January 10, 2022
Estimated reading time: 14 minutes
COVID-19: How are global financial regulators responding to the pandemic?
A summary of the key messages and resources from global financial regulators as the COVID-19 (coronavirus) pandemic unfolds.
As the effects of COVID-19 (coronavirus) take hold, financial regulators across the globe are scrambling to keep pace with the evolving situation. At this point, it is becoming clear that the pandemic will have long-lasting consequences – not only to the health and foundation of society – but to the global economy.
With that in mind, CUBE explores the messaging from financial regulators as they move to adapt to the changing financial landscape.
The FCA’s proposed activities:
- The FCA will be postponing activities that are not critical to protecting consumers and market integrity in the short-term.
- It is taking immediate action to extend the closing date for responses to open consultation papers and calls for input until 1 October 2020.
- It is scaling back its program of routine business interactions and will only contact firms with business-critical requests.
- The FCA expects all firms to have tried and tested contingency plans, which it is actively reviewing.
- All firms should take ‘all reasonable steps’ to meet their regulatory obligations and establish new systems and controls in the event that usual business activity is interrupted (e.g. if call centers are closed).
Market trading and reporting
As many staff in this industry will be moving to working from home arrangements, the FCA wants to see that firms are doing what they can to consider the broader control environment in remote-working conditions. This includes:
- Informing the FCA in instances where firms are no longer able to record calls. They should mitigate risks if they are unable to comply with voice-communication recording obligations. Examples include enhanced monitoring or retrospective reviews.
- Firms should continue to maintain appropriate records, even if they have difficulty in submitting the data.
- Firms should continue to take all possible steps to prevent market abuse.
- The FCA has published expectations for general insurance firms during the pandemic.
- It expects firms to be aware of the scope of the cover it provides and what exemptions apply – and to make this information readily available to consumers online and through call centers.
Senior Managers and Certification Regime (SM&CR)
The FCA does not expect firms to have a single Senior Manager responsible for their coronavirus response. Instead, it suggests that firms should allocate responsibilities in a way which will best able them to manage the risks they are facing.
The circumstances surrounding the pandemic may mean that some firms will need to make temporary arrangements owing to absences. The FCA is keen to minimize the burden on firms in these challenging times. As such, it does not intend to enforce the requirement on firms to submit updated Statements of Responsibilities (SoRs) if the change is made to cover sickness or responsibilities in direct to the response to the pandemic and if the change is a temporary one. Allocations should, however, be clearly documented internally, with information provided to the FCA with timely detail of the changes.
Moving forward, the FCA intends to issue a ‘Modification by Consent’ to support firms using temporary arrangements during the crisis. This rule will allow an individual to cover for a Senior Manager without being approved, where the absence is temporary, and the appointment is for less than 12 consecutive weeks.
FCA, FRC and PRA joint statement
On 26 March, the FCA, along with the Financial Reporting Council (FRC) and Prudential Regulation Authority (PRA), issued a joint statement to address COVID-19 outlining a series of actions they will be taking during the pandemic. These include:
- Allowing listed companies an extra 2 months to publish their audited annual financial reports.
- The FRC has issued guidance for how audit firms might overcome challenges when attempting to obtain audit evidence.
- The FRC has also issued guidance to companies on preparing financial statements in the current uncertain requirements. The PRA has issued complimentary guidance on the approach that should be taken by financial institutions in assessing expected loss provisions under IFRS9.
The three bodies added that banking authorities have acted to reduce pressure on banks, and that they strongly encourage lenders and other parties to take this into account when responding to potential breaches of covenants arising from the COVID-19 pandemic.
The FCA have launched an email round-up of coronavirus (Covid-19) news and publications published on its website. You can join the list to receive a daily update, launching soon.
European Securities and Markets Authority (ESMA)ESMA has issued a string of statements concerning the COVID-19 outbreak and what it means for their expectations and operations. Their key messages are as follows:
- The response date for all ongoing consultations with a closing date on, or after, 16 March 2020 will be extended by four weeks.
Call recording obligations under MiFID II
- Call recording, in line with requirements under MiFID II, may be more challenging in the ‘exceptional circumstances’ posed by COVID -19. ESMA understands that the current situation may mean that the recording of calls as required by MiFID II may not be always be practicable.
- Where firms are unable to record voice communications, ESMA asks that they consider instead what alternative steps they could take to mitigate the risks posed by lack of recording.
- Firms are still expected to deploy all possible efforts to ensure that any flexible measures put in place are only temporary and are restored as soon as possible.
European Banking Authority (EBA)The European Banking Authority has issued a statement on actions that will mitigate the impact of COVID-19 on the EU banking sector. The statement edges towards encouraging relaxed regulation and increased flexibility to ensure operational continuity.
- The EBA will postpone the planned EU-wide stress test exercise until 2021, to gives banks space to focus on the continuity of their core operations during the pandemic.
- It recommends that all national competent authorities work flexibly or postpone on-site inspections where they are ‘non-essential’.
- The EBA has further suggested that banks could be given some leeway with regard to certain areas of regulatory reporting, as long as it does not put at stake the crucial information needed to monitor banks’ financial and prudential situation.
- It encourages all national, competent authorities to take advantage of the flexibility embedded within regulatory frameworks, where necessary, in order to support the banking sector.
US Securities and Exchange Commission (SEC)The SEC is focussing its efforts primarily on the “health and safety of our employees and all Americans”. Its key priorities are:
Maintaining continuity of its operations
- The majority of SEC staff are teleworking. They are confident that the agency will continue to maintain operations in a telework format.
Monitoring market function and risk
- The SEC is monitoring the functioning, integrity and resistance of the securities markets, with a focus on operations. This involves monitoring direct communications within these organizations.
- The SEC continues to monitor and communicate with the largest US broker-dealers and expects to gather insights and industry trends from their activities.
- It is placing a particular focus on the monitoring and analysis of the real and potential effects of COVID 19 on the functioning of the US and global securities markets.
Providing prompt and targeted relief and guidance
- The SEC aims to provide guidance to market participants, as well as targeted regulatory assistance and relief where necessary or appropriate.
Maintaining its enforcement and investor protection efforts
- The SEC’s Division of Enforcement and OCIE remain operational and continue to focus on protecting investors.
- It is looking, in particular, at instances of frauds, illicit schemes and other misconduct relating to COVID-19 and will issue enforcement action where appropriate.
Cross-Divisional COVID-19 Market Monitoring Group
On 24 April, the SEC announced the formation of an internal, cross-divisional Market Monitoring Group comprised of senior members of the Commission. The group has been created with the aim of assisting the SEC in its response to COVID-19 – both inits internal actions and its external response to fellow regulators and the public.
Office of the Superintendent of Financial Institutions (OSFI)The OSFI is working in coordination with federal agencies to take actions that ensure that federally regulated financial institutions remain stable and resilient during the COVID-19 uncertainty. It has noted that, following the 2008 global financial crisis, it has moved to strengthen its supervisory efforts and requirements around strong capital, liquidity and risk management. In particular, it has taken these key steps:
Consultations and policy developments
- In line with many other regulators, OSFI is suspending all of its consultations and policy development on new or revised guidance until such time that conditions stabilise.
- This includes the proposed new B-20 benchmark rate for uninsured mortgages – meaning that the current benchmark rate will remain in force until further notice.
Adjusting the Domestic Stability Buffer
- The OSFI has in place a Domestic Stability Buffer (DSB) for ‘domestic systemically important banks (DSIBS)’. This enables banks to save during financially strong periods and utilize that capital during unexpected negative periods, such as COVID-19.
- OSFI has lowered the DSB by 1.25% of risk weighted asset. The requirement has now moved from 2.25% to 1.00%. This will release in excess of $300b in additional lending capacity.
- OSFI expects that this will free up funds so that DSIBS are able to supply credit to the economy.
- OSFI is encouraging financial institutions to use these funds to support Canadian businesses and households, and notes that the funds should not be distributed to shareholders or employees.
- The DSB buffer will not be raised for at least 18 months.
Dividends and share buybacks
- In line with the release of the DSB funds, OSFI has announced that it expects all federally regulated financial institutions to put a pause on any dividend increases and share buybacks for the time being.
Supervisory and regulatory priorities
- OSFI is realigning its supervisory and regulatory priorities to align with market conditions caused by COVID-19.
- It has reaffirmed its commitments to being risk-based and agile and will pay close attention to the responses of financially regulated institutions, as well as capital, liquidity and operational capacity, to inform its strategy moving forward.
On 27 March, OSFI announced new flexibility measures in a bid to ease the operational stress on financial institutions in the wake of COVID-19. The measures, which ensure that OSFI’s guidance is appropriate for the ‘extraordinary circumstances’, include adjustments to the number of regulatory capital, liquidity and reporting requirements.
The new measures are sector-specific and are broken down between three targeted industries: banks, insurers and private pensions plans. They are as follows:
Key measures for banks
- Capital and liquidity measures are to be adjusted to suit the circumstances presented by COVID-19.
- Implementation of the outstanding measures of the Basel III international capital standard are to be delayed until 2023, in line with the decision of the Basel Committee’s oversight body.
- Implementation of revised capital and liquidity requirements for small and medium sized banks is to be delayed until 2023.
- Accounting standard IFRS 9 will apply during this period, for which OSFI will provide guidance.
Key measures for insurers
- Clarifying that under the newly relaxed regulatory capital requirements, payment deferrals will not cause insured mortgages to be treated as delinquent or in arrears.
- Semi-annual progress reporting, including the implementation of new accounting standard IFRS 17, are to be suspended.
Key measures for private pension plans
- A temporary freeze on portability transfers and annuity purchases
- Extending the deadlines for annual filings and certain other actions to allow flexibility for plans to focus on issues presented by the current pandemic.
OSFI has published an FAQ page on regulatory reporting for Federally Regulated Financial Institutions (FRFIs), which covers regulatory reporting requirements and the recent measures taken to offer FRFIs flexibility to meet upcoming deadlines for filing regulatory returns. The FAQ page is updated regulatory.
Financial Transactions and Reports Analysis Centre of Canada (FINTRAC)On 23 April, FINTRAC issued a message to all reporting entities concerning its expectations surrounding regulatory obligations, particularly in relation to reporting during the COVID-19 outbreak.
FINTRAC acknowledges that many reporting entities may face challenges in meeting their obligations by reason of reduced numbers of employees or alternative working environments. Firms may also be in a position whereby they are having to reassign and reprioritize their resources. As such, FINTRAC has said that it is committed to working alongside reporting entities to “minimize the impact of their ongoing regulatory requirements”.
In particular, FINTRAC has set out its expectations in the following areas:
- Firms should be prioritizing the submission of suspicious transaction reports (STRs).
- In exceptional circumstances, where firms are unable to submit in the usual manner, but are in possession of critical information related to terrorist activity financing, FINTRAC asks that firms report via email.
- In other instances where firms are unable to report, they can submit a voluntary self-declaration of non-compliance.
Verifying the identity or existence of an individual or corporation
- During the COVID-19 crisis, some provincial governments have taken steps to protect the health and safety of employees. This has included extending the validity of certain identity documents including driver, vehicle and carrier products and services so to avoid in-person visits.
- If a person presents a document which suggests they have been affected by such a decision, FINTRAC expects that the reporting entity will continue to determine the authenticity of the document but can continue to consider it as valid and current at this time.
- FINTRAC is now providing additional, temporary flexibility to reporting entities. FINTRAC has relaxed the requirement to authenticate a government-issued photo ID document through the use of technology. Entities may now use human judgment to determine whether the document they are viewing appears to be authentic.
- Where this temporary method is used, regulated entities should keep a record of the clients that were affected and should re-verify the identity of their clients when physical distancing measures have been lifted.
- FINTRAC has reprioritized its supervisory work and has deferred new examinations.
- Other interactions with reporting entities are to be limited to situations related to reporting issues, where guidance is needed or where it concerns the completion of examinations that are currently underway.
- These measures will continue to be reviewed as the COVID-19 situation normalizes and FINTRAC will be “flexible and reasonable” in their ongoing approach.
- In instances where a reporting entity is unable to meet any given obligation, they should keep a record to indicate why this is the case and include any mitigating factors, where possible.
Australian Securities & Investment Commission (ASIC)
- ASIC, in line with the Council of Financial Regulators, has confirmed that it will focus its regulatory efforts on the COVID-19 pandemic until at least 30 September 2020. The only exception to this will be in existing matters where there is risk of significant consumer harm, serious breach of the law, or a risk to market integrity of time critical matters.
- Following suit with the FCA, ASIC has suspended consultations, as well as regulatory reports and reviews. It will also be suspending on-site supervisory work.
- ASIC will look to provide relief or wavers from regulatory requirements, where warranted.
- While ASIC will maintain its enforcement activities, it will focus on action that prevents immediate consumer harm, illegal conduct and time-critical matters. It recognizes that there may be some changes to the timing and process of investigations to take into account the impact of COVID-19.
China Securities Regulatory Commission (CSRC)The CSRC has been slow to comment on issues surrounding COVID-19. However, ‘as economic and social life gradually normalizes in China’ it has now issued a statement regarding its policy priorities following the outbreak.
Since 1 February 2020, the People’s Bank of China (PBC), Ministry of Finance (MOF), China Banking and Insurance Regulatory Commission (CBIRC), China Securities Regulatory Commission (CSRC) and State Administration of Foreign Exchange (SAFE) have announced 30 measures in response to the COVID-19 outbreak. These include measures to:
- Apply favorable credit policies to SMEs;
- Keep liquidity at an ‘ample’ level;
- Extend support to roll-overs and renewals of due loans; and
- Safeguard the stable operations of financial markets.
The CSRC notes that China’s stock market suffered a ‘short and severe shock’ following COVID-19. As it returns to the normal course of operation, the CSRC has stepped up supervision over and guidance to exchanges and service providers. It requires them to guarantee a smooth operation of the markets going forward. Moreover:
- The CSRC has asked the exchanges to resume services on time, improve business continuity plans, encourage market participants to access online services, and make sure issuance, trading, clearing settlement activities are proceeded in an orderly fashion.
- It is aligning with other regulators in making flexible arrangements surrounding existing regulatory requirements and deliberating on measures to allow postponed periodic reporting and delay deadlines.
- It is calling for close cooperation between global securities and futures regulators to fight against a further outbreak and to work collaboratively towards the steady development of global capital markets.
Monetary Authority of Singapore (MAS)Unlike other financial regulators, MAS has remained relatively quiet with regard to the COVID-19 pandemic. It has, however, released some guidance regarding safe distancing measures, especially precautionary measures to be taken when conducting meetings:
- MAS expects all issuers to comply with the Ministry of Health’s mandatory safe distancing measures in all meetings, including general and scheme meetings.
- MAS is working in tandem with the Accounting and Corporate Regulatory Authority (ACRA) to introduce new legislative amendments in relation to the conduct of meetings – to provide legal certainty about safe distancing measures.
- Investors are urged to use all alternative ways available to participate in meetings, especially by virtual means. MAS has further released separate guidance on social distancing within financial services, which includes encouraging reduced traffic at customer-facing locations and canceling or deferring physical events.