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.
In this edition, we discuss action by APRA requiring RACQ to implement a risk transformation program, the release of the Productivity Inquiry’s final Interim Report, and ASIC’s release of its 2021-2022 Annual Report. Further, we examine a reminder by the Supreme Court of New South Wales about the distribution of explanatory information in schemes of arrangement, and ASIC’s defence of an appeal by Mayfair 101 Group companies against penalties totalling $30 million.
In Over the Horizon, we take a look at the Financial Accountability Regime, which we expect to become law relatively soon.
GOVERNANCE & REGULATION
APRA requires RACQ to implement risk transformation program. On 12 October 2022, the Australian Prudential Regulation Authority (APRA) announced that it will require RACQ Insurance Limited and Members Banking Group Limited trading as RACQ Bank (together, RACQ) to develop and implement a comprehensive risk transformation program approved by APRA. RACQ was subject to an APRA prudential review during the year, which identified areas of significant weaknesses with respect to RACQ’s risk governance practices and capabilities. RACQ announced in June 2022 that it intends to make a significant investment in its systems and processes, but APRA considers that further enforcement action is necessary to ensure the material risk governance concerns that it identified are addressed. RACQ is further required to engage a third party to provide independent assurance and periodic reporting in relation to the risk transformation program, and to name an appropriate executive to be accountable for successful delivery of this program. See APRA media release.
Productivity Inquiry releases final Interim Report. On 13 October 2022, the Productivity Inquiry released its sixth and final Interim Report titled ‘A more productive labour market’. The Productivity Inquiry, the second such inquiry conducted by the Productivity Commission, is tasked with reviewing Australia’s productivity performance and recommending an action roadmap to assist governments making reforms that enhance productivity. The latest report investigates how workers can boost the nation’s productivity, and explores how the business environment can be made more flexible and adaptable, no matter what the future of work looks like. Submissions and comments on the Productivity Inquiry’s six interim reports are due by 21 October 2022. See Productivity Inquiry webpage.
ASIC releases 2021-2022 Annual Report. On 14 October 2022, the Australian Securities and Investments Commission (ASIC) released its Annual Report for the 2021-22 financial year. The report outlines ASIC’s key regulatory and enforcement outcomes for 2021-2022, where it continued to take ‘strong and targeted action’ against misconduct that harms both consumer and the integrity of the financial services sector. ASIC reports that it secured $229.9 million in civil penalties, and convictions against 33 individuals during the 2021-22 financial year. ASIC Chair Joe Longo stated that ASIC’s near-and-medium-term priorities include focusing on areas of increasing risk of consumer harm and on the superannuation industry, and supporting consistency in standards of climate change and sustainability reporting by corporations. See ASIC media release.
Supreme Court of New South Wales reminds directors about distribution of additional explanatory information in schemes of arrangement. On 6 October 2022, the Supreme Court of New South Wales handed down a cautionary decision for Directors and scheme participants in relation to the issue of additional information to shareholders other than by a court-approved form of supplementary disclosure. The decision followed the second substantive court hearing concerning a scheme of arrangement by which Pfizer Australia Holdings Pty Limited (Pfizer) intended to acquire all of the fully paid ordinary shares on issue in ResApp Health Ltd (ResApp). ASIC raised several concerns at the hearing in relation to irregularities in ResApp’s communications with its shareholders. While the Court found that the irregularities were ultimately immaterial, Justice Black observed that ResApp and its directors’ approach to communications with shareholders ‘plainly increased the risk of unbalanced communications occurring which had the potential to undermine the integrity of the scheme process’. Justice Black further emphasised that companies should generally not unilaterally issue explanatory material to shareholders without approval from the Court. See In the matter of ResApp Health Ltd  NSWSC 1353.
ASIC defends appeal by Mayfair 101 Group companies against $30 million penalty. On 10 October 2022, the Full Court of the Federal Court of Australia dismissed an appeal by Mayfair 101 Group companies seeking to overturn the Federal Court’s findings of misleading and deceptive advertising, and the imposition of $30 million in penalties. ASIC Deputy Chair Sarah Court stated that ASIC pursued the case because of concerns that the Mayfair Group’s advertising ‘represented that their products were of a similar risk profile to bank term deposits, when that was not the case’. In March 2021, the Federal Court found that Australian Income Solutions (previously Mayfair Wealth Partners), M101 Holdings, and M101 Nominees and Online Investments t/a Mayfair 101 engaged in misleading or deceptive conduct and made false or misleading representations and, in December 2021, the Federal Court awarded penalties totaling $30 million. See ASIC media release.
OVER THE HORIZON
Financial Accountability Regime soon to become law. On 8 September 2022, the Financial Accountability Regime Bill 2022 (Bill) was introduced to the House of Representatives. If passed, the Bill will establish a Financial Accountability Regime that imposes accountability, key personnel, deferred remuneration and notification obligations on directors and senior executives of financial entities in the banking, insurance and superannuation industries. As stated in a previous edition of Boardroom Brief, ASIC considers that the Financial Accountability Regime will complement strategic reforms to the financial system, as identified in ASIC’s 2021-2026 corporate plan. The Bill has not substantially changed since its previous form (the Financial Accountability Regime Bill 2021), so it is likely to receive bi-partisan support and progress through Parliament in a relatively short timeframe. Organisations would be well advised to start their preparations now if they have not already done so. See Financial Accountability Regime Bill 2022 and G+T Knowledge article.