Welcome to Edition 29 of Boardroom Brief.
This is a service specifically targeted at the needs of busy non-executive directors. We aim to give you a “heads up” on the things that matter for NEDs in the week ahead – all in two minutes or less.
KEY BOARDROOM BRIEF
APRA’s crisis management powers to be enhanced. The Treasury has made available Exposure Draft of Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2017 for public comment. The purpose of the draft bill is to strengthen APRA’s crisis management toolkit in relation to banks and insurers by providing APRA with clear powers to enable it to set requirements on resolution planning and ensure banks and insurers are better prepared for a crisis; and an expanded set of crisis resolution powers that equip APRA to act decisively to facilitate the orderly resolution of a distressed bank or insurer. See Treasury’s media release. See also media release by the Treasurer for Commonwealth of Australia, Hon Scott Morrison, MP. It may be imprudent to read too much into the push by APRA for clearer and stronger powers in this area, although Directors should always be cognisant of counter-party risk if their company has extensive interaction with and / or dependence on one or a small number of financial institutions.
Improving consumer outcomes and enhancing credit card competition. The Treasury has made available Exposure Drafts Treasury Laws Amendment (2017 Measures No. 8) Bill 2017: Credit card reforms and National Consumer Credit Protection Amendment (Credit Cards) Regulations 2017 for public comment. The draft legislation is intended to ‘provide greater legislative protection to vulnerable consumers and exert more competitive pressure on credit card issuers’, and would implement reforms to ‘help ensure that consumers can manage their credit card debts and help prevent the debt cycle that many Australians find themselves in" and "will prohibit the overly complex and unfair way in which interest is calculated on many credit cards’. Specifically, the reforms to be implemented would include: requiring affordability assessments be based on a consumer's ability to repay the credit limit within a reasonable period; banning unsolicited offers of credit limit increases; simplifying how interest is calculated; and requiring online options to cancel cards or to reduce credit limits. See Treasury’s media release. See also media release by the Treasurer for Commonwealth of Australia, Hon Scott Morrison, MP.
Chevron withdrawals transfer pricing challenge. Minister for Revenue and Financial Services, the Hon Kelly O'Dwyer MP has stated in her media release that the government welcomes the withdrawal of Chevron’s appeal to the High Court over the ATO’s assessment of $340 million in tax and penalties for interest payments made to related offshore parties. Chevron sought to challenge Australia’s transfer pricing rules and the appropriate method for establishing an arms-length interest rate for a related party loan. The case also raised constitutional issues regarding transfer pricing provisions. The Full Federal Court upheld the ATO’s position in April this year. The withdrawal of the appeal means that the decision is now final, and Directors of companies with international operations would be wise to ensure management in the tax and treasury functions are across the implications of the decision.
ASX FY17 results. ASX has released its FY17 results which showed a 1.9% increase in NPAT to $434.1M. ASX Managing Director and CEO, Mr Dominic Stevens stated that ‘ASX has built on its strong first half results with a solid performance for the full 2017 financial year. Activity and revenue levels were higher across most major areas of the business, and our strategic initiatives both new and existing progressed well over the period. A combination of macro-economic drivers and ASX’s own investments provide the company with growth opportunities for the future’. See ASX’s media release for more information. A robust equities exchange “ecosystem” is a pre-requisite for an efficient and vibrant economy, so it is encouraging to see ASX report a solid result, notwithstanding the increased complexity of the operating environment and the potential for technological disruption to erode margins.
THE WEEK AHEAD
ASX upcoming deadlines. ASX reminds listed entities in its recent compliance report that annual listing fees for FY2018 were due on 31 July 2017. Should payment not be received in full by 21 August 2017, ASX will suspend trading in the entity’s securities before trading commences on 22 August 2017. The compliance report also reminds entities of upcoming deadlines for periodic reporting, noting that a failure to lodge the relevant documents on time will result in an automatic suspension on the entity’s securities.
Wage “growth" – part 2. Last week, we discussed how a lack of growth in wage price inflation over the past three years has led to households starting to feel the pinch of higher living costs. Q2 wage increase data confirmed that wages growth continues to lag behind the recovery in the Australian labour market, as reflected in employment data. The current data supports only a very modest boost to the growth in household income. Directors should be aware that historically, periods such as this lead to pressure from labour groups for greater sharing of the benefits of corporate profits - which are generally quite healthy. Although industrial relations have been on the backburner as a political issue, it can pay for corporates to be one step ahead of the curve on these matters.