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.
- CCIV (Parliament): the Corporate Collective Investment Vehicle Framework and Other Measures Bill 2021 finally passed Parliament on 10 February. The CCIV regulatory framework utilises a company structure limited by shares so that it is recognisable to offshore investors and fund managers. As a company, a CCIV will generally be subject to the ordinary company rules under the Corporations Act unless otherwise specified. Features of the MIS regime have also been incorporated into the design of CCIVs . For example, a CCIV must have share capital but the CCIV can issue some or all of its shares as being redeemable at the member’s option. This feature is similar to a member’s right to withdraw from a registered scheme. Further, while other types of companies are required to appoint natural person directors, a CCIV must have a single corporate director. The CCIV tax framework provides flow-through tax treatment for investors. It achieves this by leveraging the existing trust taxation framework and the existing attribution flow-through regime (i.e., the new tax system for MITs, or the AMIT regime), rather than by creating a new bespoke tax regime. The general intent is that the tax outcomes for an investor in a sub-fund of a CCIV be the same as an investor in an AMIT. This is an incredibly important development in the funds management landscape, and one we will be writing more about in the weeks to come!
- Litigation funding (Senate): the Senate Economics Legislation Committee has released its report into Corporations Amendment (Improving Outcomes for Litigation Funding Participants) Bill 2021. The legislation implements the government’s response to the report of the Parliamentary Joint Committee on Corporations and Financial Services’ inquiry into litigation funding and the regulation of the class action industry by amending the Corporations Act 2001 to establish a new kind of managed investment scheme called a class action litigation funding scheme, and introduce additional requirements for the constitutions of managed investment schemes that are class action litigation funding schemes. An interesting read on a highly divisive topic (proponents say that it reigns in litigation funders taking disproportionate profits from litigation, detractors say that it reduces access to justice), the committee ultimately recommended the passing of the legislation with minor amendments and a review in three years time. The Labor members of the Committee dissented, citing the constitutionality of the legislation. Expect legal challenges next if this gets passed prior to the election.
- FAR (Parliament): Parliament has resumed, and the calendar is here. The house sitting sitting next week, and the Senate is only sitting again in late March 2022. With a Federal election around the corner, expect things to be busy and the Financial Accountability Regime legislation (summary here) to be through by the end of March 2022.
- Reinsurance pool (Parliament): the Government has finished the design of the reinsurance pool for cyclone and related flood damage, following consultation on the draft legislation. It will be backed by a $10 billion annually reinstated Commonwealth guarantee and be administered by the Australian Reinsurance Pool Corporation from 1 July 2022. Over 880,000 residential, strata and small business property insurance policies in northern Australia are expected to be eligible to be covered by the reinsurance pool for the risk of cyclone and related flood damage. The pool is expected to reduce insurance premiums by up to $2.9 billion for eligible household, strata and small business insurance policies over 10 years. A sensible move in my view, given the (understandable) inflation in insurance premiums in the climate-change impacted area. Now for D&O and PI premiums, in a market that has become inaccessible for many!
- Banning order (AAT): ASIC’s banning and disqualification from 2015 of former Provident Capital director, Michael Roger O’Sullivan, has been upheld by the AAT — though reduced. ASIC tends to struggle in the AAT, and this decision will do little to dislodge that perception. ASIC sought to ban him from providing financial services for seven years and disqualified from managing corporations. However, the AAT reduced the period of O’Sullivan’s disqualification from managing corporations from five years to two years and nine months. The Tribunal found that Mr. O’Sullivan failed to exercise due care and diligence in relation to the management of the largest loan (the Burleigh Views Loan) made by Provident Capital Limited (PCL), by deciding to accrue interest on that loan as earned and recoverable income rather than characterising that loan as being in arrears; made inadequate disclosures or misleading statements in a prospectus and information booklets regarding debentures issued by PCL; made inadequate disclosures or misleading statements regarding the Burleigh Views Loan in reports to the debenture trustee, Australian Executor Trustees Limited (AETL); was involved in PCL making inadequate disclosures or misleading statements to AETL about the status of the Burleigh View Loan, the status of the development approval, the valuation information about the property, and the risk of a debt shortfall on any realisation of the property; and, failed to exercise due care and diligence and used his position improperly to gain advantages for himself in securing the release of a personal guarantee he had provided for a loan from PCL to a related company, Cashflow Finance Solution, of which he was a director.
Thought for the future: we have a very sophisticated, and capable funds management industry in Australia — it is domestically focused though. The CCIV regime is going to be excellent to attract international capital inflows, and I think it is an excellent move by the Government.