Australian regulators weekly wrap — Monday, 22 February 2021

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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. Continuous disclosure (Treasury): the Morrison Government has introduced the Treasury Laws Amendment (2021 Measures №1) Bill 2021. It amends the Corporations Act 2001 to embed the temporary COVID-19 changes made to Australia’s continuous disclosure laws, and extend the changes made to allow for virtual Annual General Meetings and to permit for the electronic signing and sending of documents. There is a lot of debate on the continuous disclosure changes: critics argue that it will water down disclosure obligations, while proponents argue that the current system is unworkable as it is overly punitive. In essence, the previous regime enabled claims to be brought without any need to establish, or even claim, any intention, fault, negligence or indifference on the part of the listed company. Suffice it to say that this fueled a great number of shareholder class actions and heated debate along partisan lines... Now, under the changes, there is still a basis to bring civil actions for breach of the continuous disclosure laws, but there has to be fault — it has to be reckless, it has to be negligent or fraudulent. The change brings Australia closer in line with the UK and US position, and regular readers will know my position on these changes!
2. Statutory demands (Treasury): the Morrison Government is consulting on whether to permanently raise the minimum threshold at which creditors can issue a statutory demand on a company. It is currently $2,000 and companies have to respond in 21 days, though on 25 March 2020 the Government temporarily raised the threshold at which a statutory demand could be issued to $20,000 and allowed 6 months to respond to the notice (which did not affect the timeframe to set them aside in court, but that is an another point). The consultation paper seeks a response by 5 March 2021 on the threshold at which a statutory demand should be set, among other related questions. I am not in favour of raising it too high; statutory demands — while noting they should not be used as debt collection tool — serve a useful function in avoiding litigation. Raise the bar too high, and that may create more low-value litigation.
3. Debt management firms (ABA): the Australian Banking Association has come out in support of the Morrison Government’s proposed licencing regime for debt management firms i.e. that they hold a Credit Licence. It goes further, indeed, and recommends that the proposed licensing regime be strengthened to allow ASIC to supervise the debt management industry for fee structures that place Australians in financial vulnerability such as “…charging large upfront fees or placing caveats on people’s property for minor services rendered.” The ABA has also called for more enforcement action from regulators to prevent misleading advertising and unfair contract terms used by debt management firms. I am all in favour! In the absence of being able to provide legal advice, or indeed do much more than have communications with creditors and if all else fails direct the debtor to AFCA (a free service), I do not see much value add in these firms and indeed quite often a lot of predatory activity…
4. FX markets (RBA): the Reserve Bank uses foreign exchange swaps to manage domestic liquidity. These are short-term transactions (of 2 — 3 months or less) that alter the extent of Australian dollar liquidity in the banking system. They add to the Bank’s stock of foreign exchange assets, but are not considered to be part of the Bank’s foreign exchange reserves available for policy purposes. This week, the Reserve Bank decided to start acquiring foreign currency via swaps over longer terms e.g. 2 years. It aims to minimise any rollover risks, which allows it to treat foreign exchange acquired in this way as part of its foreign currency liquidity. Something other global reserve banks do, it is probably no surprise that this economic efficiency measure is occurring against the backdrop of COVID-19.
5. AFCA review (Treasury): the Government has announced a review of the Australian Financial Complaints Authority (AFCA).The review is independent of AFCA and being conducted by Treasury, with a report to be finalised by 30 June 2021. The terms of reference are quite broad, and seek feedback on whether: AFCA’s dispute resolution approach and capability producing consistent, predictable and quality outcomes; AFCA’s processes for the identification and appropriate response to systemic issues arising from complaints effective; and, whether there is a need for AFCA to have an internal mechanism where the substance of its decision can be reviewed. Submissions close on 26 March 2021. Speaking personally, I know that many of my clients find the decisions emanating from AFCA to be baffling at times — here is an opportunity to convey that to Treasury!

Thought for the future: Braithwaite’s pyramid of responsive regulation, stresses persuasion and feedback as the first and largest step in steering a regulated population to desired outcomes. Part of that is obtaining feedback through consultative processes, for example before new major legislation is released or on how a new scheme is operating. Sometimes, however, it is best to provide that feedback anonymously e.g. through a third party. We will making a submission on the AFCA consultation paper — we welcome any feedback you may wish us to include for Treasury’s consideration.