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Navigating the regulatory road ahead in response to Covid-19
Navigating the regulatory road ahead in response to Covid-19

Navigating the regulatory road ahead in response to Covid-19


Akshay Maharaj

Akshay Maharaj

Head of Treasury, APAC

BNP Paribas Securities Services

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Josephine Maiorana

Josephine Maiorana

Head of Regulatory Watch and Market Advocacy APAC

BNP Paribas Securities Services

View profile

With a number of regulatory changes now on pause in response to Covid-19, BNP Paribas Securities Services (BNP Paribas), along with input from KPMG, provides a breakdown of what has changed and what is still to come at the recent BNP Paribas ‘Navigating the regulatory road ahead in response to Covid-19’ webinar.

At the beginning of 2020, the regulatory focus for Australia was on implementing the roadmap set out in 2019 post the Financial Services Royal Commission.

Commissioner Hayne called upon the regulators to build upon and sustain the underlying strength of the financial system, while at the same time stepping up focus on a broad range of risks.

However, the roadmap took a significant change in direction with the unfolding of the Covid-19 crisis in March onwards. Regulators across the globe have taken immediate action to lead their economies and markets through the pandemic.

As a result, both the Australian government and regulators changed direction and placed some plans temporarily on hold.

Regulators change course

In March 2020, the Australian Securities and Investments Commission (ASIC) announced that it would be recalibrating its regulatory priorities to focus on the challenges created by Covid-19.

These include delaying consultations and regulatory reporting reviews and a six-month delay to implementing the Royal Commission timeline to allow the industry to focus on supporting investors and staff.

In late March, the Australian Prudential Regulation Authority (APRA) also announced that it had suspended the majority of its planned policy and supervision initiatives to allow entities to focus on their operations and supporting their clients. APRA also placed on hold consultation on non-essential matters until 30 September 2020.

This, in turn, would allow APRA to dial up its focus on monitoring the impact of Covid-19 and respond on a timely basis to the unfolding events within the industry.

APRA has also played a key role in supporting the broader economy by issuing guidelines in April 2020 for the early release of superannuation for Australians financially impacted by Covid-19.

Further, KPMG noted[1] that the Australian Taxation Office completed their Streamlined Assurance Reviews (SARs) of the APRA regulated superannuation funds and deferred the start of the Managed Investment Funds to concentrate their resources on the Covid-19 measures, particularly the Early Release from superannuation and the JobKeeper initiatives.

A focus on liquidity

A key focus for regulators this year has been on helping to maintain liquidity in the changed market conditions.

The first half of 2020 was extremely volatile for markets, and all asset classes were impacted. According to the ASX[2], the benchmark S&P/ASX 200 fell 24% from 6684 points at the start of January to 5076 at the end of March. The Dow Jones Industrial Average saw similar falls during the quarter, suffering its worst day on 12 March when it fell 9.9%[3].

According to Akshay Maharaj, Head of Treasury, APAC, BNP Paribas Securities Services, this has resulted in a significant shift towards cash for clients and counterparties.

“This has been driven by both a flight to safety and the fact that fund managers and super funds have been building up cash reserves to meet expected outflows,”

he said.

Since March this year, the market has seen significantly higher outflows as a result of asset managers seeking to meet margin and collateral obligations stemming from market volatility, and members accessing super early through the Early Release of Super scheme. So far around APRA data[4] shows US$23 billion has been withdrawn from the Australian superannuation system as a result of the scheme.

“Looking forward, it is likely that the trend we have seen so far in the market will persist, with asset prices consistently moving up and down. Liquidity will continue to be an issue, both from a banking and fund perspective. APRA and ASIC are therefore expected to place a greater focus on liquidity in the coming months,”

Mr Maharaj said.

He added that with less people employed, super funds are also likely to see contributions reduce in comparison to previous years.

Fund mergers may accelerate

For the superannuation sector, KPMG noted that Covid-19 has highlighted the potential illiquidity risks arising from a lack of diversity of fund membership. Some super funds have experienced a significant fall in contributions because of high unemployment of their members in certain industries, large requests for early release of super as well as a flight to cash as a safe investment haven.  This has increased pressure on some funds to consider mergers to diversity their membership as well as their holdings in unlisted assets, with much media, political and regulatory commentary on the impact of Covid-19 on funds in certain industries.

This pressure is against the backdrop of APRA’s new directions powers under Part 16A of the Superannuation Industry (Supervision) Act (SIS Act) and it is likely that ASIC will also be given directions powers over the next six months as part of the Royal Commission package of law reforms.  In both cases, Commissioner Hayne encouraged the regulators to use their directions powers to force fund mergers and protect consumers, respectively.

While there is no specific regulatory power to force a merger under the SIS Act, APRA can use its new directions powers to require the board of a super fund trustee to consider a merger and if the board does not follow a proper decision making process or is self-interested in its decision, then APRA can remove and replace the directors of the trustee, along with any potentially obstructing influence of shareholders.

Superannuation funds are therefore advised to follow a proper decision making process in considering whether a merge is in the best interests of their members and properly document that process and the resulting decision.

Tax and pricing considerations for superannuation funds

PAYG instalments

In a changed operating environment where asset values have fallen, yields have reduced and some funds have experienced capital and foreign exchange losses, tax should also be a key area of focus for superannuation funds.

PAYG instalments for superannuation funds are based on income items in the last lodged tax return, which takes into account the proportion of instalment income to overall taxable income.

However, in the current environment KPMG recommends1that funds consider reassessing their PAYG instalment payments and consider making a variation if appropriate.

Unit pricing

With regards to unit pricing, a common method used by many superannuation funds is a blended effective tax rate, which does not separately accrue for franking credits.

These are based on assumptions around expected return and asset allocations, which in the current economic environment are likely to deviate from actual experience.

Funds undertake periodic true-ups, in line with joint guidance from APRA and ASIC. However KPMG also recommends1 undertaking interim reviews to ensure members are not negatively impacted for extended periods of time.

Deferred Tax Assets (DTA)

Deferred Tax Assets represent the value of future tax benefits arising from the carrying of revenue and/ or more typically capital losses within a superannuation fund.

Under the current rules DTA capping policies assess recoverability and place a cap on the DTA that can be recorded. In a low growth environment, some funds are therefore reviewing and potentially rethinking their policies for DTA capping.

Australian Taxation Office (ATO) update – streamlined assurance review (SAR) program for managed funds

The ATO’s SAR program for managed funds commenced this year, however funds were given the option in May to defer until after FY2020 year-end distributions. The ATO has circulated a template request for information (RFI) to enable funds to prepare.

The ATO is taking a four-pillar approach, assessing the tax governance framework of the fund, accounting to taxable income reconciliation, tax risks the ATO has flagged to market and any significant transactions the fund has entered into over a four-year period. The top 1000 tax payers will be given a governance rating ranging from ‘red flag’ to stage 1, 2 or 3.

According to KPMG1, a key takeaway for funds is that there are increased expectations from the ATO of what funds are doing in relation to tax risk management and governance.

A key emerging issue is reliance on third-party data. BNP Paribas will provide a tax information memorandum each year outlining the tax treatment of particular assets. However, it is important for managed funds to understand how that information applies to their assets.

In preparing for a review managed funds some areas for consideration include:

  • Documenting and assessing migration to a new tax or accounting system.
  • Outlining non-portfolio disposals.
  • Clear documentation of corporate actions.
  • Rationale for being classified as an attribution managed investment trust (AMIT) or managed investment trust (MIT). If the fund was eligible to become an AMIT and did not make an election, the ATO will enquire why that is the case, particularly as the industry campaigned for the AMIT regime before its introduction in 2016.

New regulation - what is still to come

Josephine Maiorana, Head of Regulatory Watch and Market Advocacy APAC, BNP Paribas Securities Services also provided an update on a number of regulatory changes that were tabled for 2020.

Prudential Standard CPS 234 – information security

CPS 234 aims to ensure that an APRA-regulated entity takes measures to be resilient against information security incidents (including cyberattacks).

The Standard went live on 1 July 2019 and the next phase of the rollout, which is in relation to third-party service providers of the regulated entity, was due to go live on 1 July 2020. APRA have now confirmed that, on application, rollout may be deferred until 1 January 2021.

RG97 – disclosing fees and costs in Product Disclosure Statement and periodic statements

ASIC outlined changes to RG97 changes in November 2019, off the back of a consultation in April 2019. ASIC’s guide for superannuation and managed investment product providers recommended simplifying fees and costs in PDS documents and periodic statements into three categories – administrative, transaction and investment fee costs.

Go-live was tabled for 30 September 2020, for all PDS documents issued on or after that date, while periodic and exit statements would be covered from 1 July 2021.

ASIC has announced amending the transitional arrangements for Product Disclosure Statements that now allows any PDS given on or after 30 September 2022 to comply with the new disclosure regime. There is no change to the transition of the new periodic statements go live date which is set for 1 July 2021.

“BNP Paribas’ product offering RG97 will therefore be modified to meet these new arrangements as they go live,”

Ms Maiorana said.

Portfolio holdings disclosure

ASIC’s portfolio holdings disclosure requirement, which requires superannuation funds to declare their funds’ holdings on their websites, was passed through Government in April 2019.

ASIC recently announced that the go-live date of 31 December 2020 would be deferred, BNP Paribas is currently awaiting information on the revised dates.

Over-the-counter derivatives (OTC) reform

“OTC reform is an area where we have continued to see movement off the back of G20 commitments made over 10 years ago,” Ms Maiorana said. “We are focused on the expiry of OTC repository exemptions that are due to expire in September 2020 and also CPS226 in relation to margining and risk mitigation for non-centrally cleared derivatives.”

BNP Paribas has not yet received any official notification of deferrals for OTC repository exemptions at the time of this writing.

With regard to APRA’s Prudential Standard CPS226, Ms Maiorana said this would be based on a phased approach.

“Most Australian entities are Phase 5, which has a qualifying level of US$12 billion. Go-live for this group was to be September 2021 but APRA have recently announced an extension of this to September 2022. This is in line with the Basel Committee on Banking Supervision and the International Organisation of Securities Commissions”,

she said.

Central Securities Depositary Regime (CSDR)

The CSDR (Central Securities Depositories Regulation) is a European regulation that rewrites the rules for securities settlement in Europe. It aims to increase efficiency by providing shorter settlement periods and mandatory penalties for failed trades.

The CSDR has a global applicability for financial institutions making settlements through a European Union exchange.  The go live date has recently been deferred to February 2022. More information is available in BNP Paribas Securities Services’ CSDR Handbook.


The London Interbank Offered Rate (LIBOR), which has been one of the most important interest rates in the world since the late 1980s, is set to be decommissioned in 2021.  This means time is running out for Australian financial services businesses to update their systems to comply with alternative reference rates.

In May last year, ASIC, APRA and the RBA issued a joint statement urging Australian businesses to prepare. BNP Paribas still expects this change to happen by the end of 2021, therefore all affected parties should continue to progress towards the change.


Superannuation and managed fund providers are currently navigating significantly changed market conditions, with liquidity and supporting clients likely to be continued areas of focus for the industry.

As outlined, regulators have responded by delaying a number of regulatory changes that were tabled for 2020. However it is critical that the market continues to keep in mind upcoming changes and prepare their businesses for these as they approach. BNP Paribas will continue to consult within the industry on future changes and keep clients updated.

For the latest global and local regulatory information, please visit the Regwatch page on BNP Paribas Securities Services’ website.

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[1] KPMG’s comment at the BNP Paribas ‘Navigating the regulatory road ahead in response to Covid-19’ webinar in June 2020

[2] ASX -

[3] CNBC -

[4] APRA -


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