Welcome to Edition 31 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

Tax credits for shareholders of explorers. The Prime Minister, Malcolm Turnbull, announced on 2 September 2017 that the Junior Mineral Exploration Tax Credit (JMETC) will replace the Exploration Development Incentive (EDI) with effect from the current 2017/2018 income year. The announcement has been welcomed by the industry, which has been pushing for such a credit (otherwise referred to as a “flow-through share”) for over a decade. The concept of flow-through comes from the ability of the company undertaking the exploration to renounce the deductions for exploration, passing on the benefit of those deductions to shareholders. The JMETC could encourage non-mining investors to invest in exploration companies, opening up the pool of funds available to fund exploration activity. According to some reports, exploration activity in Western Australia alone has dropped 70% in the last 5 years, and the industry hopes this trend will be reversed by the JMETC. Further information can be found in G+T’s client update, accessible here. Directors of junior exploration companies should keep an eye out for the release of further details on the timing for and eligibility criteria under the regime.

ASIC reports on how investors decide to invest in IPOs. ASIC has released a report on its recent research into the behaviour of IPO investors and their reliance (or otherwise) on prospectuses.  ASIC reports that its research suggests prospectuses are important for investors in considering an investment in an IPO but there is scope for improvement in the usability and credibility of these documents. REP 540 Investors in initial public offerings contains ASIC’s analysis of findings from interviews conducted with institutional investors and qualitative research commissioned by ASIC on the information and factors that influence retail investors. The report explains how ASIC will use the findings to enhance regulation of IPOs. We think Directors involved in IPOs can expect to see more focus by ASIC on the requirement for prospectuses to be intelligible by retail investors, as it was clear many such investors consider these documents too dense to be of real assistance. See ASIC’s media release.

APRA announces inquiry into the Commonwealth Bank of Australia (CBA) and its governance, culture and accountability frameworks. On 28 August 2017, the APRA announced that it will establish an inquiry into the Commonwealth Bank of Australia (CBA) and its governance, culture and accountability frameworks. The decision to initiate the inquiry follows a number of issues which have raised concerns regarding CBA's frameworks and practices (including allegations of failings in anti-money laundering compliance) resulting in damage to CBA's reputation and public standing. CBA will pay the costs of the inquiry. See the APRA website for more information. See also Treasurer for Commonwealth of Australia, Hon Scott Morrison’s media release. As noted in previous editions of Boardroom Brief, we expect increased focus by regulators on corporate culture and (in APRA’s words) “accountability frameworks” to be a defining trend of 2017 and 2018 – particularly in sectors, like banking, which are viewed as systemically important.

Foreign Investment Review Board (FIRB) Compliance. Treasury will be enhancing compliance arrangements for foreign investment over the course of 2017-2018. These arrangements will be designed to provide strengthened assurance that foreign investors are meeting their obligations, while minimising regulatory burden. Treasury will be putting additional resources into compliance, will develop a revised compliance framework, undertake a rolling annual compliance audit program and establish a clearer enforcement policy. See FIRB website.  While this will likely lead to more certainty and consistency in this area, Directors should also be mindful that these enhanced compliance arrangements may also result in more administrative burdens on foreign investors, particularly with audit compliance.

Bitcoin payment for substantial interest in DigitalX Limited. DigitalX Limited (ASX: DCC) announced on 30 August 2017 that it had received a $2 million investment from Blockchain Global Limited, paid for in Bitcoin. Interestingly, the investment through Bitcoin is a first for an ASX listed entity. See ASX announcement. 

THE WEEK AHEAD

WA State Budget. The WA State Liberal Conference may have voted in favour of examining “fiscal independence” from the Commonwealth over the weekend, but the State Government will need to deal with the slightly less lofty task of bringing down a difficult budget on Thursday. With the population and employment in retreat, traditional state revenue sources such as payroll tax and stamp duty are under pressure, and the Government will inevitably need to look to new sources of revenue, in addition to spending cuts, to tackle ballooning debt levels. The rumour mill is already in overdrive, with Royalties for Regions well and truly on the chopping block, the gold industry fearing a royalty hike and the big banks warning the state against the implementation of a new levy. We think that all three are possible, albeit perhaps on a staggered basis to reduce the up-front pain. We may also see a surprise or two in the area of asset sales. The next Boardroom Brief will contain a summary of measures likely to be of most interest to Directors.

Interest rates. The Reserve Bank meets tomorrow (Tuesday 5 September) and there is near certainty that it will keep rates on hold. Although the consensus is still for reasonable growth in 2017-18, the relatively weak employment figures in the US over the weekend will no doubt give some pause to central banks considering the next round of fiscal tightening, and it is hard to imagine the RBA striking out on its own any time soon.