Acting for You, February 2020

ASIC releases guidance on whistleblower policies

ASIC released its much-anticipated whistleblower guidance in November 2019 and granted relief to small NFPs from the requirement to have a whistleblower policy.

Governance Institute lodged a submission (Acting for You October 2019). We provided feedback to ASIC on the draft guidance and highlighted the practical difficulties that charities and NFPs would face in complying with the 1 January 2020 deadline.

In its response to submissions, ASIC acknowledged the feedback that we and other organisations provided on the content of the guidance. ASIC made significant changes to the draft guidance in response to the feedback.

One of the issues we raised in our submission was that the draft contained a mixture of mandatory requirements (must) and guidance (should). We argued it would be challenging for readers of the guide to understand the difference between what ASIC considers to be best practice or 'gold' standard and what is mandatory to comply with the Corporations Act 2001.

ASIC has updated the structure of the guide to differentiate the guidance relating to the Corporations Act requirements from good practice. The good practice guidance has changed to 'good practice tips' and is now contained in grey-shaded text boxes. The guidance clarifies that entities are not required to follow the good practice tips, but following those tips and good practice guidance may assist them in enhancing the usability of their policies.

Importantly, ASIC has provided relief to small NFPs and charities from the requirement to have a whistleblower policy. The relief applies to public companies that are NFPs or charities with annual revenue of less than $1 million.

These organisations need to understand, however, that while they are exempted from the requirement to have a compliant policy, they must still otherwise comply with the whistleblower provisions in the Act.

Charities and NFPs with annual revenue above the threshold are not exempt from the requirement to have a compliant whistleblower policy by the 1 January 2020 deadline.

Modernising Business Registers and Director Identification Numbers

The package of bills creating a new Commonwealth business registry regime and introducing a Director Identification Number has been reintroduced to Parliament. 

More information about this vital reform project is in an article by our policy adviser in the February 2020 journal here.

Illegal phoenixing bill

We last reported to members on the progress of the Treasury Laws Amendment (Combatting Illegal Phoenixing) Bill 2019 in the April 2019 edition of Acting for you. Since that time, the legislation has been reintroduced to Parliament where it was passed by the lower house in December 2019. The Senate must pass the bill before it becomes law. 

A vital part of the illegal phoenixing reforms is aimed at preventing directors from backdating resignations to avoid liability for offending conduct, such as insolvent trading or transferring company assets to a phoenix company. Under the bill, if the resignation of a director is reported to ASIC more than 28 days after the purported resignation, the resignation takes effect from the day it is reported to ASIC.

While Governance Institute supports provisions which negate the efforts of directors seeking to undertake phoenix activity, we have pointed out the effect of the change to the law will be that notices of resignation of directors that are lodged outside the 28-day statutory period, due to an administrative or human error and with no intention of facilitating phoenixing activity, will be caught by the new provisions. 

We will advise members once the illegal phoenixing provisions become law.

Financial Market Infrastructure Regulatory Reforms and CHESS replacement

Governance Institute is a founding member of the CHESS Replacement Stakeholder Group, with the Australasian Investor Relations Association, the Australian Shareholders Association, Stockbrokers and Financial Advisors Association, Computershare, Link Group and BoardRoom.

The stakeholder group was formed in response to concerns held by its constituent members about the ASX CHESS Replacement Project, in particular, the potential of the project to further entrench ASX's existing monopoly powers over post-trade services and to facilitate the extension of those monopoly powers into other areas.

The stakeholder group has engaged with ASX and members of the Commonwealth Government about its concerns and continues to advocate for improved engagement between ASX, issuers and other concerned stakeholders.

As part of its advocacy efforts, the stakeholder group has provided a submission to the Reserve Bank in response to its Consultation on Financial Market Infrastructure Regulatory Reforms. The consultation requested feedback and comment on the regulatory regimes overseeing financial market infrastructures, including the operators of financial markets, benchmark administrators, clearing and settlement facilities and derivatives trade repositories.

The submission highlights the stakeholder group’s concerns about the CHESS Replacement Project, particularly as regards competition. The submission points out that a Distributed Ledger Trading platform of the complexity, scale and criticality (to a diverse range of market stakeholders) of the CHESS Replacement Project has yet to be introduced to replace core market infrastructure in any major equity market anywhere in the world. Accordingly, any platform needs to strike a sensible balance between risk, commercial viability and innovation. The submission argues that the Council of Financial Regulators should be given more defined and specific powers to enforce appropriate parameters around ASX’s use of its monopoly powers and ensure competitive markets are maintained for the best outcomes for all Australians.

To address these concerns, the group recommends that the Council of Financial Regulators be given appropriate powers to address anticompetitive conduct. Specifically, the submission recommends that the Council of Financial Regulators be empowered to: 

  • approve recommendations for new rules to set minimum standards for clearing and settlement competition in relation to the CHESS Replacement Project
  • confirm a timetable for the introduction and legislative approval of these rules before the 2021 go-live date of the new CHESS platform
  • urgently advise government on the need to pass these rules.

We will update members on the progress of this consultation.

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Independent review of the Australian Public Service

In December 2019, the Commonwealth Government released the final report of the independent review of the Australian Public Service as well as its response to the review’s 40 recommendations. 

Governance Institute provided submissions to the review in May 2019 and July 2018.

The review discussed many of the issues we raised in our submissions such as accountability, the importance of taking into account the citizen’s experience of Government services and undertaking public consultation, data governance and Government’s role in structuring itself and sustaining its institutions to tackle complex multi-sectoral challenges.

The chapter of the review on data governance is particularly interesting. The review highlights the importance of creating a digitally enabled government and strengthening digital governance. The review also summarises the challenges facing Government becoming more digitally enabled. In the coming years, many Commonwealth government agencies will need to invest heavily to replace Information and Communication Technologies (ICT) systems that are reaching their 'end of life' – meaning that they stop being officially supported by the vendor. There is currently no Australian Public Service-wide information about the cost of replacing many of these ICT systems – but they need to be replaced to deliver essential government services to the Australian community. The review provided examples of the state of some of these legacy systems. The Immigration Records Information System (installed in 1989) used in the visa application process, relies on the purchase of second-hand aftermarket hardware components from eBay because the hardware for the system stopped being produced around a decade ago. While the limitations of this system were made public in 2003, as of 2019 critical parts of the system are still in use. Not surprisingly, the Government has agreed to task the Secretaries Board to conduct an urgent audit of government ICT capability, risks and needs and, in light of the audit, seek Government agreement to commission a longer-term ICT blueprint as proposed in the review. 

The review also recommended that the government review the form, function and number of government bodies to make sure they remain fit for purpose. As of 1 July 2019, there are 1,277 Commonwealth government bodies. The review noted that it is vital that the activities and functions of the government are allocated to the type of Commonwealth government body best suited to deliver them effectively. That is, deciding whether an activity — such as providing a payment, regulating an industry, delivering projects or programs or advising on policy — is best undertaken by a department, statutory agency, executive agency or another type of government body. In its response to the review, the government noted that it is currently considering changes to the Commonwealth Governance Structures Policy and will require the Secretaries Board to conduct portfolio reviews and stocktakes of portfolio functions and bodies against the policy. 

The 382-page report of the independent review of the Australian Public Service can be viewed here https://www.pmc.gov.au/resource-centre as can the Government's 26-page response. 

Submissions

Consultation on Financial Market Infrastructure Regulatory Reforms — 20/12/2019