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 guidance released by the Australian Securities and Investment Commission (ASIC) on pre-hedging practices in Australia, and a speech by ASIC Chair Mr Joe Longo and research papers released by the Productivity Commission on the regulation of artificial intelligence (AI) in Australia.  We also examine Australian Prudential Regulation Authority’s (APRA) priorities for the first half of 2024, and the Australian Competition and Consumer Commission’s (ACCC) calls for merger law reform. Further, we examine the outcome of Federal Court proceedings against Westpac Banking Corporation (Westpac) for unconscionable conduct, and the Takeovers Panel’s recent observations in relation to confidentiality and media canvassing.

In Over the Horizon, we discuss calls for reformation to the Australian taxation system and the hope for transparent discussion at a summit proposed by the Business Council of Australia (BCA).


ASIC publishes guidance on pre-hedging practices.  On 1 February 2024, ASIC released a letter addressed to market intermediary CEOs setting out guidance on pre-hedging practices.  ASIC notes that pre-hedging (action taken by liquidity providers to take a hedge position in advance of an anticipated trade) has a legitimate role to play in risk management, but has observed a wide range of approaches to pre-hedging and is concerned that differences in practices may disrupt fair competition, adversely impact investor confidence and undermine market integrity.  The letter outlines ASIC’s expectations of market intermediaries while engaging in pre-hedging activities, sets out minimum standards of conduct, encourages greater transparency to facilitate informed decision making, and condemns anti-competitive behaviour in Australian financial markets.  ASIC’s guidance follows the recent Federal Court proceedings in which Westpac was found to engage in unconscionable conduct in connection with pre-hedging activities, which is discussed in more detail below.  See ASIC media release.


ASIC Chair warns existing AI regulation may be insufficient. On 31 January 2024, ASIC Chair Mr Joe Longo presented a speech at the University of Technology Sydney Human Technology Institute Shaping Our Future Symposium on the state of existing AI regulation.  Mr Longo stated that, with AI rising to prominence in recent years, a clear consensus on how to effectively regulate this area has not yet been reached.  Further, the existing legal framework is not adequately built to tackle the harms that may arise through the use of AI.  Although Mr Longo’s speech did not propose any specific regulatory changes, he reminded listeners that ASIC will continue to be interested in: (1) the safety and integrity of Australia’s financial system; and (2) creating positive outcomes for consumers and investors alike.  He further reiterated that companies are not exempted from existing obligations around good governance and duties owed to consumers when using and developing AI technologies.  See ASIC media release.

Productivity Commission Outlines Government’s Role in Regulating AI Opportunities.  On 1 February 2024, the Productivity Commission released three research papers discussing how policymakers can assist to maximise the potential benefits of AI usage in Australia.  Unsurprisingly, the Productivity Commission’s research identified that AI can boost Australia’s productivity if the government implements sound policy and regulation.  The first research paper outlines the areas in which Australia can most benefit from the use of AI, and the areas where policy efforts should be focussed.  The second research paper discusses the challenges of regulating AI, and proposes a stepped, gradual approach to thinking about AI regulation in Australia.  Finally, the third paper considers the impact of AI on data policy, what policymakers can do to address concerns about data rights and data privacy.  See Productivity Commission media release.

APRA outlines focus areas for the first half of 2024.  On 31 January 2024, APRA published a letter highlighting its key focus areas and policy priorities for the first six months of 2024.  This letter supplements the regulator’s 2023-24 Corporate Plan (discussed in a previous edition of Boardroom Brief).  APRA’s key focus areas include operational and cyber resilience, climate risk, financial accountability, governance, and recovery and crisis management.  The letter also previews upcoming guides, surveys, consultations and discussion papers in relation to these focus areas, including the release of Prudential Practice Guide on operational risk management.  The regulator has also stated that it is in the process of reviewing the content and effectiveness of existing Prudential Practice Guides in relation to both climate risk and governance.  See APRA letter.

Critical merger law reform required. On 2 February 2024, the ACCC published its second submission to the Treasury Competition Review (2023), highlighting its ‘concerns with Australia’s current merger laws and how the cost of an ineffective merger regime largely falls on consumers and the economy’. The ACCC’s proposed reform package ‘includes many of the features contained in merger regimes in other major economies, including mandatory notification of mergers above certain thresholds and a requirement to not complete the transaction until approval is granted’, with a proposed waiver process to ‘minimise any burden on businesses involved in non-contentious mergers’. See ACCC release and ACCC submissions.


Federal Court fines Westpac the maximum penalty for engaging in unconscionable conduct.  On 31 January 2024, ASIC released a statement that Lee J of the Federal Court of Australia had declared Westpac had engaged in unconscionable conduct in October 2016 in relation to its $12 billion interest rate swap transaction, in breach of the Corporations Act 2001 (Cth) following Westpac’s admission of unconscionable conduct.  Justice Lee found that Westpac had engaged in pre-hedging activity without consent from a consortium including AustralianSuper and IFM entities, or giving full and frank disclosure about the extent of Westpac’s pre-hedging conduct to them.  This caused the consortium to be exposed to significant risk and also increased price of the swap transaction to the consortium. Although Westpac has been ordered to pay the maximum penalty of $1.8 million – the maximum the Court could order under the laws as it existed in 2016 – the minimum civil penalty is currently about $15.65 million for a corporation, with a maximum $782.5 million for a large entity. See ASIC v Westpac Banking Corporation (Penalty Hearing) [2024] FCA 52.

Takeovers Panel finds former CEO in breach of procedural rules.  On 23 January 2024, the Panel issued a media release regarding false and misleading statements made by former CEO of Mighty Kingdom Limited, Mr Shane Yeend, which the Panel considered misrepresented the decision of the Panel in Mighty Kingdom Limited (TP23/45). Although Mr Yeend issued a corrective statement, at the Panel’s request, his original incorrect statements still existed online publicly at the date of the release.  As such, the Panel has considered that Mr Yeend’s non-compliance with the Takeover Panel Procedural Rules 2020 is ongoing and reserves its right to take further action.  The Panel took the opportunity to remind market participants ‘of their obligations when involved in Panel proceedings, including with regards to confidentiality and media canvassing’. See Takeovers Panel media release.  


Summit proposal amidst tax reformation war.  The Albanese government’s latest tax cut package, including a proposed reinstatement of the 37% tax bracket, has reignited debate over the efficiency and effectiveness of Australia’s tax regime, particularly in light of recent inflationary pressures. BCA has called ‘for a national discussion on tax reform to start a process which deals with the extraordinary economic cliff Australia will face in the future, including a declining participation rate and revenue shortfall of $140 billion’, to ‘ensure we make our tax system genuinely productivity enhancing to generate the prosperity we need for a brighter future’.  See BCA media release.  While genuine tax reform has proven elusive (with no major policy changes since the introduction of the GST), mounting demographic pressures, inflation and rampant Government spending (both at State and Federal levels) may well force the Government’s hand in the lead up to the 2025 Federal election. 

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