regime under the Financial Advisers Act 2008 will continue to apply in the meantime. This is welcome relief for many advisers as, even without the pandemic, application within the timeframes would have been difficult as the disclosure regulations had not been released. Indications are that they will be out in the next couple of months.

Those who have already had licences approved or who have already submitted a transitional licensing application will not need to reapply.

As a consequence of the deferral of the start of the new financial advice regime, the FMA has released a consultation document (submissions on which close on 22 May) in relation to its proposal to continue the following Financial Advisers Act exemption Notices (that are due to expire in November this year) up until the start of the new financial advice regime:

  • Financial Advisers (Non-NZX Brokers – Client Money) Exemption Notice 2017
  • Financial Advisers (NZX Brokers – Client Money and Client Property) Exemption Notice 2015
  • Financial Markets Conduct (Offers of Financial Products Through Authorised Financial Advisers Supplying Personalised DIMS) Exemption Notice 2015

The submission deadline for the Financial Markets (Conduct of Institutions) Amendment Bill was extended to 30 April 2020.

The commencement of Part 5A of the Credit Contracts Legislation Amendment Act 2019 (relating to fit and proper person certification) has been put back from 1 September 2020 to at least 1 March 2021 and the new regulations from 1 April 2021 to at least 1 October 2021.

The Reserve Bank of New Zealand has also advised that the following regulatory initiatives will be put on hold for an initial period of six months:

  • the review of the bank liquidity thematic review (and subsequent review of the liquidity policy (BS13))
  • the review of the Insurance (Prudential Supervision) Act 2010
  • Standard terms for Residential Mortgage Obligations
  • cyber resilience guidelines for all regulated entities
  • revisions to banks’ disclosure of regulatory breaches
  • review of the stress-testing framework and planned bank stress-tests
  • revising the process for approving banks’ internal capital adequacy models for credit risk, and,
  • the future of cash – standards for banknote-processing machines.

Other delays and extensions

The deadline for submissions on the Fair Trading Amendment Bill has been extended from 27 March 2020 to 26 April 2020, and on the GST Policy Issues paper from 9 April 2020 to 8 May 2020.

A comprehensive list can be found here (‘Council of Financial Regulators – Deferral of regulatory initiatives affecting the financial sector’).

Chapman Tripp comments

Although the regulators have been prepared to cut the market some slack in terms of timelines and other regulatory breaches due to the COVID-19 crisis, they have also warned that they remain vigilant against improper conduct or unfair practices.

The message remains that customers' interests should continue to be the key focus, and that financial services businesses must act responsibly and with compassion in circumstances where their customers’ circumstances may have changed.

We cannot discount that there will be further change to the regulatory framework, depending on how the pandemic plays out. We will continue to monitor developments and to keep you informed.

Please reach out to us if you have any questions in relation to the above. We wish you all the best at this uncertain time.

This is one of a series of Brief Counsels Chapman Tripp has produced on COVID-19. See the full list of COVID-19 releases here.

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Related topics: Financial services regulation; Funds, KiwiSaver & superannuation; Anti money laundering

Financial services regulation; Funds, KiwiSaver & superannuation

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