This is a service specifically targeted at the needs of busy non-executive directors (NEDs). 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 the FRAA’s new framework for assessing APRA and ASIC and APRA’s latest biennial survey results revealing the sentiments of APRA-regulated entities. We examine the new international sustainability standards set for launch on 26 June 2023 and the FPAA Register which requires foreign investors to notify the ATO of specific dealings in Australian assets. We also discuss the Federal Court’s decision to remove the requirement to provide foreign counsel opinion of due execution of the scheme deed poll.
In Risk Radar, we discuss some of the ASIC Chair’s concerns over the unregulated commercial use of AI.
GOVERNANCE + REGULATION
Framework to assess the effectiveness and capability of APRA and ASIC released. On 16 June 2023, the Financial Regulator Assessment Authority (FRAA) released its draft Financial System and Regulator Metrics Framework (Framework) assessing the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) (together, the Regulators). The FRAA was established as an independent oversight authority established following the recommendation of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services. The Framework will inform the FRAA’s assessment methodology of the Regulators in the future and provide the FRAA with additional context and insights for its reviews. The FRAA’s consultation paper welcomes responses from interested parties on the Framework. Submissions close 27 July 2023. See Framework consultation paper. See also FRAA media release.
APRA releases its latest stakeholder survey results. On 23 June 2023, APRA released its biennial Stakeholder Survey Report (Report) which assesses the results from a survey of APRA-regulated entities to understand the effectiveness and impact of APRA’s regulation and the financial sector’s perceptions of APRA’s processes and communications. The Report had a response rate of 67%, with the survey questions directed at eliciting an entity’s sentiment towards APRA. The Report showed strong support for APRA’s supervisory role, with 98% of respondents agreeing APRA benefited their industry, 94% agreeing APRA helped protect the community and 90% agreeing APRA enhanced the strength of their entity. However, consistent with previous years, the Report notes lower levels of support for the cost and burden of complying with APRA’s regulatory requirements. APRA Chair John Lonsdale noted that as a regulator, APRA “hear[s] the message that industry would like us to better balance the positive impact of supervision with the cost and burden of regulation”. See Report.
Launch of new international sustainability standards. On 22 June 2023, the International Sustainability Standards Board (ISSB) announced its first two standards, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures (together, the Standards), would be launching on 26 June 2023. These Standards build on the recommendations of the Task Force on Climate-related Financial Disclosures and include industry-based disclosure requirements derived from Sustainability Accounting Standards Board Standards. See ISSB media release. Directors will need to be conscious of the enhanced reporting obligations that will apply under the new standards which are expected to take effect from reporting periods commencing on or after 1 January 2024.
New Register of Foreign Ownership of Australian Assets to commence 1 July 2023. The new Register of Foreign Ownership of Australian Assets (FOAA Register) will commence on 1 July 2023 and is intended to enhance the government’s visibility over foreign ownership of Australian assets. The FOAA Register will take effect under amendments to the Foreign Acquisitions and Takeovers Regulation 2015 (Cth). The FOAA Register will consolidate and replace existing registers, including the Register of Foreign Ownership of Agricultural Land, the Register of Foreign Ownership of Water Entitlements and the Register of Ownership of Residential Land. The Australian Taxation Office (ATO) will continue to maintain the FOAA Register and foreign investors will be required to notify the ATO of a range of specified dealings in Australian assets. This obligation to notify the ATO under the FOAA Register is separate to the requirement to notify the Australian Treasury of significant and/or notifiable actions under the Foreign Acquisitions and Takeovers Act 1975 (Cth). The ATO will maintain an online portal for foreign investors to give notice using a myGovID. See ATO webpage.
Federal Court removes requirement for foreign counsel opinion of due execution of scheme deed poll. On 13 June 2023, Jackman J of the Federal Court (Court) handed down reasons in Re Blackmores Ltd  FCA 624 (Blackmores), amending the evidence requirements for foreign companies in a scheme of arrangement. Prior to the Blackmores decision, foreign companies had to provide an affidavit from an appropriately qualified lawyer in the respective foreign jurisdiction proving due execution of a deed poll at the relevant scheme hearing. In Blackmores, Jackman J held that such a requirement was both ‘unnecessary’ and ‘wrong in principle’, echoing His Honour’s earlier reasoning in Re Vita Group Ltd  FCA 400 to streamline the process for approval for schemes of arrangement (see previous edition of Boardroom Brief). See Re Blackmores Ltd  FCA 624.
ASIC Chair voices concerns over unregulated AI. On 20 June 2023, ASIC Chair, Joe Longo, gave a speech at the 2023 ISDA/AFMA Derivatives Forum addressing the risks of artificial intelligence (AI) across corporate Australia. This speech is the first time the ASIC Chair has squarely discussed AI, signifying its future importance in financial (and other) markets. At an organisational level, Mr Longo said “the fear of being ‘left behind’ will drive some uses of technology that will have unintended consequences. There is a danger entities may rush too quickly into innovations without applying appropriate controls and proper governance.” This highlights the difficult balance for companies to ensure new technologies are implemented appropriately on the one hand, while on the ensuring the company does not delay so long as to be left at a competitive disadvantage. Similarly, from a regulatory perspective, there is a need to strike an appropriate balance between support for innovation and protection from harm from AI. On this point, Mr Longo said that AI is “a high and important priority” for ASIC, underscoring the corporate regulator’s concern over the unregulated use of AI. These comments come after the Australian Government released a discussion paper seeking industry feedback to inform its approach to regulating AI to help support responsible AI practices and mitigate potential risks. Making this task more difficult for domestic regulators is the fact that there is no real international consensus on how to regulate AI (see G+T Knowledge article). Directors should consider strategies to ensure they are kept up to date on developments in AI deployment within their organisation and on regulation as it begins to emerge. See full speech transcript. See news article.