In brief
Welcome to our monthly snapshot of regulatory updates and other developments in corporate law. We know you are busy, so our focus is on capturing key issues.
We'd love to hear from you. Please do let us know if you need more detail about an issue, or if there is something in particular you'd like to hear about, and feel free to call any of your Allens contacts.
What you need to know
ASIC: continued focus on integrity of financial services and markets
- 18 members have been appointed to the newly constituted Financial Services and Credit Panel. Members will be drawn on to form sitting panels which will be responsible for deciding whether ASIC should make banning orders against individuals where ASIC considers instances of misconduct in providing retail financial services or engaging in credit activities to be appropriate for peer review. Regulatory Guide 263 – Financial Services and Credit Panel, which sets out the processes and procedures which will apply to the FSCP, was also released. It will be interesting to see how often ASIC turns to the FSCP, and whether there will be a change in disciplinary outcomes.
- ASIC has consolidated 13 market integrity rule books into four new rule books and outlined the results of its consultation in Report 547 – Response to submissions on CP 277 Proposals to consolidate the ASIC market integrity rules. The new market integrity rule books aim to create common sets of integrity rules between markets for Securities Markets, Securities Markets – Capital, Futures Markets and Futures Markets – Capital.
- ASIC continues its focus on fees and costs disclosure in superannuation and managed investments, with the appointment of Darren McShane, Chief Regulation and Policy Officer and Executive Director of the Hong Kong Mandatory Provident Fund Schemes Authority, to assist with the ongoing review of Regulatory Guide 97 – Disclosing fees and costs in PDSs and periodic statements. ASIC expects the review to be complete in the first half of 2018, and is expected to result in more stringent transparency requirements.
- ASIC has released a 'quick guide' and information sheets to assist limited AFS licensees understand their key obligations as licensees when giving advice to retail clients. The information sheets are Information Sheet 227 – What can limited AFS licensees do?, Information Sheet 228 – Limited AFS licensees: Advice, conduct and disclosure obligations when providing advice under a limited AFS licence and Information Sheet 229 – Limited AFS licensees: Complying with your licensing obligations.
- ASIC continues to focus on cross-border cooperation on fintech and innovation regulation, entering into a new Information Sharing Co-operation Agreement with the China Securities Regulatory Commission and a new Innovation Functions Co-operation Agreement with the Dubai Financial Services Authority. In a similar vein, ASIC has also released Report 555 – Cyber resilience of firms in Australia's financial markets, which reports encouraging progress but with more work to be done by Australian firms in managing cyber risks.
- ASIC has updated Regulatory Guide 175 – Licensing: Financial product advisers – Conduct and disclosure to confirm previously announced restrictions on the use of terminology implying independence by financial service providers, such as 'independently owned', 'non-aligned' and 'non-institutionally owned'. Financial service providers can only use these terms if they meet certain requirements specified in the Corporations Act, including in relation to receipt of commissions, gifts and benefits and if they operate without any conflicts of interest.
ASX: continuous disclosure and earnings guidance in the spotlight
Earnings guidance and forecasts remain hotspots for regulatory activity, with November seeing Murray Goulburn admit to a contravention of its continuous disclosure obligations and reach a $650,000 settlement with ASIC.
The contravention related to Murray Goulburn's failure to update the market on 22 March 2016 that forecasts for net profit and farm gate milk prices announced on 29 February 2016 were unlikely to be achieved. On 27 April 2016, Murray Goulburn announced a shock profit downgrade and a decision to retrospectively cut milk prices to its farmer suppliers, resulting in a number of suppliers moving to rival dairy processors.
The settlement remains subject to approval by the Federal Court, with the matter listed for hearing on 6 December. Listed entities should continue to expect close scrutiny of earnings guidance and continuous disclosure obligations.
FIRB: expect applications to be delayed
FIRB has published the following statement on its online Foreign Investment Notification System (which is used for lodgement of FIRB applications): 'Please note, while we work to meet commercial deadlines where possible, applications received from Friday, 17 November 2017 should not be expected to be decided upon until mid-January or later, due to the Christmas/New Year holiday period'. This end-of-year delay is consistent with prior years, but is important to note for live transactions which require FIRB approval.
ACCC: clearances, delays and media merger guidelines
November saw the Australian Competition Tribunal grant merger authorisation in the long running (and at times contentious) acquisition of Tatts by Tabcorp. This is the second time the Tribunal has been called upon to consider this matter, after the Federal Court quashed a previous determination to authorise the acquisition on appeal by the ACCC and Crownbet. Justice Middleton noted that the Tribunal was satisfied that the proposed merger would result, or would be likely to result, in such a benefit to the public that the acquisition should be allowed to occur. See our Client Update for further detail.
November also saw the ACCC clear independent proposals to acquire Office Max by Complete Office Supplies and by Platinum Equity, after considering whether the acquisition would substantially lessen competition in the supply of traditional office products (such as stationery) to large commercial and government clients. The Platinum Equity clearance was finely balanced, given Platinum Equity's ownership of stationery company 'Winc' (formerly 'Staples'), and followed the release of a Statement of Issues.
The ACCC has chosen to delay consideration of BP's acquisition of Woolworths' service stations, noting that the transaction involves 'complex, extensive data analysis of fuel prices across all fuel sites in Australia over a number of years'. The acquisition involves over 500 service station sites which are currently operated by Woolworths. ACCC Chair Rod Sims said that the matter is a significant decision for the retail petrol market in Australia, and that the extension is necessary to allow the ACCC to consider further information from the parties.
Finally, important new media merger guidelines have been issued by the ACCC. These guidelines are a welcome update for parties considering acquisitions in Australian media industries, with previous media merger guidelines being issued in 2006. Since then, the media industry has undergone substantial regulatory change, technological change and rapid innovation. These factors were recognised by the ACCC in updating the guidelines, with Rod Sims using the release to affirm that 'the ACCC continues to keep pace with the innovation entering and disrupting the market'.
Takeovers Panel: Molopo Energy saga continues
Molopo Energy will be considered by the Panel yet again following another application by Aurora Funds Management. The application seeks orders preventing Molopo from making a payment of more than $2 million, which would trigger a defeating condition in Aurora's bid. The Panel has not decided whether to conduct proceedings. Aurora's application comes at a critical time in the battle for control of Molopo, with WAM Capital having announced its intention to launch its own competing bid.
Employment: Woolworths seeks to ensure supply chain labour compliance
Over the past 12 months, the Fair Work Ombudsman has increased its focus on individuals and companies that are involved in contraventions of the Fair Work Act, particularly in relation to the underpayment of workers. One of the areas where a company may be exposed to a finding of accessory liability is in relation to the payment of workers engaged in its supply chain. The best way for a company to avoid a finding that it is accessorily liable for the underpayment of workers engaged in its supply chain is to ensure, so far as reasonably practicable, that its suppliers are complying with their labour obligations.
Woolworths has recently taken a significant step towards ensuring that its suppliers comply with their labour obligations, by committing to:
- implement a pre-qualification programme for labour-hire providers to ensure that all labour providers who wish to operate in Woolworths’ direct fresh food supply chains comply with labour standards; and
- support workers in Woolworths’ supply chains to be educated about their workplace rights, including their right to join a labour union of their choice.
Other developments
Royal Commission
The Federal Government has announced a Royal Commission into the banking and finance sector. The draft terms of reference released by the Government are much broader than expected, especially in terms of the financial services entities covered, including authorised deposit-taking institutions, insurers, AFSL holders and their authorised representatives, and RSE licensees of a registrable superannuation entity. However, it is expected that the Royal Commission will focus on misconduct by financial services entities as well as conduct which falls short of community standards and expectations.
The Turnbull Government has recommended that former High Court Judge, the Honourable Kenneth Madison Hayne AC be appointed as Royal Commissioner and for an interim report to be submitted no later than September 2018, with a final report to be submitted within 12 months.
APRA continues crackdown on residential mortgage lending
APRA continues its crackdown on residential mortgage lending, with AMP Bank joining CBA, Westpac, NAB, and Macquarie Bank in refining its assessment of borrower suitability and serviceability criteria. In a keynote address given to the Australian Securitisation Forum on 21 November 2017, APRA Chairman Wayne Byres noted that residential mortgage lending continues to be a key area of supervision given an upward trend in non-performing loans despite a benign environment of low interest rates and high employment.
In addition to measures announced earlier this year (such as imposing lending limits on interest-only and investor loans), Mr Byres noted that APRA is paying particular attention to lending with a low net income surplus. APRA continues to challenge lenders to ensure that they adopt adequate conservatism to ensure that borrowers are not unduly exposed if their circumstances were to change.
APRA is also closely monitoring loan-to-income ratios, noting that high LTI lending in Australia is well north of what has been permitted in other jurisdictions grappling with high house prices and low interest rates, such as the UK and Ireland.
Signs of life emerging in the IPO space
Signs of life are emerging in the IPO space, with Wagners Holdings, a diversified Australian construction materials provider, raising $196 million in an underwritten offer which is set for listing on 8 December. This follows the Netwealth IPO ($260 million) and New Energy Solar IPO ($205 million) in November, which were the second and third largest IPOs of the year, respectively.
2018 also looks set for an uplift in IPO activity, with consumer finance business Latitude Financial Services being touted as a 2018 IPO contender, with an estimated market value of approximately $5 billion. Australia-based pub owner Redcape Group is also expected to take a run at the ASX Boards next year.
A study of Takeovers Panel policy outcomes
A paper published recently by Emma Armson, 'Speed in Decision-making: An Assessment of the Australian Takeovers Panel' (2017) 35, Company & Securities Law Journal 352, has assessed the decision-making speed of the Takeovers Panel from 2000-16. Armson recognised the need to assess whether the policy behind the Corporation Law Economic Reform Program Act 1999 (Cth), which enabled the Panel to become the primary forum for resolving takeover disputes and aimed to ensure speed in decision-making, was operating in practice.
Armson found that the Panel has become more efficient in its decision-making over time, on average making a decision within one month and publishing its reasons within three months of receiving an application. However, in Armson's view, speed is best achieved where the Panel is the sole decision-maker – judicial review has a significant impact on the speed of decision-making, increasing the time to make a decision to an average of nine months.