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.
- ASIC Corporate Plan (ASIC): ASIC has published its Interim Corporate Plan, which sets out five priorities to tackle the challenges presented by the COVID-19 pandemic, including protecting consumers from harm at a time of heightened vulnerability and continuing to identify, disrupt and take enforcement action against the most harmful conduct. Most importantly, ASIC has published an update on the timing of key outputs over the coming months, reflecting changes from its adjusted work program announced on 14 April 2020. It is a goldmine of information and my top read for the week! It sets out that ASIC will release new regulatory guides on its use of the PIP, mortgage brokers’ best interests duty and internal dispute resolution review this month or next. It also sets out longer term timelines for key developments e.g. additional design & distribution guidance. Affected entities will need to update their regulatory timelines to accommodate these changes, which is very well received in terms of the direction it provides.
- Unfair Contracts Terms (ASIC): in ASIC v Bendigo and Adelaide Bank Limited  FCA 716, the court found certain clauses which fell within the following categories in the bank’s documentation were unfair under the unfair contracts regime (and, in that case, void): indemnity clauses — where the borrower indemnified the bank against specific types of liability, loss or costs incurred by the bank; default clauses — particular events or circumstances that would constitute a borrower default, which in turn would allow the bank to take certain action e.g. applying default interest rates or enforcing security; unilateral variation / termination clauses — which allowed the bank to unilaterally vary or terminate the contract; and conclusive evidence clauses — which provided that a certificate from the bank stating the amount owed be conclusive evidence. It is a win for ASIC, and some wonderful information for those undertaking unfair contracts reviews. It is important to note from the case that clauses which fall within these categories are not automatically ‘unfair’ per se, though the specific way they were drafted in the bank’s contracts were found to be unfair. As an example, for certain of the default clauses, they were unfair because borrower was not permitted to remedy a default capable of remedy and which did not necessarily involve any credit risk to the bank e.g. the provision of incorrect information. Those who have not started to undertake unfair contracts reviews, for example insurers as the UCT regime will expand to them in April 2021, should start now. It takes time!
- Electronic executions (legislation): finding it challenging keeping up with the Federal and State changes regarding electronic executions for deeds, agreements and other documents? You are not alone! To assist, I have put together a large table setting out the position for deeds and agreements at the Cth and individual state level. You can access the table here. A word of caution though; this is a fast moving area, so this table may become out of date in short order. Key pitfalls to focus on regarding electronic executions are ‘authenticating’ corporate executions (see here), particular special types of documents e.g. those required under the NCCP and certain clauses which have their own rules e.g. POAs.
- FIRB (Treasury): the Morrison Government has announced further changes to Australia’s foreign investment regime. By way of broad background, Australia has a foreign investment approval regime that regulates certain actions by “foreign persons” in Australia (FIRB Regime). Pursuant to the FIRB Regime, a foreign person may require approval from Australia’s Foreign Investment Review Board (FIRB) prior to taking certain actions, including (among others) acquiring equity securities in an Australian company or starting a new Australian business. Whether or not a foreign person requires prior approval from FIRB in respect of a particular action generally depends on the nature of the foreign person (e.g. there are different, stricter rules for ‘foreign government investors’ compared with private investors) and whether the proposed action meets the applicable monetary threshold; however, due to the impacts of the COVID-19 outbreak, the Australian Treasurer recently announced that all monetary thresholds have been temporarily reduced to $0, significantly increasing the ambit of the FIRB Regime. Additional changes which are to be introduced in draft legislation in July 2020 (start date 1 January 2021) include: a new national security test for foreign investors who will be required to seek approval to start or acquire a direct interest in a ‘sensitive national security business’ (I suspect telecommunications, at least) a time-bound ‘call in’ power enabling the Treasurer to review acquisitions that raise national security risks outside of proposed acquisitions relating to a ‘sensitive national security business’; national security last resort power that provides the ability to impose or vary conditions and in extraordinary circumstances order disposal on national security grounds; and stronger and more flexible enforcement options including the expansion of infringement notices and higher civil and criminal penalties. FIRB approvals can have unexpectedly wide-ranging impacts; entities which may be caught should consider speeding up any plans they have this year.
- Executive remuneration (ASIC): ASIC has released a new Information Sheet 245 Board oversight of executive variable pay decisions during the COVID-19 pandemic (INFO 245). By way of background, in 2019, ASIC conducted a targeted review of board oversight of variable remuneration schemes. The review covered 21 ASX listed companies across seven industry sectors and collectively representing $738 billion in market capitalisation (as at 10 June 2020). ASIC was preparing a detailed report on its findings when the COVID-19 pandemic occurred — the final report will be released later in 2020. The new information sheet focuses on the importance of a robust remuneration governance framework, especially to ensure informed decision making and specific factors to consider when exercising discretion on executive variable pay in the current environment. The later guidance is particularly useful, and urges remuneration committees to consider ‘structured and contextual information from unbiased sources’ which may be external to the executive. For example, control functions within the company such as finance, risk, compliance, internal audit and human resources and — interestingly — also the input of independent third-party advisers or other external information sources to help with decision making during this period.
Thought for the future: ASIC Chair James Shipton has warned that there may not be enough liquidators to deal with the wave of corporate insolvencies that are predicated in the wake of the COVID-19 pandemic. Mr Shipton said that in addition to the ‘JobKeeper cliff’ in late September, not all residential and business borrowers will survive when major banks rein in six-month loan repayment holidays. In an updated strategic plan to confront the COVID-19 pandemic, ASIC confirmed it had considered the worst-case scenario of a longer-than-expected recession, warning that there might not be enough liquidators and administrators to deal with multiple corporate collapses. The announcement will not come as a surprise to many insolvency practitioners, who have seen their numbers decline in the last five years prior to 2020 in part due to rising fees during a relatively benign economic period. A sign of unfortunate times to come, which businesses should start to prepare for now.
(These views are my own and do not constitute legal advice. Photo credit Tom Wheatley)