BUILD RESILIENCE – MANAGE RISK – INCIDENT RESPONSE
The fast pace of regulatory change in Australia continues in 2019. This report sets out a summary of the key regulatory trends that are confronting our clients across our key sectors of insurance, energy, trade, transport and infrastructure.
By international standards, Australia is one of the most regulated economies in the world. This year's publication is designed to provide you with an overview of the most pressing regulatory issues that businesses operating in Australia need to be aware of, and to provide practical advice as to what businesses should be doing to manage these issues. Given the release of the Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry this edition includes a special feature on the regulation of fi nancial services industries. Also profi led are a number of developments affecting the regulation of international trade and transport, including the emerging drone regulatory regime.
Clyde & Co is committed to ensuring that our clients are in the best position possible to respond to any regulatory issues that do arise. The consequences of failing to prepare include civil and criminal penalties, reputational damage and in the most extreme cases, loss of authority to operate a business. Our regulatory and investigations team focus on these issues and are able to help organisations build resilience through practical advice that deals with these complex regulatory challenges.
WHAT ARE THE EMERGING ISSUES?
- Tougher penalty framework
- Revised ASX Governance Principles
- Climate change disclosure
NEW PENALTY FRAMEWORK FOR CORPORATIONS LAW
From 13 March 2019, companies that engage in corporate misconduct are now exposed to significantly increased financial penalties.
The Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 (Cth) (Penalties Act) received Royal Assent on 12 March 2019. The Penalties Act is designed to deal with the long-held concern that penalties for breaches of corporations law are insufficient to deter misconduct. This issue was squarely raised in the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the Financial Services Royal Commission).
To deter future misconduct, the Penalties Act has increased civil and criminal penalties for breaches of the Australian Securities and Investments Commission (ASIC) administered legislation including the Corporations Act 2001 (Cth) (Corporations Act), Australian Securities and Investments Commission Act 2001 (Cth), National Consumer Protection Act 2009 (Cth) and the Insurance Contracts Act 1984 (Cth) (Insurance Contracts Act).
The Penalties Act increases financial penalties and terms of imprisonment. Those involved in corporate misconduct face a greater risk of increased financial exposure for such wrongdoing.
Civil penalties increased up to a cap of AUD 525 million for corporations. Criminal penalties are further set out in the Corporate Crime Regulatory Update (see page 20).
Breaches of general Australian Financial Service Licence (AFSL) obligations by a company under section 912A of the Corporations Act will now attract a financial penalty.
Under the Penalties Act the penalty will be the greater of:
- AUD 10.5 million;
- three times the value of the benefit derived from the contravention; and
- 10% of the company's annual turnover, capped at AUD 525 million.
The Courts have also been provided with greater discretion to provide compensation to victims and a relinquishment regime has been introduced to ensure any financial benefit gained as a result of the misconduct is disgorged.
REVISED ASX CORPORATE GOVERNANCE PRINCIPLES AND RECOMMENDATIONS
The ASX Corporate Governance Council (the Council) released the fourth edition of its Corporate Governance Principles and Recommendations on 27 February 2019.
In the revised principles, there is a significant focus on organisational culture and a number of new board responsibilities are designed to focus on corporate culture and governance. Principle 3 has been substantially revised to require that a listed entity "...continually reinforce a culture across the organisation of acting lawfully, ethically and responsibly".
In terms of new policies, the recommendations suggest that every listed entity should have a whistleblower policy and an anti-bribery and corruption policy. There is also a focus on risk management in the revised principles. This includes ensuring that the company has risk strategies to deal with contemporary and emerging risks such as conduct risk, digital disruption, cyber-security, privacy, data protection, climate change and sustainability.
Under Rule 4.10.3 of the ASX Listing Rules, ASX listed entities are required to include in their disclosures a benchmark of their corporate governance practices against the Council's recommendations. If an entity's practices do not conform, then, in accordance with the "if not, why not" approach, they must disclose that fact and specify the reasons for the departure.
DISCLOSURE OF CLIMATE CHANGE RISKS
There have been a number of developments in recent years which have put pressure on companies to consider climate change risks and make appropriate disclosures in their annual reports.
Australian shareholders have been taking a more active approach to pushing for disclosure of climate change risk by Australian listed companies by proposing shareholder resolutions on the topic at Annual General Meetings and have gone as far as launching legal proceedings against companies for failure to adequately disclose climate change risk in Annual Reports. In 2018, ASIC publicly stated that its key priorities in relation to climate change risks are corporate governance and disclosure, with ASIC Commissioner John Price highlighting that corporate governance practices for managing risks and opportunities should apply to climate change risks in a similar manner as these practices already apply to compliance risks, cyber security or digital disruption.
The voluntary disclosure framework developed by the Taskforce on ClimateRelated Financial Disclosures (TFCD) in June 2017 may help companies in considering how to disclose climate change related risks in a way which will take into account the general information needs of investors outside of the strict legal requirements for disclosure.
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