Keeping on top of the latest financial services regulatory & compliance trends?
Investing time in your professional development within a rapidly changing financial services industry is challenging. To meet that challenge, the Australian regulators weekly wrap is designed to keep you at forefront of your practice by quickly setting out the top 5 developments from the past week, analysis and practical considerations for the future.
- Modern slavery (legislation): the Morrison Government will establish a “Modern Slavery Expert Advisory Group” comprised of representatives from business, academia and elsewhere to provide advice on key issues and strengthen business engagement to effectively implement the new laws. Introduced on 1 January 2019, the Modern Slavery Act 2018 (Cth) requires affected large companies to report steps taken to respond to the risk of modern slavery – which is broadly defined, and includes the inability to leave work because of threats or abuse of power – in the operations and supply chains of it and its controlled entities. For Australian corporations, the first reporting year will be 1 July 2019–30 June 2020. (And it takes time to conduct the required investigations, so my advice is to start now if you haven’t already.) The Government also announced increased funding for the Fair Work Ombudsman to conduct investigations, improve migrant workers’ understanding of their workplace rights and introduce criminal sanctions for serious workplace exploitation and released a very short consultation paper to inform development of Australia’s National Action Plan to Combat Modern Slavery 2020–24, which sets out Australia’s strategic framework to combat modern slavery. The closing date for submissions is 31 January 2020.
- “Business ethics” (ASIC): ASIC Commissioner John Price has given the keynote address at the Australasian Business Ethics Network Conference. He reemphasised the importance that ASIC places on corporate culture, a global regulatory trend following the GFC, and stated that ASIC has an important role in promoting ethical culture in a business: “In short, culture is ‘the way we do things around here’. And we can see the influence of culture in the entities we regulate. A company’s culture often shapes its approach to corporate governance, its response to its regulatory obligations, and drives conduct within the firm. And that can be either good or bad conduct.” Interestingly, after touching on ASIC’s Corporate Governance Taskforce and its aim to “…build understanding and improve current corporate governance practices that can support changes towards a more ethical culture”, the Commissioner dedicated much of his speech to whistle-blowing. Summarising the broad whistle-blower reforms which commenced in July 2019 (take a look at ASIC’s great new RG 270 for more detail — the requirement to have a compliant policy starts from 1 January 2020), the Commissioner stated that these reforms will help ASIC perform its mandate by encouraging more whistle-blowers to come forward. He also stated that ASIC plans to survey the whistleblower policies from a sample of companies next year to review compliance with the legal requirements and the extent to which companies are implementing good practices. Expect to hear a lot more about whistle-blowing in 2020!
- Director identification (legislation): the Morrison Government has introduced the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019 (Cth) to integrate the 32 existing business registers onto one platform to be administered by the Australian Business Registrar. The different registers are set out on page 8 of the Explanatory Memorandum, the main ones being those maintained by ASIC e.g. ACN register. The interesting bit is on page 39 though (my top read for the week); the Government is going to introduce a unique director identification number that will stay with individuals all their life in an effort to combat pheonixing activity i.e. transferring all the assets out of one company to another and then liquidating the first company. The EM states: “The new requirement assists regulators to better detect, deter and disrupt phoenixing and improves the integrity of corporate data maintained by the registrar.” A development for which the insolvency industry has lobbied long and hard (it is quite easy common for variations of names to be registered), I suspect a collateral consequence will be APRA and ASIC’s ability to better monitor “rolling bad apples” as the UK FCA does i.e. senior individuals with a black mark against their name moving from one financial services firm to another. Under BEAR, APRA can query or challenge an “accountable person” appointment e.g. to a C-suite role, but cannot formally object to their appointment; it is different in the UK, where the FCA must approve the person for that role. Whether or not that law changes (practically-speaking would you move ahead with an appointment if APRA raised concerns?), this new law will give our regulators an easier time of monitoring Australian directors.
- Auditors (ASIC): ASIC has released its results from its audit firm inspections for the 12 months to 30 June 2019, and a supplementary report of audit quality measures, indicators and other information. The report found that the auditors did not, in ASIC’s view, obtain reasonable assurance that the financial report was free from material misstatement in 26 per cent of the key audit areas (which does not mean the financial reports audited were materially misstated, rather that the auditor may not have had a sufficient basis to support their opinions). ASIC stated that sustainable improvements in audit quality require a focus on governance, accountability, culture and talent by audit firms and that it would continue to pay attention to this area. ASIC Commissioner John Price said: “While firm action plans to improve audit quality remain important, the continuing overall level of adverse findings from our audit files reviews needs to be addressed. ASIC will adopt a more intensive supervisory and regulatory approach in this regard.” (Emphasis added.)
- Mortgage brokers (ACCC): the ACCC is proposing to grant re-authorisation to the Mortgage and Finance Association of Australia (MFAA) to allow it to continue enforcing disciplinary rules among its members. The MFAA is the national body for mortgage and finance brokers, mortgage managers and aggregators. Its disciplinary rules enforce the MFAA’s Code of Practice, which establishes standards of conduct and behaviour for MFAA members, as well as mechanisms for suspending or expelling members. Interestingly, the MFAA is only seeking authorisation for 2 years instead of the usual 5 years, citing expected reforms to the mortgage and finance industry following the Hayne Royal Commission. That seems sensible to me, given Treasury’s ambitious legislative agenda for 2020. ACCC Commissioner Stephen Ridgeway said: “Following the Royal Commission, there is potential for significant legislative and regulatory change, which may affect the MFAA’s governance regime.”
Thought for the future: the consultation paper for the expansion of the BEAR regime across most financial services entities — which will be a huge shift in the Australian financial services regulatory landscape — is supposed to be released before the end of the year (AFR, 29 / 10). With two weeks until Christmas and a period thereafter when many lawyers, governance, regulatory / compliance professionals will be enjoying well-deserved breaks (2019 has been a busy year!), my hope is that the consultation period is sufficiently generous. It was not in 2017 when BEAR was first introduced…
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)