Australian regulators weekly wrap — Monday, 29 July 2019



The Australian regulators weekly wrap is a weekly alerter which quickly sets out five noteworthy developments from the past week. It is designed to help you in keeping up to speed with what is happening in Australian financial services regulation.

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  1. Remuneration: APRA released draft prudential standard CPS 511 Remuneration (with an accompanying discussion paper) which proposes to introduce heightened requirements on firm’s remuneration and accountability arrangements. A response to the Hayne Royal Commission recommendations, it contains some very significant reforms including: 1) financial performance measures must not comprise more than 50 % of performance criteria; 2) minimum deferral periods for variable remuneration of up to seven years in large ADIs (which would bring Australia closer to the UK’s position); and 3) boards must approve and actively oversee remuneration policies for all employees. The new standards are designed to complement the BEAR, and in the words of APRA Deputy Chair John Lonsdale: “Limiting the influence of financial performance metrics in determining variable remuneration will encourage executives to put greater focus on non-financial risks, such as culture and governance”. The consultation period will close on 22 October 2019.
  2. Why not litigate”: ASIC Commissioner Hughes has told the Australian Financial Review (28 July 2019) that more cases are in the works and the public should brace itself as they come to light. There are already around 25 active investigations flowing from the Hayne Royal Commission. Expect ASIC’s separate “Office of Enforcement” to focus on executives and company directors as it continues its more aggressive approach. And hopefully the pendulum does not swing so far in favour of punitive enforcement that ASIC’s overarching regulatory aims are compromised (for more detail there, see a paper I delivered last week at the Australian Centre for Financial Studies’ annual conference.)
  3. ASIC v. ANZ : ASIC commenced proceedings in the Federal Court against ANZ for charging periodic fees between August 2003 and 23 February 2016 which ASIC alleges ANZ was not entitled to charge. It also alleges ANZ first became aware there was a risk it was not entitled to charge these fees in July 2011. ASIC claims ANZ breached s 912A of the Corporations Act 2001 by failing to provide its services “efficiently, honestly and fairly” including as it provided incomplete or misleading information when it reported the issue to ASIC in February 2014. And that ANZ breached the ASIC Act 2001 (ASIC Act), by engaging in misleading or deceptive conduct, made false or misleading representations and engaged in unconscionable conduct in circumstances connected with its charging of the fees and subsequent remediation exercise. Some interesting legal subject matter, in particular connected with qualitative reporting obligations — ASIC’s Concise Statement can be accessed here.
  4. Securities lending: ASIC has released a consultation paper (CP 319) on securities agents’ disclosure obligations. Where an owner of securities transfers them to a borrower, who has an obligation to return the securities or equivalent securities, often the transaction is facilitated by a securities agent. Sometimes these agents are caught by s 671B of the Corporations Act 2001 (Cth), which requires disclosure of a substantial holding in a listed firm. As they act on instructions, this can be an onerous obligation; ASIC’s consultation is geared towards proposed legislative relief. Submissions close on 9 September 2019.
  5. Psychologists in the boardroom: The Australian Psychologist Society has defended ASIC’s move to placed psychologists in the boardroom, noting that organisational psychologists have been ranked the fastest growing profession in the United States (Australian Financial Review, 23 July 2019). The President of Society writes “Typically, organisational psychologists use data, benchmarking and a rigorous understanding of human nature and ecosystems to improve workplace performance, wellbeing and sustainability, and prevent organisational dysfunction or failure”. Regardless of which side of that argument individuals fall on, arguably the first considerations should be structural i.e. clarification of reporting lines, confidentiality and legal professional privilege.

Do you think I overlooked something or would like more information? If so, please send me a message!

(These views are my own and do not constitute legal advice. Photo credit Tom Wheatley)

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