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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- Directors / Officers (ASIC): ASIC’s Corporate Governance Taskforce released a report entitled “Director and officer oversight of non-financial risk report”. It is fascinating reading, setting out ASIC’s observations on D&O oversight of non‑financial risk (i.e. operational, compliance and conduct risk) in seven large listed firms after undertaking 60 interviews / reviewing 29,000 documents. Specific findings include: 1) risk appetite statements: risk appetite and accompanying metrics for non‑financial risk were immature compared to those for financial risk and also that management was operating outside board‑approved risk appetites for non‑financial risk for months or years at a time (see the useful metric on page 15); 2) management information: boards did not own or control the information flows from management to the board to ensure material information was brought to their attention and also management reporting often did not identify a clear hierarchy or prioritisation for non‑financial risks; and 3) risk committee: there was little evidence in minutes of directors actively engaging with the substance of proposals submitted by management and the frequency of board risk committee meetings was generally modest and also material risk issues were often escalated in an informal and unstructured manner outside regular committee meetings. My top read of the week (even if you just read the summary on pages 6 & 7), my prediction is that over time and with use the new BEAR regime will lead to improvement in this space as it has in the UK. And, on the topic of a principles-based rules, this passage is worth noting for future: “The observations in this report are made with and understanding of this principles‑based, rather than prescriptive, approach.”
- Currency bill (Treasury): not a new development, but too important to overlook regardless (and with thanks to a friend for bringing it to my attention); Treasury is consulting on the Currency (Restrictions on the use of Cash) Bill 2019 (Cth) that introduces offences for entities that make or accept cash payments (defined as physical and digital currency — though expect exemptions for the latter) of $10,000 or more. Basically, a current requirement for fairly limited AUSTRAC reporting entities e.g. banks will apply much more broadly: “Entity” is defined in the same way as in the ITAA 1997 (Cth) and it includes individuals, partnerships and companies. There is a strict liability offence if an entity makes or accepts a payment that is or includes an amount of “cash” that equals or exceeds $10,000. It also applies where there is a series of payments that relate to a single “supply” (using the much-scrutinized taxation legislation definition — see ruling GSTR 2006/9) or are a single gift and where the amount of cash provided in the series of payments equals or exceeds $10,000. In addition to to these quite broad strict liability offences, there is a more serious recklessness offence where the entity knew that there was at least a real risk that the payment would result in the total amount of cash paid or received equaling or exceeding the $10,000 limit. The penalty here is 2 years imprisonment or 120 penalty units (or both). The date of effect of this legislation is 1 January 2020 and you can read the explanatory memorandum here. It is not hard, in the wake of the AUSTRAC v. CBA smart ATM case, and the sheer scope of the law (which will require a forensic look at many systems & controls), to identify that this legislation will have a big impact going forward.
- Comminsure (ASIC): CommInsure, a wholly-owned subsidiary of CBA, has been charged with 87 counts of offering to sell insurance products in unsolicited telephone calls to its customers. ASIC alleges that the circumstances of the sales were in breach of s. 992A(3) of the Corporations Act 2001 (Cth) which provides “A person must not make an offer to issue or sell a financial product in the course of, or because of…an unsolicited telephone call to another person…” unless certain exceptions apply i.e. they were given a chance to register on the “No Contact / No Call” register. It is a criminal offence, the penalty for each offence is $21,250, and CBA will (unusually) bear the evidential burden of proof under this legislation. This action takes place against the Royal Commission’s recommendations (3.4 and 4.1) extend the anti-hawking regime to superannuation and insurance which has been accepted by the Morrison Government. The date for that legislation to be introduced is 30 June 2020 (Treasury “Restoring Trust in Australia’s Financial System, Financial Services Royal Commission Implementation Roadmap”, 19 August 2019).
- AFS reporting (ASIC): ASIC has asked all AFSL holders to lodge their annual financial statements on time (31 October 2019), stating that those who fail to meet their obligations risk regulatory consequences. Commissioner Hughes stated, in relation to the instances of failure to lodge reports on time, that: “ASIC considers this an indicator of a poor compliance culture. We expect AFS licensees to have adequate policies and procedures in place to ensure they are able to meet their financial reporting obligations. ASIC is continuing to pursue AFS licensees who don’t comply and where appropriate, we will consider taking action to suspend or cancel a licence”.
- APRA restructure (APRA): APRA has announced a restructure, it will move to an industry-based supervision model, with separate supervisory segments across super, insurance and banking and each of APRA’s six operating divisions will be led by an executive director. In addition, a new accountability regime unit is also being established, dedicated to delivering on the Morrison Government’s planned extension of the BEAR. Very much looking forward to seeing who will be nominated to head that unit up and how they will see their remit!
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(These views are my own and do not constitute legal advice. Photo credit Tom Wheatley)