Australian regulators weekly wrap — Monday, 9 March 2020



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.

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  1. Corporate criminal reform (ALRC): the big news this week, the ALRC has discarded its thought bubble of making an executive officer criminally liable where “…they were in a position to influence the conduct of a corporation in relation to an offence, and they cannot prove that they took reasonable measures to prevent that offence”. Or, worse yet, seeking to make the executive criminally liable through the nascent FAR / BEAR structure. Imagine the arguable structural arbitrariness that that action would introduce for criminal liability? Not to mention that one of the main problems with the idea is that it equates to a reversal of the criminal onus of proof! Instead the ALRC has said that we should wait and see what BEAR / FAR does for individual accountability and reassess the situation in 2025. It has stated ‘Given the potential for significant legislative development and judicial clarification in this area in the near future, the ALRC does not intend to recommend any specific law reform at the present moment. However, addressing individual liability for corporate conduct is an area in which there does appear to be a gap in accountability, and the effectiveness of new mechanisms such as the proposed FAR should be kept under review. If the new and existing mechanisms do not operate to ensure senior managers may be held liable where appropriate for corporate misconduct further law reform may be required.’ The update is here (my top read for the week), and I have to say that given the worrisome potential of the idea and amidst all the industry lobbying that was undertaken this sensible result made my week.
  2. Code of Banking Practice (ABA): the ABA has announced the implementation of changes to the Banking Code of Practice. The updated code came into effect on 1 March 2020. The changes are handily set out in this guide, and include: banks will take extra care when providing banking services to customers who are experiencing vulnerability e.g family violence; better protections for guarantors to ensure they understand their obligations, including a cooling-off period; guarantors will be notified of changes to the borrower’s circumstances, including if they are experiencing financial difficulty; the independent Banking Code Compliance Committee (BCCC) will investigate alleged breaches of the Code; the BCCC can formally warn a bank, require them to rectify or take corrective action for serious breaches, require a bank to train staff, and report serious, systemic and ongoing issues to ASIC; ceasing default interest and fees on agricultural loans while farms are affected by drought or natural disaster; ceasing default interest and fees on agricultural loans while farms are affected by drought or natural disaster; removing overdraft and dishonour fees on basic, low fee or no fee accounts for concession card holders and simplified loan contracts with fewer conditions for total loans under $3 million. If they have not already, banks need to review their documentation to incorporate the new code and their procedures e.g for identifying vulnerable customers etc. There are also new information disclosure obligations to implement e.g. for guarantors. Member-owned banks need to take note as well. My information is that their 4th edition of the COBCOP, which takes a good amount of inspiration from the new CBP, is likely to commence in the second half of this year.
  3. Currency bill (Legislation): the Economics Legislation Committee recommended that the Currency (Restrictions on the Use of Cash) Bill 2019 (Cth) be passed on in its report dated 28 February 2020. This means that it is very likely, in the near future, that it will be a criminal offence to make or accept a payment from businesses that includes $10,000 or more of cash. It will also be an offence to make or accept a cash donation equal to or in excess of $10,000. The maximum penalty was to be set at two years imprisonment and/or 120 penalty units (currently $25,200) — one of the recommendations was to review these penalty provisions to make sure they are not overly harsh. The endorsement of the draft legislation came despite widespread business concern (and more than a little misinformation) and strong opposition from the Greens, who rather dramatically stated: ‘This bill is a classic case of the cure being worse than the disease. By criminalising the use of legal tender, and by taking a rose-coloured view of a world without cash, this government is blithe to the fundamental freedoms provided by hard currency, and is instead laying down a path towards surveillance capitalism and negative interest rates.’
  4. Document production (ASIC): for someone who has spent many countless hours complying with ASIC’s requests under s. 33 of the ASIC Act 2001 (Cth) documents, the conduct regulator’s release of INFO 242 on document production guidelines has been an interesting read this week. The guide sets out the preferred methods for producing books to ASIC in electronic and hard copy form; the benefits of producing books in accordance with the guidelines; the consequences of not following the guidelines; and how ASIC requests books to be produced when using a litigation support system. There is not too much new information in here, but it is helpful in noting ASIC’s response to productions which do not comply with the guide i.e. more notices and greater costs, as the guide emphasises ASIC’s focus on metadata (which they never used to demand, but certainly do now!) and as it explicitly advises the industry to work with ASIC on document productions. Something I always try to do at the start in order to reduce time, cost and frustration (for both sides), I think this is a great move by ASIC which has said: ‘Discussing the scope of a notice, including the meaning of certain terms, can often result in significant time and cost savings.’ Of course, this should only be one plank of your firm’s strategy in responding to an information request, the use of review technology and novel fee structures (where you are using an eternal service provider) being others. You can read more about that here.
  5. Security for costs (District Court): while most of the interesting stuff to my mind tends to happen in the superior courts, Gibson DCJ had a novel situation permitting a cryptocurrency exchange account to be used as security for legal costs in Hague v Cordiner (№2) [2020] NSWDC 23. Her Honour stated at [31] and [32] ‘I am unaware of any other orders for security being made in relation to cryptocurrency, but I am prepared to assume that these are volatile sources of investment, even when the proceeds are recorded in Australian dollars. However, this is a recognised form of investment… he issue of cryptocurrency volatility can best be addressed by requiring the plaintiff to provide copies of his monthly bank statements to the solicitor for the defendant and by requiring him to notify drops below the secured amount.’ Just another indicia that cryto-currencies are here to stay as an increasingly mainstream asset class.

Thought for the future: lobbying governmental or semi-governmental bodies for changes to proposed laws and regulations can leave lawyers and other stakeholders a bit flat at times. At other times, however, there is a result which makes a lot of it worthwhile; the ALRC’s decision at item 1 this week is one. With really short consultation times for major proposed legislation this year, most only 3 to 4 weeks, I suspect this year will see more losses than wins on that front. Still, given the magnitude of the changes proposed which will be with us for many years to come, it is imperative to try. The next one on my radar is the draconian breach reporting laws proposed by The Treasury which will no doubt drown the industry and ASIC in paperwork. Hopefully that will change into a more sensible form before the implementation date of 1 July 2020…

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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