COVID-19 – Global Insurance and Financial Services Regulatory Update – May 2020
Coronavirus (COVID-19) Global Insurance and Financial Services Regulatory Update
The COVID-19 pandemic has disrupted the normal businesses activity in almost all areas of the economy, including the insurance and financial services sectors. Regulators around the world are undertaking various measures to respond to the potential effects of the pandemic on these industries and ensure that customers are protected.
This global update provides an summary of the latest regulatory developments in key markets around the world, including Australia, Asia, the Middle East, South Africa,the United Kingdom and the Americas. It outlines changes to the prudential and licensing requirements, and statutory obligations of financial service providers; postponement of regulatory initiatives and reform; areas of specific regulatory focus; and changes to the operations of regulators as a result of the COVID-19 crisis.
If you have any questions or would like to discuss regulatory issues further in any jurisdiction, please get in touch directly with one of the Corporate Insurance Partners listed below.
Australia
COVID-19 Australia: Financial sector regulatory reform is postponed for six months
With COVID-19 putting unprecedented pressure on the financial sector, the Australian Government and regulators have put their ambitious regulatory agenda on hold for six months to allow businesses to focus on managing the COVID-19 crisis.
Over the last 12 months, the Australian Government had been pursuing a rapid agenda of legislative reform to implement the 76 recommendations arising from the Final Report into the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in Australia (the Financial Services Royal Commission) in February 2019.
The Australian Securities and Investments Commission (ASIC) and Australian Prudential Regulation Authority (APRA) had also planned an ambitious agenda of reviews and reform initiatives to be undertaken in 2020.
However, the outbreak of COVID-19 has forced the Government and regulators to reconsider the speed of reform, particularly as financial services sector will be critical to support the economy through the COVID-19 crisis. New priorities have been announced, exceptions allowed and further reforms put on hold. While this offers some relief to financial service providers, regulators have made it clear that they will continue to closely monitor conduct and the prudential position of regulated entities.
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Asia
COVID-19 Hong Kong: Hong Kong’s measures to promote itself as a regional insurance hub
The Hong Kong Government and other bodies of authority have been proposing to implement a number of key measures to enhance the attractiveness of the insurance industry in Hong Kong.
Some of the key measures which will affect various stakeholders in the insurance industry include:
- Insurance linked securities (“ILS”) and captive insurance;
- Group-wide supervision;
- Tax relief; and
- Extended temporary facilitative measures
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Middle East
Insurance Regulation and COVID-19 in the United Arab Emirates
The impact of COVID-19 will affect the regional GCC insurance industry, and accentuate the issues that already existed in the market prior to the onset of the pandemic.
Whilst the overall measures taken in the UAE have been stringent, there has been relatively limited regulatory intervention specific to the insurance sector. Initial guidelines from the Insurance Authority were focused on insurance sector entities’ readiness to work remotely. The Insurance Authority has implemented some measures designed to ease the financial burden of regulatory compliance. The Insurance Authority announced earlier this month that the implementation of its long-awaiting regulations for the life insurance sector has been postponed until mid-October 2020.
The peculiarities of the insurance sector in the UAE, and to some degree the broader region, mean that it is difficult to assume that measures taken in other markets are apposite for the UAE. The industry has a heavy reliance upon the reinsurance of risks, especially for commercial lines, and therefore many of the local insurers will have limited exposure to the full burden of the substantial business interruption claims which are anticipated.
We anticipate further intervention by the Insurance Authority as the effects of COVID-19 and its longer-term economic ramifications become known.
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South Africa
COVID-19 South Africa: Regulatory and compliance impacts in the financial services industry
South Africa was under a level 5 (the highest and most stringent) national lockdown since 26 March 2020 and only moved to a level 4 lockdown with effect from 1 May 2020, which sees an expansion of the number of industries that can open, while maintaining strict prohibitions on movements and gatherings.
Certain sectors of the financial services industry were deemed necessary to maintain the functioning of the financial system during the level 5 national lockdown and as such were designated as essential services and allowed to operate. These include (i) the banking environment; (ii) the payments environment; (iii) the financial markets; (iv) the insurance environment; (v) the savings and investment environment; (vi) pension fund administration; (vii) outsourced administration; (viii) medical schemes administration; and (ix) call centres necessary to provide financial services.
The South African insurance and medical scheme regulators, namely the Prudential Authority (“PA”), Financial Sector Conduct Authority (“FSCA”) and the Council for Medical Schemes, have been proactive in assisting the industry in meeting their statutory requirements whilst dealing with the national lockdown, by issuing various press releases, general communications, directives and exemptions.
For example, the FSCA issued has outlined expectations on regulated entities, including that, if any new exclusions or requirements are introduced to insurance policies during the COVID-19 crises, they must be discussed with the FSCA. The FSCA and the PA have also jointly issued a Directive which dictates the appropriate precautionary measures to be taken by financial institutions when performing essential financial services during the nationwide lockdown, including that they develop and implement an infectious disease preparedness and response plan.
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UK
Insurance Regulation and COVID-19 in the United Kingdom
The Covid-19 pandemic poses a unique challenge to the insurance industry and places it firmly in the public spotlight. In response, regulators have issued measures and guidance to assist (re)insurers in navigating these challenges.
A particular area of focus for the UK regulators has been the conduct of firms dealing with customers in connection with the crisis and need to treat customers fairly during this period has been emphasised. In addition, the importance of clear communications with customers has been highlighted with policyholders likely to be concerned or unclear about the terms of their cover.
The UK regulators have also sought to relax some of the regulatory burdens on (re)insurers to take into account the difficulties of remote working and staff absences. This has included postponing certain regulatory actions and deadlines as well as delaying some planned operational changes. However, the regulators have stressed that (re)insurers must act prudently to preserve their capital position in order to continue to service customers.
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