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.
- Superannuation (ASIC): the corporate regulator has forewarned that auditors and superannuation fund trustees will face increased enforcement scrutiny year (AFR, 14 / 1). That is not really a surprise, as ASIC outlined in its Corporate Plan for 2019- 23 that it was focusing on “delivering as a conduct regulator for superannuation”. ASIC Chair James Shipton has said that “The key focus for us is around trustees’ duties. We are beefing up by way of staff and capability, we’ve got a number of high profile cases we’ve embarked on in superannuation and we are just covering the field more.” My broad sense is that superannuation firms are between a rock (APRA) and a hard place (ASIC) as both are focusing on superannuation firms and some regulatory overlap between the two remains. In its draft report on efficiency and competitiveness in the superannuation system released in April 2018, The Productivity Commission’s draft finding 10.2 was that “Conduct regulation arrangements for the superannuation system are confusing and opaque, with significant overlap between the roles of APRA and ASIC. These arrangements have the potential to lead to poor accountability and contribute to the lack of strategic conduct regulation, with poor outcomes for members.” While following the Hayne Royal Commission there are plans to improve this overlap, from my impression the current situation makes for a challenging degree of oversight…
- Consultations (Legislation): just a reminder of the key consultations mentioned in past ARWW briefings which close soon should you consider it in your interests to make a submission (there are a few to choose from!): a) ALRC’s review into Australia’s corporate criminal responsibility regime — submissions close 31 January 2020; b) Attorney General’s draft guidance on adequate procedures to prevent the commission of foreign bribery – submissions close on 28 February 2020; c) Version 6 of the VOI Model Participation Rules — submissions close on 19 February 2020; d) ASIC CP 325 Product design and distribution obligations — comments close on 11 March 2020; e) APRA’s Consultation on revisions to the capital framework for authorised deposit-taking institutions — submissions close on 21 February 2020; f) Financial Regulator Coordination and Information Sharing — submissions on the bill close on 24 January 2020; g) Enhancements to Unfair Contract Term Protections — submissions close on 16 March 2020; h) Compensation Scheme of Last Resort — submissions close on 7 February 2020; and i) ACCC consultation on facilitating participation of intermediaries in the CDR regime — submissions close on 3 February 2020.
- DOCAs (ASIC): one more to add to the above list — ASIC has released consultation paper 326 seeking feedback about the circumstances in which it will grant relief for share transfers under. 444GA of the Corporations Act 2001 (Cth). s. 444GA permits a court to grant leave to allow an Administrator to transfer shares as a part of a Deed of Company Arrangement (DOCA), where it will not “unfairly prejudice” the interests of shareholders. (A DOCA is a binding arrangement between a company and its creditors governing how the company’s affairs will be dealt with, which may be agreed to as a result of the company entering voluntary administration.) The Courts will generally allow the transfer if the evidence shows that the shares have no value. Where a transfer under a DOCA results in a shareholder’s voting power in the company increasing above 20%, ASIC relief from s. 606 of the Corporations Act 2001 (Cth) is required. S. 606 prohibits the acquisition of a relevant interest in voting shares if, because of that transaction, a person’s voting power in the company increases from under 20% to over 20% or increases from a starting point that is above 20% and below 90%. (There are various underlying rationales for this rule, and a large number of exceptions to it, which are well summarised on the takeovers panel website here.) ASIC is seeking views on whether it should grant relief where shareholders are provided with explanatory materials prior to the s444GA hearing, including an Independent Expert Report (IER) prepared under RG 111: Content of Expert Reports, the IER is prepared by an independent expert i.e. not the administrator and the IER is prepared on a liquidation basis. from my perspective, the proposal appears sensible and proportionate to me.
- Scammers & insurance (ASIC): ASIC has warned consumers and small business owners to watch out for dodgy tradespeople, repairers or firms offering to assist them with their insurance claim. It has also updated its guidance on its Money Smart website to educate consumers on what to what to do after a natural disaster. (I think ASIC should be commended here.) Commissioner Sean Hughes said: “These unscrupulous operators typically target homeowners, farmers and small businesses in the aftermath of natural disasters. They may claim to be able to identify damage to your property, sometimes by way of a free inspection. Be wary of anyone who asks for payment up front and who asks you to sign a contract immediately. Don’t agree to sign anything which prevents you from dealing directly with your insurer, broker, financial adviser or lawyer.” Meanwhile, ASIC enforcement chief Daniel Crennan QC sent this message to insurers: “ASIC is working with insurers and other key stakeholders to ensure that claims are handled efficiently and fairly. We expect those involved in handling these insurance claims to act with the utmost good faith”. He chose his words carefully, picking up the requirement of s. 13 of the Insurance Contracts Act 1984 (Cth) which requires insurers to act with “utmost good faith” under the insurance contract. Courtesy of the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019, from March 2019 a breach of this section now comes with potentially steep civil penalties. And soon ASIC will be able to use s912A of the Corporations Act 2001 (Cth) i.e. “efficiently , honestly fairly” in addition to s. 13 of the Insurance Contracts Act 1984 (Cth)(which ASIC relied upon in its court action against TAL Life Insurance issued in December 2019, which stems from a case study heard by the Hayne Royal Commission) for insurance claims handling failures, as claims handling will be considered a “financial service” under the Corporations Act 2001 (Cth). That consultation i.e. making insurance claims handling a financial service recently ended on 10 January 2020.
- Derivatives (ISDA): the International Swaps and Derivatives Association (ISDA), which is a trade organisation of participants in the market for over-the-counter derivatives, has released a paper (my top read for the week!) considering the private international law aspects of derivatives contracts governed by the laws of Singapore and England / Wales involving blockchain technology. While it does not consider Australia’s laws, the overarching issues with blockchain derivations apply equally to us. One of the main problems is the situs (i.e. where property is treated as being located for legal purposes) of any assets that are native to a blockchain platform. Private international law rules relating to property typically dictate that questions over rights and entitlements to property are governed by the law of the place in which the property or claim to property is situated. Good luck getting to the bottom of that issue with blockchain assets! The paper proposes that the best solution is a structured choice of law arrangement i.e. all parties to agree that their transactions should be subject to a common “law of the platform”, “law of the system”, or elective situs. However, the paper proposes to restrict the choice to the laws of countries where parties such as the issuer of assets, the system administrator and market participants are subject to sufficient legal and regulatory oversight. It is a sensible solution in my view, though I suspect a long way from becoming a reality given the complexity and amount of co-ordinated international policy-making required.
Thought for the future: ASIC has said it wants a “revolution” in approaches to non-financial risk, which includes operational risk, conduct risk and compliance risk (AFR, 14 / 1). It plans to report early this year on the governance of executive remuneration in this regard. Under sustained pressure, my sense is that those financial firms who take the time to see opportunity in this environment are likely to reap rewards. Actively embracing climate change reporting in annual reports or extending modern slavery requirements to bank customers (instead of just supply chains) — that type of proactive media / regulator friendly approach which has been done in the UK may work in some firms’ favour in this hawkish new environment.
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)