Australian regulators weekly wrap — Monday, 12 August 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. Responsible lending: ASIC’s unusual public hearing into responsible lending standards – which essentially requires lenders to determine whether credit sought is suitable for a particular consumer – kicked off in Sydney today. The hearings follow ASIC’s receipt of written submissions (and a court case against Westpac in relation to its reliance on the HEM benchmark, which is used to estimate living expenses) and is designed to assist the regulator in revamping its guidance in this area. Commissioner Hayne declined to recommend a ban on lenders from using the HEM benchmark, though he did opine that the current legislation requires more than reliance on it alone. BOQ appeared to agree today, stating that the existing rules were too subjective. Westpac favoured more principles-based regulatory guidance, rather than prescriptive rules. A hybrid approach, with a “safe harbour” of prescriptive rules i.e. do this and the firm will be compliant, but an overarching principles-based component i.e. if the firm thinks it can reasonably justify operating outside the prescriptive rules then it can do so, was another option put forward in the written submissions. There is a balance between protecting consumers’ interests while not unnecessarily impeding lending (including through the increased costs of compliance which may be passed on); ASIC’s guidance will be greatly anticipated. The hearing resumes on 19 August 2019.
  2. Whistleblowing: the Treasury Laws Amendment (Enhancing Whistleblower Protections) Act 2019 (Cth) received assent in March 2019 and vastly expands existing protections / remedies for eligible whistleblowers, no longer requires that whistleblowers need to act in “good faith” to receive protection, permits anonymous disclosures and requires public companies and “large proprietary companies” to have mandatory whistleblower policies in place by January 2020. The impact of the legislation may be significant, and will affect regulatory practice in this area e.g. given firms are now prohibited from disclosing identifying information about an whistleblower’s identity (now criminal offence) how do they effectively investigate, report and punish wrongdoing? ASIC has just released a consultation paper (CP 321) and draft Regulatory Guide seeking feedback on whistleblowing policies. It is understandably broad in nature, which underscores the scale of work that affected firms have ahead of them and the time / expertise that will be required in getting it right. For e.g., the draft Regulatory Guide states: [ASIC] encourage[s] entities to follow best practice in investigations. The investigation should be thorough, objective, fair and independent, while preserving the confidentiality of the investigation [and whistleblower]”. While challenging, there are lessons to be had from US investigatory practice which is more advanced than Australia’s in this area. Submissions are required by 18 September 2019.
  3. UK Serious Fraud Office / corporate cooperation: not an Australian regulatory issue per se, though a development perhaps worth mentioning given the increasingly sharp tone of Australia’s regulators regarding legal professional privilege (and as they watch the UK closely); the UK SFO has released guidance on what it expects firms to do so as to receive co-operation credit. Waiving privilege over investigatory materials, updating the SFO on key developments regarding witnesses e.g. disciplinary proceedings and providing information on third parties will be all be deemed cooperative in the SFO’s eyes. The guidance also sets out how to gather, hold and produce evidence so that the “crime-scene isn’t trampled” (a common regulatory complaint of lawyers’ internal investigations.) No doubt a copy of the guidance, which is actually quite readable, is sitting on several Australian regulators’ desks.
  4. APRA fines: the prudential regulator has fined Westpac and two subsidiaries for historical delays in data reporting (in one case up to 37 days); a cumulative penalty of $1,501,500. It is the largest fine possible. The data falls within APRA’s new Economic and Financial Statistics Collection Program. Consistent with industry predictions of a greater focus on timely and accurate information being provided to regulators (itself a focus of the Royal Commission), APRA deputy chair John Lonsdale stated “By issuing these infringement notices, APRA wants to send a strong message to industry that compliance with our reporting standards is mandatory, and cannot be considered secondary to other business priorities.”
  5. Climate change reporting: a hot topic during AGM season, ASIC has clarified its existing regulatory guidance with respect to the disclosure of climate change related matters. ASIC Commissioner John Price has stated “While disclosure is critical, it is but one aspect of prudent corporate governance practices in connection with the mitigation of legal risks. Directors should be able to demonstrate that they have met their legal obligations in considering, managing and disclosing all material risks that may affect their companies. This includes any risks arising from climate change, be they physical or transitional risks.” (Emphasis retained.) It is interesting wording, given the “stepping stones” approach ASIC was successful with in ASIC v Vocation i.e. breach of continuous disclosure = breach of directors’ duties ≠ reliance on business judgment rule. (Here is an earlier article I contributed to on the topic of climate changes and directors’ duties, but not continuous disclosure per se.) Of perhaps greater note is ASIC’s statement that it will conduct surveillance of climate change related disclosure practices by selected listed companies in the coming year…

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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