11/02/2019

YOUR KEY BOARDROOM BRIEF

Government releases final report of the Financial Services Royal Commission. The final report released last Monday made 76 recommendations for reform, including 19 referrals of entities to regulators for further action. The Commission’s assessment of the sector’s failings has prompted governance experts to conclude that a ‘box-ticking’ approach to corporate culture is over. The recommendations focus on: (i) culture, governance and non-financial risks within entities; and (ii) changing the enforcement culture among regulators to promote a “why not litigate” approach. The absence of a recommendation to mandate executive remuneration model changes — where these were identified as a key factor in much of the misconduct — was a surprise to some. But any suggestion the Commission let banks off lightly is misplaced: not only the recommendations, but the entire commission process, has already had a significant impact on bank and wider corporate culture, with directors finding themselves in a much tougher regulatory environment. See G+T Insight article for the key issues raised by the report as they relate to regulators, remuneration, culture and governance issues, lending and financial advice, superannuation and insurance. See also the Government’s joint media release and ASIC’s media release

Aged Care Royal Commission takes strong stance on whistleblowing. At its January preliminary hearing, Aged Care Royal Commissioners Richard Tracey and Lynelle Briggs issued a strong warning to aged care providers attempting to interfere with any witnesses looking to come forward. These comments are consistent with the push generally by Government to enhance whistleblower protections, with the new statutory regime (yet to pass the House) being heralded in the media as Australia’s most powerful driver yet for companies to improve their compliance culture.

Guidance on climate change financial reporting. The Australian Accounting Standards Board (AASB), in conjunction with the Auditing and Assurance Standards Board (AUASB) released guidance on how entities are to disclose the impact of climate change and other emerging risks in their financial reporting. For most companies, these risks are currently predominantly discussed outside the financial statements, if at all. The guidance echoes the spirit of ASIC’s earlier report mid last year, which encouraged Directors and officers of ASX-listed companies to adopt a probative and proactive approach to these risks.

ASX releases roadshow presentation on its listing rule and guidance note changes. ASX has released its roadshow presentation on its ongoing consultation concerning proposed measures to simplify, clarify and enhance the integrity and efficiency of the ASX listing rules. The changes proposed impact five key topics; namely (i) admissions (eg extension of good fame and character checks to the CEO, changes to the assets test and profits test requirements and escrow provisions); (ii) enhanced market integrity and disclosure requirements (including, eg, greater accountability for use of funds statements and expenditure programs and an exam for persons responsible for communicating with ASX); (iii) share issues; (iv) related party approvals; and (v) bolstering ASX’s compliance regime. Submissions can be made until 1 March 2019. The final rule amendments and new and amended guidance notes are intended to be confirmed in May and take effect on 1 July 2019. Standard forms will be taken out of the appendices and placed on ASX’s website (to facilitate making minor changes going forward). Submissions can be made until 1 March 2019.

ASX releases Activity Report for January 2019. ASX’s Group Monthly Activity Report for January 2019 notes that total capital raised during the month was $0.4 billion, down 84% on the previous corresponding period (pcp). The average number of daily trades was 17% higher than the pcp and the average daily value traded on-market was $3.7 billion, 3% higher than the pcp. Average daily options volume was up 33% on the pcp, while the value of securities held in CHESS was 1% higher.

THE WEEK AHEAD

Are you prepared for Brexit? As if directors didn’t have enough to think about, the Brexit date is less than six weeks away, and Australian regulators are beginning to ponder their own response to the uncertainty Brexit creates. On 8 February 2019, ASIC released high-level information on its monitoring of the on-going Brexit negotiations and impact of possible outcomes, and what preparations entities should be undertaking. ASIC’s main focus is on its regulated stakeholders – predominantly holders of Australian Financial Services Licences (AFSLs) -  encouraging firms with global operations to review their licensing arrangements and to seek commercial or legal advice as necessary as part of their broader Brexit plans. However, we expect that focus to broaden in the coming weeks as the potential for “hard Brexit” becomes reality. Any Australian entity with significant UK exposure should begin to put in place contingency plans, as a failure to do so could see directors exposed to adverse market reactions (or worse) if the transition to a post-Brexit world does not go smoothly.

Asian stocks slip on renewed trade anxiety. Investors’ hopes for a resolution to the months-long US-China trade dispute were rattled last week after President Trump confirmed he does not plan to meet with Chinese President Xi Jinping before the 1 March deadline to reach a deal. Trade frictions aside, investors are also fretting about a broadening global economic slowdown — the European Commission having sharply cut its forecasts for euro zone economic growth across 2019-20 and Brexit talks in focus.

Australian parliamentary business resumes tomorrow.

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