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.
- Prudential standards and FAR (APRA): APRA has announced new commencement dates for six prudential and reporting standards that have been finalised but are yet to fully come into effect. CPS 226 Margining and Risk Mitigation for Non-Centrally Cleared Derivatives (phase-in of initial margin requirements); APS 220 Credit Risk Management;APS 222 Associations with Related Entities; ARS 222.0 Exposures to Related Entities; ARS 222.2 Exposures to Related Entities — Step-in risk, have all been pushed back to 2022. CPS 234 Information Security (third-party arrangements transition provision), has been pushed back to 2021. Interestingly, APRA has also stated that ‘[its] work on product responsibility under the Banking Executive Accountability Regime has now been subsumed into its work on the Financial Accountability Regime (FAR)… APRA intends to release further information on product responsibility when the Government consults on the exposure draft legislation and the implementation timeframe for the FAR.’ So we are waiting on The Treasury then for FAR, and a large number of other reforms to see when they will come in e.g. breach reporting. The Treasury need to provide more information to the financial industry so it can focus on the immediate challenges of COVID-19.
- Modern slavery — no deferral (Legislation): the Modern Slavery Act 2018 (Cth) (Act) commenced operation on 1 January 2019. It requires reporting entities subject to the Act to produce an annual modern slavery statement reporting on the risks of modern slavery in their supply chains. You can read more about Australia’s modern slavery reform, and its key differences to the UK reforms, in past ARWW briefing. Most initial annual statements are due on 31 December 2020, and they take some decent time to prepare given the need to trawl through supply chains. Interestingly, despite concerted lobbying given the COVID-19 disruption, the Australian Border Force has just released an information briefing which is notable for what it does not say i.e. no deferral more than what it does say e.g. how to address COVID-19 in modern slavery statements. (In short, if the measures entities are taking to address modern slavery are delayed by COVID-19, that should be divulged in detail in the statements themselves.) You can read the briefing here, and while ‘how to’ regulatory guidance is always welcome, my personal view is that this update is bit underwhelming…
- Directors duties / COVID-19 (ASIC): ASIC Commissioner John Price delivered a speech on directors duties in the context of COVID-19, which I found to be quite interesting (my top read of the week!). In particular, because he notes — consistent with other commentators – that the recent freeze on insolvent trading laws does not affect other directors’ duties. He then finishes with this vaguely ominous paragraph under the heading ‘ASIC’s approach to enforcement’: ‘Whether action is taken [i.e. by ASIC] depends on the assessment of all relevant circumstances, including what a director or officer could reasonably have foreseen at the time of taking relevant decisions or incurring debts.’ In other words, just because insolvent trading has been suspended does not mean it is the wild west from ASIC’s enforcement perspective. I agree, and think it is a sensible communiqué to directors. It is one of a number of other insolvency quirks that will trip up unwary distressed entities later on. Take statutory demands. Yes, the time-frame to respond is 6 months, but the time to set it aside in court is still 21 days. Another one is reporting covenants in major contractual documentation. The Morrison Government’s relief measures as far as insolvency is concerned are actually quite narrow, taken in the context of all these other considerations.
- Mayfair 101 (ASIC): on 16 April 2020, the Federal Court made interim orders restraining Mayfair Wealth Partners Pty Ltd and Online Investments Pty Ltd from promoting their debenture products and prohibiting the use of specific words and phrases in their advertising, including ‘term deposit’, ‘bank deposit’, ‘capital growth’ and ‘term investment’. It follows an application made by ASIC for an interim injunction on 3 April 2020, which ASIC was mostly successful on — the Federal Court declined to restrain Mayfair from issuing and accepting new investments in their debenture products. The judgment for the interim junction is here, and it is a logical one — Mayfair is not a bank and should not connect itself with one to investors — which shows ASIC’s continued focus on misleading & deceptive advertising. Anderson J stated that: ‘My view, in summary, is that there are serious questions to be tried in relation to Mayfair’s promotion of the Mayfair Products, and that the balance of convenience favours the award of an interlocutory injunction. The undertaking proffered by Mayfair is inadequate in light of the need to protect the public from what this Court may determine, after a full trial, to be serious statutory contraventions. The inadequacy of an undertaking in these circumstances is cemented by the failure of Mayfair to provide sufficient detail to support its assertion that the imposition of an injunction would be detrimental to its financial position.’
- Omnibus bills (Legislation): the states are busy passing legislation to allow themselves to plugs gaps which are popping up from the social distancing measures imposed by the Federal Government. Using Queensland as an example, the COVID-19 Emergency Response Bill 2020 (Qld) was passed last Wednesday and assented to on the Thursday. The Expiry Date of the Act is 31 December 2020.The Bill is available here and the Explanatory Notes (Ref №637) are available on the Tabled Papers page here. The legislation is essentially enabling legislation for wide regulation-making powers (yet to come), as: Part 3, deals with the regulation-making powers relating to signing, witnessing and mortgage VOI; Part 4, deals with statutory timeframes; Part 5, deals with Proceedings including a regulation-making power, and power of court, to modify statutory time limit relating to proceeding (very interesting!); Part 7, deals with Retail leases and other prescribed leases (regulation making power) — including the power to prescribe a “code” by way of regulation; and Part 8, deals with Residential tenancies and rooming accommodation (regulation making power). NSW and other states have similar legislation. The really interesting parts for me is the measures to deal with issues around electronic execution and witnessing of mortgages, deeds and other instruments. That is causing more than a number of headaches at the moment (read more about that here), so it is good that the States are finally moving on these issues. The Federal Government needs to as well, in particular bringing the Corporations Act 2001 (Cth) within the ambit of the Electronic Transactions Act 1999 (Cth)…
Thought for the week: survive, reset and thrive. Broadly, that seems to be the narrative for many entities – and business functions within them – in response to COVID-19. Mostly, we are in the first two phases. The ‘reset’ phase, from a regulatory perspective, involves identifying where energies can be redirected given the shifting policy landscape i.e. given the changed legislative / regulatory guide timetable and what relief can be obtained from regulators e.g. ‘no action’ letters for delays caused by COVID-19, particular interpretations of key obligations, etc. Those actions will create regulatory breathing room, so attention can be focused on key areas for the business.
(These views are my own and do not constitute legal advice. Photo credit Tom Wheatley)