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.
- Corporate Criminal Liability Review (ALRC): following the Hayne Royal Commission , there were increased concerns that corporations, and senior officers within those corporations, were not being adequately held to account for serious corporate misconduct. (Criminal liability for corporations has always been a fraught subject, with the law a patchwork across Australia.) On 10 April 2019, the Federal AG provided Terms of Reference to the ALRC for an inquiry into Australia’s corporate criminal responsibility regime. The report, Corporate Criminal Responsibility (Report 136, 2020) was tabled in Parliament on 31 August 2020. You can read a summary here (my top read for the week!). There is a lot to take in from the report, however, the key points include: a) trivial misconduct will be decriminalised; b) attribution laws i.e. how criminal responsibility is attributed to corporations are to be harmonised; c) there will be a defense of ‘reasonable precautions’ where the corporation took reasonable steps to avoid the misconduct; d) there will be a new offence for where a corporation engages in systemic and repeated instance of misconduct. It focuses on whether the corporation allowed the problematic system of conduct to continue; e) there will be an extension of ‘failure to prevent’ corporate criminal to overseas offences e.g. foreign bribery; f) there will be an extension of the sentencing toolkit; g) deferred prosecution agreements should (finally!) be introduced. DPAs are basically negotiated criminal outcomes with corporations, much like the US system favours and recently the UK; and, h) individual liability liability for corporate criminal conduct…. should be pushed down the road for 5 years. The last is particularly important, as the initial thought bubble of using FAR / BEAR (or something still vaguer), to transpose corporate criminal liability onto individuals i.e. for not preventing a crime was and remains a very bad idea for its arbitrariness. A battle for 2025…
- IPO regulatory relief (ASIC): ASIC has issued regulatory relief to help reduce red tape for companies undertaking an initial public offer. ASIC Corporations (Amendment) Instrument 2020/721 amends ASIC Class Order [CO 13/520] to facilitate voluntary escrow arrangements under an IPO so that the relevant interests of an issuer, professional underwriter or lead manager arising from the escrow agreement is disregarded for the purposes of the takeover provisions, but not the substantial holding provisions, in the Corporations Act 2001. ASIC Corporations (IPO Communications) Instrument 2020/722 facilitates non-promotional communications to security holders and employees of a company proposing to undertake an IPO prior to lodging a disclosure document with ASIC. The measures are in response to submissions received on Consultation Paper 328 Initial public offers: Relief for voluntary escrow arrangements and pre-prospectus communications (CP 328).
- APRA corporate plan (APRA): the prudential regulator has published its 2020–2024 Corporate Plan, which has been updated to account for the impact of the COVID-19 pandemic. See page 15 for a one page summary of the plan, which broadly is focused on: a) maintaining financial sector resilience; b) improving outcomes for superannuation members; c) transforming governance, culture, remuneration and accountability across all regulated institutions; and d) improving cyber resilience across the financial system. Relatively little airplay is given to the Financial Accountability Regime, being the individual liability regime designed to improve corporate culture which comes into play in 2021, and enforcement focus. Perhaps this is unsurprising given the effects of COVID-19, and more fundamentally that APRA is a not an enforcement regulator (despite being unwillingly increasing pushed in this direction post the Hayne Royal Commission).
- OAIC corporate plan (OAIC): the Office of the Australian Information Commissioner (OAIC) has also published its Corporate Plan for 2020–21, which sets out its strategic priorities and key activities for the next four years. There is nothing in the report which is all that surprising, and it is worth noting that the enforcement aspects are quite muted. OAIC priorities are to: a) advance online privacy protections for Australians; b) influence and uphold privacy and information access rights frameworks; c) encourage and support proactive release of government-held information, and d) contemporary approach to regulation. If the last priority sounds a bit odd, then I agree with you — the word ‘contemporary’ appears 18 times in the report. For example ‘The OAIC will take a contemporary approach to our regulatory role in promoting and upholding Australia’s privacy and FOI laws. This means engaging with and being responsive to the community’s expectations of its regulatory bodies…’ and ‘Community and government expectations of regulators are shifting. Australians demand fairness and transparency from government and other entities, and regulators are expected to exercise the extent of their powers for the benefit of the community. In response, the OAIC takes a contemporary approach to the way we regulate, engaging with and being responsive to these expectations’ and ‘[OAIC] will ensure the strategic use of compliance and enforcement tools is informed by regulatory theory and contemporary practice.’ I think this means more enforcement activity, in line with the broader ASIC / ACCC / APRA trend, but really it is quite hard to tell!
- Mayfair 101 (ASIC): the corporate regulator has obtained interim orders in the Federal Court of Australia against companies in the Mayfair 101 group and their director, James Peter Mawhinney, including the appointment of provisional liquidators to M101 Nominees Pty Ltd, the issuer of the M Core Fixed Income Notes promoted by Mayfair 101. ASIC alleges there is a justifiable lack of confidence in the conduct and management of M101 Nominees’ affairs that gives rise to a risk to the public that warrants protection. ASIC alleges that M101 Nominees raised approximately $67 million from investors through debentures called the M Core Fixed Income Notes, based on representations that there would be security for the full amount invested. ASIC further alleges that those funds were not fully secured, therefore investors may miss out on any insolvency scenario. It is another fascinating satellite battle in what is ASIC’s broad-ranging action against Mayfair 101, stemming largely around misleading information being provided to investors in disclosure documents; a very hot focus area at the moment. You can read ASIC’s the judgment here.
Thought for the future: AUSTRAC has released an information sheet which provides detailed information about AUSTRAC’s expectations for businesses when assessing and managing AML / TF risks. You can access it here. Now, with the rise and rise of regulatory expectations, and with the enforcement stakes being raised, more than ever the release of useful information such as this is needed.
(These views are my own and do not constitute legal advice. These updates are not designed to be comprehensive. Photo credit Tom Wheatley)