INSIGHT

Revised Banking Code of Practice, innovation at the ASX and other corporate law developments

By Vijay Cugati
Mergers & Acquisitions Technology

In brief 9 min read

ASIC continues its focus on strengthening corporate regulations; ASX embraces innovation and tech-based solutions; FIRB application fees have increased from 1 July 2019; delays to the release of the Digital Platforms Inquiry Final Report; the Takeovers Panel offers useful insight into the evidence required to establish associations between shareholders in the context of a board spill; and the South Australian Government reinstates its labour hire licensing regime. 

What you need to know

ASIC: Commencement of whistleblower protections; new developments for financial services businesses, and ASIC's focus areas for 30 June 2019 financial reports

There continues to be a focus on strengthening corporate regulations in the post-Royal Commission environment, with a series of new regulations being unveiled and taking effect this month.

  • The new financial year has seen the commencement of new whistleblower protections, which include obligations to maintain confidentiality and to compensate whistleblowers who suffer loss from making a disclosure. You can read more about your obligations under the new laws in our Corporate and financial services whistleblowing FAQs, while ASIC has released Information Sheet 238: Whistleblower rights and protections and Information Sheet 239: How ASIC handles whistleblower reports to assist whistleblowers. Under the new laws, public companies and large proprietary companies need to have updated whistleblower policies in place by 1 January 2020.
  • With many listed and other large entities concluding their financial year, ASIC has flagged its focus areas for 30 June 2019 financial reports. In particular, it is calling on reporting entities to take care around the impact of new accounting standards, noting its view that changes to standards on revenue recognition and financial instrument values (including hedge accounting and loan loss provisioning) will represent the greatest change in financial reporting for many companies since the International Financial Reporting Standards were adopted.
  • There are a number of developments affecting financial services businesses:
    • ASIC has approved a new version of the Banking Code of Practice, which is binding on Australian Banking Association (ABA) members, with effect from 1 July 2019. The updated Code addresses a number of issues identified in the Royal Commission, including charging fees to deceased customers, provision of valuations to small businesses and reforms to credit card responsible lending. The ABA is proposing further changes to the Code to address other Royal Commission findings, including around access to banking products and services for vulnerable customers, and default interest on agricultural loans following natural disasters. ASIC will consider the ABA's further proposed changes later in 2019 and, if approved, they are expected to take effect from 1 March 2020.
    • ASIC has published submissions received in response to Consultation Paper 309 – Update to RG 209: Credit licensing: Responsible lending conduct, and has announced that it will hold public hearings in Sydney and Melbourne in August 2019 as part of its consultation on responsible lending for consumer credit. We expect ASIC will use the visibility of a public forum as an opportunity to take a strong line on responsible lending and conduct issues.
    • In April 2019, ASIC gained new product intervention powers where products are likely to result in significant detriment to retail clients or consumers. It has now released Consultation Paper 313 – Product intervention power, which seeks feedback on a draft regulatory guide setting out how and when ASIC will use its new powers. Comments are due by 7 August 2019, with ASIC looking to finalise its regulatory guidance in September 2019. While it has been keen to emphasise the checks and balances that will apply in exercising the product intervention power, given the increased scrutiny currently being faced by the regulator, we expect ASIC will not hesitate to make use of this new power.
ASX: Technology on the horizon at ASX 

The push towards adopting new technology and new technology-based solutions continues at the ASX. Last month, it opened its first high-density pods at its co-location data centre, the Australian Liquidity Centre. ASX says the new space meets customer demand for a high-density service with increased, uninterrupted power delivered in a highly robust, secure and cost-efficient manner. The high-density pods provide the same equal access to all ASX markets and connections to alternative trading venues and liquidity platforms via ASX Net.

Other technology on the horizon includes the hotly anticipated (and debated) blockchain-based CHESS-replacement scheduled to go live in March/April 2021, and a raft of other projects including DataSphere and Sympli, expected to go live this year. DataSphere, ASX's data analytics capability, has been rolled out internally and will be made progressively available to customers. As announced at ASX's half-yearly results in February, DataSphere is touted as an open ecosystem platform providing technology, governance, datasets and analytical tools in one centralised location. In addition to providing insights into currently held data, ASX is developing artificial intelligence tools that will be offered to clients to use on the platform.

FIRB: Indexation of application fees 

FIRB application fees have increased from 1 July 2019, as a result of annual indexation. Updated versions of Guidance Note 29: Fees – Residential Land and Guidance Note 30: Fees – Business have been released, reflecting the updated fee schedules.

ACCC: Digital Platforms Final Report due; guide for energy retailers released; update on merger reviews and updated ACCC guidance

The Digital Platforms Inquiry Final Report was due to be issued by the ACCC to the Treasurer on 30 June 2019. As we reported in the June edition of Nucleus, ACCC Chair Rod Sims has indicated that the Final Report will propose changes to Australia's merger laws. Although it is common for there to be a delay between a report being issued to the Treasurer and it being made publicly available, there has been no firm indication from the Treasurer about timing for the release of the Digital Platforms Inquiry Final Report, which is eagerly awaited by practitioners.

The ACCC has released a Guide to the Electricity Retail Code for energy retailers, which explains how retailers should apply the new Electricity Retail Code. The Code came into force on 1 July 2019, and applies to retailers in South East Queensland, New South Wales and South Australia. Among other changes, the Code introduces a cap on ‘standing offer’ prices, with the objective of reducing the cost of electricity for customers on these offers. The cap will be set annually by the Australian Energy Regulator.

Turning to mergers, the ACCC has announced it will not oppose Liberty's proposed acquisition of Steelforce. Liberty and Steelforce both manufacture and distribute long steel products used for construction and industrial purposes, and the proposed acquisition will make Liberty the largest distributor of long steel products in Australia. The ACCC decided not to oppose the acquisition because it considered that imports and rival distributors will continue to provide strong competition, and found that customers of long steel products can easily switch between distributors if one is offering a lower price.

Finally, the ACCC has published guidance on a range of topics, including:

  • Guidance on the risks of gun jumping for merging parties before completion of a transaction. 'Gun jumping' occurs where merger parties coordinate their activities or behave as a single entity instead of competing independently during the period before completion of the merger. This guidance draws on the ACCC's recent enforcement action in relation to Cryosite and Cell Care. See our Client Update: Penalties ordered in ACCC cartel action against Cryosite are a strong reminder of rules prohibiting 'gun jumping' for a more detailed overview.
  • An updated guide to section 155 notices to incorporate changes made by the Competition and Consumer Amendment (Competition Policy Review) Act 2017 (Cth). The guide aims to help individuals and small businesses understand the ACCC's information gathering powers under s155 of the Competition and Consumer Act 2010 (Cth), including the process for responding to a s155 notice. In particular, the guide sets out defences that a recipient of a notice may rely on, including the 'reasonable search defence'.
  • Draft guidelines on the repeal of subsection 51(3) of the Competition and Consumer Act 2010 (Cth). Subsection 51(3), which provides a limited exemption to the prohibition on cartel conduct for some intellectual property-related arrangements, will be repealed from 13 September 2019. The draft guidelines set out the principles the ACCC will apply to enforcement following the repeal. Submissions on the draft guidelines are due by 19 July 2019.
Takeovers Panel: Shareholders' associations

As we reported in last month's Nucleus, the Panel recently made a declaration of unacceptable circumstances regarding a shareholders' association relating to Aguia Resources Limited. The Panel has now published its reasons for its decision, which provide insight into the evidence required to establish associations between shareholders in the context of a board spill. In finding that certain shareholders were associated when requisitioning to replace the board, the Panel examined structural links between shareholders, including existing and former roles held by them at common companies. The Panel also considered the extent, and content, of correspondence between the parties, including references to working together (eg use of the terms 'we' and 'our') and the exchange of detailed plans relating to the proposal. While the Panel reiterated that shareholders exchanging views on a proposed resolution does not necessarily amount to an association, in this case it found that the activities of the shareholders went beyond mere discussion and extended to formulating a joint proposal to replace the board. The parties, accordingly, were associates and required to lodge substantial holder notices detailing the association.

Employment: South Australian labour hire scheme reinstated 

The South Australian Government has reinstated the state's labour hire licensing scheme, after its attempts to overturn it failed when the repeal legislation did not pass the State Parliament's upper house.

The revived scheme requires all labour hire providers operating in South Australia to obtain a licence by 1 November 2019. Applications for labour hire licences must now be lodged by 31 August 2019. The revived scheme also makes it unlawful to enter into arrangements with unlicensed labour hire providers.

A business provides labour hire services if, in the course of conducting a business, it provides workers to work for a third party in and as part of that third party's business. Recently, the South Australian Government introduced exemptions to the licensing requirement for businesses, where providing labour hire is not a core function of the provider's business or where workers are provided to another business within the same corporate group or franchise.

The reinstatement of the scheme makes South Australia the third state, along with Queensland and Victoria, to implement a regime for regulating labour hire arrangements. In Queensland, a labour hire provider was recently fined $60,000 for supplying workers without a valid licence, the first conviction of its kind in Australia.

All businesses that use or supply labour hire workers should review their arrangements to ensure compliance with the reinstated framework.

News & other developments

ASIC clarifies its approach to litigation

As we reported in last month's Nucleus, the Law Council has taken a strong line against elements of ASIC's approach to litigation. In his keynote address at a Committee for Economic Development of Australia event in Melbourne, ASIC Chair James Shipton has responded to 'comments from industry' that make 'clear that there has been some misreading of [ASIC's] new approaches to enforcement and supervision'. Although Mr Shipton's remarks did not respond directly to the Law Council's criticisms, he did say that ASIC's 'why not litigate?' approach does not mean 'litigate first' or 'litigate everything', and will instead require ASIC to 'consider a number of key factors including our model litigant obligations and the likelihood of achieving regulatory outcomes'.