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ASIC identifies key risks for business in 2015-16 

While the ASIC Corporate Plan for the next 3 years may not be everyone’s page-turner, the Plan contains important issues affecting all businesses. This blog highlights the key risks ASIC identified in their Corporate Plan 2015-16 to 2018-19 (Plan), which should act as a road map of emerging risk and compliance issues which all organisations should be considering at their next board, risk or compliance meeting.

The Plan lists what ASIC perceives to be the key drivers of risk to investors, financial consumers and the markets it regulates. Although ASIC acknowledges that there are some drivers of risk that it can’t influence, the regulator’s proactive approach to risk identification and management should serve as a guide for other organisations on what risks they should identify and consider how to manage, in 2015-16.

Poor culture and gatekeeper responsibility

ASIC identifies poor culture, resulting in lack of transparency and chronic under-pricing of risk, as a key risk for 2015-16, and the Plan references this risk as one of the causes of the 2008 global financial crisis.

ASIC’s focus on improving corporate culture has been discussed in previous blog posts (here and here). The Plan reinforces ASIC’s view that culture is a ‘gatekeeper’s underlying mindset’ (meaning culture comes from the top of an organisation) and notes that risk management systems can help encourage good culture in an organisation by influencing compliance and reinforcing good, or bad, corporate behaviour. The Plan lists the following areas as having poor gatekeeper culture:

  • responsible entities;
  • lenders;
  • markets; and
  • directors, auditors and insolvency practitioners.

In its Plan ASIC sets out actions for how it intends to respond to the risks posed by poor gatekeeper culture in those areas, such as incorporating culture and incentives more explicitly into its risk-based surveillance reviews. Those actions are in addition to other initiatives ASIC has previously proposed to tackle poor corporate culture, such as the introduction of civil penalties to apply to theCorporations Act provisions that it administers (see our earlier blog).

Misalignment between retail products and consumer understanding

The Plan also highlighted current issues with the design and distribution of retail financial products and consumer understanding of those products. ASIC’s concern about the disadvantages caused to retail investors and financial consumers as a result of that misalignment means that improving the advertising practices of those products is a key focus for 2015-16.

ASIC referenced research that suggests that people confronted with uncertainty, as is the case with some complex financial products, tend to misjudge probabilities and risk. This can lead to serious long term harm where a consumer lacks adequate understanding of the products they are buying. Consumers can be vulnerable and may exhibit behavioural biases. These traits are exacerbated if the retail products are disclosed or marketed in a misleading or deceptive way or if consumers are given unrealistic expectations.

ASIC has implemented several financial literacy initiatives to help equip consumers with the requisite knowledge to make informed decisions about financial products. They include ASIC’s MoneySmart website, the National Financial Literacy Strategy and ASIC’s desire to have financial literacy included in the Australian curriculum. In addition, ASIC is working to identify ‘inappropriate products’ and remove them from sale, such as retail over-the-counter derivatives or add-on insurance products.

Cyber-attacks: are you prepared?

ASIC will focus on the importance of cyber-resilience in 2015-16 to promote trust and confidence in the financial system and market integrity. As the recent Ashley Madison data hack demonstrated, when a breach of cyber-security and privacy occurs, it can have devastating consequences for an organisation, its clients and other members of the community.

In the case of the financial services industry, cyber-attacks can also have serious financial repercussions for its participants.

The increase in the number, sophistication and complexity of cyber-attacks presents a constantly changing risk for all organisations, including ASIC. It is estimated that in 2013, cyber-attacks affected five million Australians at a cost of $1.06 billion. The cost and scale of these attacks is projected to increase in the future.

Although ASIC acknowledges that it is impossible for firms to anticipate and be protected from every cyber-attack, it has created a Markets Cyber-Risk Taskforce to establish practices that will help protect the market.

ASIC’s focus on the risks presented by cyber-attacks is a reminder for all organisations to be proactive about incorporating the risk of a data breach in their risk registers as part of their risk management and compliance programs. The recent increase in the popularity of cyber-insurance policies emphasises the different types of risk management techniques companies can use to help improve their cyber-resilience and manage the fallout of a cyber-attack.

Improving cross-border regulation

Globalisation has led to an increase in cross border activity, competition and integration. It is estimated that 45% of Australian equities are held by foreign investors and that Australian investment abroad was at $2.1 trillion in the March quarter of 2015. This represents a 23% increase in one year.

Although this level of overseas investment can increase productivity and investment overall, cross-border integration can increase operating costs and complexity for businesses. In order to reduce costs to businesses, ASIC will work with Australian and overseas regulators to implement G20 commitments to streamline regulations between jurisdictions. One initiative highlighted by ASIC is the continued development and implementation of the Asia Region Funds Passport, which APEC reports could save investors $27.4 billion annually in fund management fees and create 170,000 jobs in APEC economies within five years.

ASIC’s Plan a reminder of the importance of Enterprise Risk Management

Although managers can’t predict future events, ASIC’s Plan provides a selection of likely risks which may crystallise sooner rather than later. On this basis, there is no excuse for managers who fail to take proactive steps now to prepare their organisations for the impact of these events. An organisation may be disadvantaged competitively if they are not employing and practicing risk management methodologies and practices such as those promoted by enterprise risk management (ERM) policies and procedures. Managers should also be aware of the formal risk management principles(usually referenced in Australia to the ISO 31000 standard), which are key implements in any risk management toolbox.

Organisations that are effectively practicing ERM are gaining significant competitive advantages, and the executives behind these ERM programs are finding themselves in increasing demand.

See our earlier articles on ERM tools and techniques to understand how your organisation can stay on top of emerging risks – and potentially avoid ASIC surveillance.

ABN to replace ACN and TFN in 2016

In its Plan ASIC re-iterated its previous commitments to cut red-tape by removing redundant or unnecessary regulations which have little practical benefit.

The recent Treasury announcement of legislative amendments to consolidate the ACN, TFN and ABN schemes after 1 July 2016 is one example of a combined practical red-tape reduction effort by ASIC, the Federal Government and Australian Tax Office.

Legislative amendments required

The Treasury released an exposure draft of the Treasury Legislation Amendment (Spring Repeal) Bill 2015 on 28 August 2015 which proposes amendments relating to superannuation, corporations and taxation.

The Bill will amend the Corporations Act 2001 (the Act) and the A New Tax System (Australian Business Number) Act 1999 to make the Australian Business Number (ABN) the single numerical identifier for companies registered under the Act from 1 July 2016. Also, taxation laws will be amended to allow an entity with an ABN to use that number instead of a TFN.

What do the changes mean?

The changes will only operate prospectively, meaning that only companies that register under the Act from 1 July 2016 onwards will be issued with an ABN as their single numerical identifier and will not be given an ACN by ASIC.

Existing companies will retain all current numerical identifiers and will not be required to apply for an ABN if they do not have one, however, from 1 July 2016, companies registered under the Act will no longer be permitted to use their ACN as their name. New companies registered after this date will be able to use their ABN in their name.

These changes will not only make it easier for new Australian companies to meet their registration requirements, they will also reduce the legal and regulatory requirements for international entities seeking to do business in Australia.

The Explanatory Material for the Bill provides more insight about how the old and new registration regimes will operate.

Impetus for change

These amendments come as part of the Federal Government’s commitment to its deregulation agenda.

In the 2015-16 Federal Budget, the Government announced measures to make it quicker and easier to register a new business as part of the Growing Jobs and Small Businesses package. Reducing the number of numerical business identifiers is the first step as a part of this package.

The amendments will ensure that an entity that has an ABN may use it as their only Commonwealth-issued numerical identifier and will not be required to also have a TFN.

These changes will reduce the administrative red-tape for businesses and hopefully there are similar initiatives to come in 2015-16!


24 August 2015: Workplace Relations Update for Executives On-the-Go

In this edition:

  •  Fair Work Commission issues another (rare) ‘stop bullying’ order;
  • ‘Repair, Not Replacement’: Productivity Commission  Draft Report; and
  •  Employee unsuccessful in compensation claim following party held at    employer’s premises

Fair Work Commission issues ‘stop bullying’ order

The Fair Work Commission (FWC) has issued another of its very rare ‘stop bullying’ orders, a power it was given in January 2014, to make anti-bullying findings and orders. While the vast majority of claims made to the FWC are conciliated at an early stage, the few matters that have made it to a hearing have led to decisions which identify what does not constitute bullying within the FWC’s purview. The most notable of these is that the FWC will only consider matters where the bullying is still ongoing, and it is work-related.

This new case appears to be a textbook illustration of what constitutes bullying.  It also illustrates the multi-pronged approach that the FWC uses to ensure that the bullying is stopped and does not recur in that organisation.

In this case the parties have not been identified; their anonymity was agreed as the parties supported the outcome, it ensured their acceptance of the admission, and the anonymity was conducive to the resumption and continuation of ongoing working relationships between the applicants and the employer.

The application

There were two applicants, both employees at a small real estate business. They alleged that there had been several instances in which a manager engaged in bullying conduct. The behaviour was said to include:

  • belittling conduct;
  • swearing, yelling and use of otherwise inappropriate language;
  • daily interfering and undermining the applicants’ work;
  • physical intimidation and ‘slamming’ of objects on the applicants’ desks;
  • attempts to incite the applicants to victimise other staff members; and
  • threats of violence.

The employees raised concerns about the conduct of the manager with the employer, and these concerns were the subject of an informal investigation and an attempted workplace mediation. The manager subsequently resigned with the support of the employer, but took up a position in a related company with the potential for future interaction with the applicants.

The employer contended that at least one of the applicants was provided with the opportunity to put their allegations in writing and failed to do so. In addition, the employer stated that the allegations were denied or substantially qualified by the manager and that the applicants have acted unreasonably in certain respects.

The orders

An order in relation to workplace bullying may only be made by the FWC where it finds that there is a risk of the bullying continuing.

Commissioner Hampton found that there was sufficient evidence that there had been “workplace culture where unprofessional and unreasonable conduct and interactions had taken place and that such had created a risk to the health and safety of a number of the workers involved”. As such, the applicant workers were found to have been bullied within the meaning of s 789FD of the Fair Work Act 2009 (Cth) (the Act).

The stop bullying orders contained two main elements: firstly, the applicants and the former manager must not approach each other or attend the other’s business premises. Secondly, a number of initiatives have been ordered to improve the culture of and conduct within the workplace.Significantly, Commissioner Hampton ordered the employer to implement anti-bullying measures in order to prevent similar instances from occurring: this includes the establishment and implementation of anti-bullying policies, procedures and training, as well as clarifying reporting arrangements.

Warning for Employers.

This matter emphasises the importance of creating and promoting a positive and safe workplace culture. Employers should ensure that they have training and policies in place, including reporting procedures,  to prevent and manage any potential instances of bullying in the workplace.

‘Repair, Not Replacement’: Productivity Commission Draft Report

The Productivity Commission (PC) has released its first draft report on Australia’s workplace relations framework, concluding that there are several deficiencies that need to be addressed. Overall, the PC found that the workplace relations framework was “not dysfunctional” but was in need of repair. The PC’s general concerns include that the current system is overly legalistic, and at times has too great an emphasis on procedures over substance.

Submissions are welcome in response to the draft before 18 September and the final report is due in November.

Recommended changes

The Report contains a broad range of recommended changes. Some key areas targeted for change include:

  • structural changes to the FWC;
  • enterprise bargaining;
  • unfair dismissal;
  • awards and minimum wages; and
  • industrial action.

Structural changes to the FWC

The Report contains the following recommendations regarding the FWC:

  • the establishment of a Minimum Standards Division and Tribunal Division;
  • a new process for appointing members of the FWC;
  • creation of a process to ensure adequate resourcing to assist the FWC to cope with emerging ‘hot spots’ (e.g. problems for 417 visa holders); and
  • Publication of more detailed information about conciliation outcomes and processes, as well as an independent performance review of the processes and their outcomes.

Enterprise bargaining

The PC has made several key recommendations in the Report concerning the enterprise agreement process, including:

  • allowing the FWC to have more discretion to approve an agreement with a procedural defect which poses no risk to employees;
  • replacing the ‘better off overall test’ with a new ‘no-disadvantage test’;
  • permitting individual flexible arrangements to deal with all the matters listed in the model flexibility term and any additional material agreed to by the parties;
  • allowing an enterprise agreement to specify a nominal expiry date that can be up to 5 years or matches the life of a greenfields project;
  • applying good faith bargaining requirements to greenfields negotiations; and
  • requiring individual (non-union) bargaining representatives to have the support of at least 5% of the workforce.

The PC has also looked at individual agreements and has recommended that:

  • the Fair Work Act 2009 (Cth) should specify that the default termination notice period should be 13 weeks, but in the negotiation of an agreement, employers and employees could agree to extend this up to the new maximum;
  • a new ‘no-disadvantage test’ should replace the ‘better off overall test’ for assessment of individual flexibility arrangements; and
  • the FW Ombudsman should develop an information package on individual flexibility arrangements and distribute it to employers, particularly small businesses, with the objective of increasing employer and employee awareness of individual flexibility arrangements.

In addition, the PC is seeking feedback on the creation of an ‘enterprise contract’, which would “vary an award for entire classes of employees… without having to negotiate with each party individually or to form an enterprise agreement’.

Unfair dismissal

The Report also contains the following recommendations in relation to the unfair dismissal regime:

  • greater discretion for the FWC to consider unfair dismissal applications ‘on the papers’ before conciliation or a more merit focused conciliation process;
  • no compensation for employees where there was reasonable evidence of persistent under-performance or serious misconduct;
  • remove the possibility for reinstatement or compensation on the basis of procedural errors in termination (financial penalties may still apply);
  • remove the emphasis on reinstatement as the primary goal in unfair dismissal cases; and
  • remove Small Business Fair Dismissal Code.

Awards and minimum wage

The PC has made numerous recommendations in this area, including applying the same penalty rates for Saturdays and Sundays for those working in hospitality, entertainment and retail and tightening up requirements to reduce the incidents of sham contracting (where employers misclassify employees to minimise their entitlements). It also recommended a review of apprenticeships and traineeships.

Why is this significant for employers?

If the federal government chooses to adopt these recommendations, it will form the basis of its workplace relations policy in the lead-up to the 2016 election. Going beyond the realm of government policy, the PC added that current issues could also be explained by poor management, as opposed to structural issues with the formal framework. On this basis, employers should ensure that they are effectively managing all workplace issues and ensuring that their conduct complies with the current law.


Employee unsuccessful in compensation claim following party held at employer’s premises

The NSW Court of Appeal (Court) has decided that  an injury sustained by an employee at a function on work premises (but held after normal work hours) was not in the course of her employment. The Court found that an employee’s subjective opinion that she was expected by her employer to go to a function after her work had finished for the day, did not outweigh the contrary position held by the director of the company, her immediate supervisor, and other employees, that attending was not a work requirement.

The facts

In early March 2004 the appellant, Kathryn Hills, began working at Pioneer, a business which provided studio space and rented out photographic equipment mainly for the fashion industry. Jennifer Martel, the employee in charge of training Ms Hills, told her that another employee, Alistair Buchanan, was hosting a party on Saturday 13 March 2004. Mr Buchanan had approached the director of the business to use the space as a joint birthday party for himself and his two roommates. The director suggested that Mr Buchanan also have the party as a farewell, as he was about to leave the business.

Pioneer had no role in organising or inviting guests to the party. Ms Martel said that it would be “a nice idea” to go to the party “in order to meet the other employees”, as employees generally did not have opportunities to see each other in the course of the business. Ms Hills believed that the party was a work function and made a statement that “I felt that it was important for me to be at the party.” At 2:30 am on Sunday 14 March, Ms Hills fell over a balustrade when leaving the party and sustained serious injuries. After some months of treatment, Ms Hills was able to return to work, though she did not return to Pioneer.

Ms Hills made an application for worker’s compensation under the Workplace Injury Management and Workers Compensation Act 1998 (NSW) on the grounds that her injury was one that “arose out of or in the course of employment”.

The law

Attending a social event after work hours is an area which has a a large body of cases which do not provide a clear direction for employers, as to the limits of their responsibility.

The law is clear that the employment must be ” a substantial contributing factor” to the injury. In assessing an injury which occurred after normal work had finished, the courts have been looking at the relationship between the  employment and why the employee was in the place where the incident occurred,  and what activity they were engaging in at the time. Did the employer induce or encourage the employee to engage in that activity?

Quite a few cases over the years demonstrate that if an employee is on a work trip then many of the activities they engage in would be considered in the course of employment, as they would not be there if it were not for the requirement of the employer. This approach has been pushed to the extent that an employee who was working at a work camp at a remote location, who was encouraged by his employer to go sightseeing using work vehicles in between shifts, and who was subsequently injured, was covered by workers compensation.

However, much to the relief of employers, in the recent highly-publicised case of an injury incurred during sex.. while on a business trip, the High Court established that merely being at a location required by the employer, such as a business trip or a conference, did not make every activity the employee engaged in until their return, ” in the course of the employment”.  The High Court took a common sense approach finding that the employer’s expectations and requirements of the employee while they were away was the determining factor. We can expect that a normal employer would expect an employee away for a conference or business trip would stay in a hotel and eat meals, but would not normally induce or encourage them to be quite so friendly as part of their employment.

In this case the Court looked at to what extent the employer expressly or impliedly induced or encouraged the employee to attend the social function after normal work had finished, rather than what the employee thought she was expected ore required to do.

The findings

Ms Hills argued that she was induced to attend the party by Ms Martel or the director, and the injury was therefore causally connected to her work. However, the majority of the Court held that the fact that she was encouraged or induced to attend the party was not sufficient to render it part of her employment, when the company director, her supervisor, and the other employees who attended, clearly understood that it was not a work function and that attendance was purely voluntary, and in fact by invitation issued by someone other than the employer.

What it means for employers

Employers should be aware that their liability can extend beyond the hours in which the employee is engaged exclusively in work related activities. Work social functions or attending client functions where the employer expected the employee to attend, are likely to be considered “in the course of employment”. Employers should have reasonable policies to address safety issues in those matters, such as alcohol policies, and ensuring the employee is able to get home safely.

An employer’s liability is also quite broad when dealing with an employee who is away on a work trip, so they should consider safety aspects of  transport, accommodation, and meals.  However, as this case illustrates, where an employee who works regular hours and  returns home at the end of the day, an employer should bear in mind that if they suggest an employee attends an after- hours function, it would be a good idea if the employer lets the employee know whether their attendance at a function is expected as part of their work responsibilities, or whether their attendance  is purely voluntary, on a “nice to do ” basis.


Financial Services Update: Don’t be afraid of breach reporting

In this edition:

  • Dont be afraid of breach reporting;
  • ASIC enforcement report; and
  • New digital disclosure measures.


Don’t be afraid of breach reporting

ASIC Commissioner Greg Tanzer has emphasised that financial services firms should not be fearful of reporting breaches. In fact, the Commissioner has said that ASIC understands that it is normal for a certain number of breaches to occur and therefore firms with an empty breach reporting log are far more likely to attract attention.

It’s believed that recent media reports including those related to IOOF allegedly breaching their reporting obligations by not issuing warnings to senior staff, may be prompting some firms to under-report or to at least equivocate their logs.

ASIC released further guidance on breach reporting in May to remind all AFS licence (AFSL) holders that they must notify ASIC in writing of any ‘significant’ breach (or likely breach) of their obligations under sections 912A and 912B of the Corporations Act 2001 (Cth) (Corporations Act) as soon as possible, or within 10 days of becoming aware of the breach or likely breach. The regulatory resource also clarified what a ‘significant’ breach was and which forms a licensee needs to fill out.

Whether a breach is significant will depend on individual circumstances however factors which can help to determine that a breach is ‘significant’ include the:

  • number or frequency of similar previous breaches;
  • impact of the breach or likely breach on the licensee’s ability to provide the financial services covered by the licence;
  • extent to which the breach or likely breach indicates that the licensee’s arrangements to ensure compliance with those obligations is inadequate; and/or
  • actual or potential loss to clients or the licensee itself.

In case of doubt, ASIC encourages AFSL holders to report a breach, using form FS80 or a written report sent to ASIC.

Penalties apply for not reporting significant breaches, or not reporting them within the required time frame and there are no viable excuses for not doing so, according to ASIC’s Regulatory Guide 78(Breach reporting by AFS licensees).

Once a report has been made to ASIC, determining the consequences of the detected breach/es becomes a matter for the reporting licensee and ASIC. As demonstrated by the recent National Australia Bank (NAB) and IOOF cases, these reports, when not done correctly or in a timely manner, can result in adverse media coverage and reputational repercussions.

Commissioner Greg Tanzer has said in relation to the NAB investigation that ‘it is important for entities to ensure that, where errors do occur, that they are identified as early as possible and appropriately rectified.’

Enforcement report

ASIC released Report 44 (Report) last week outlining the enforcement outcomes it has achieved during the first six months of 2015. The report gives a high-level overview of ASIC’s enforcement priorities, primarily tackling poor culture, and it also highlights important decisions made by the regulator in the first half of 2015.

From 1 January to 30 June, ASIC has achieved a total of 323 enforcement outcomes including criminal and civil and administrative actions. Ten individuals were charged with a total of 82 criminal charges and 25 individuals were banned from the financial services or credit industries during this period.

ASIC’s three current enforcement priorities are:

  • tackling poor culture;
  • retail margin foreign exchange trading; and
  • illegal phoenix activity.

Tackling poor culture

The Criminal Code Act 1995 (Cth) defines ‘culture’ as including attitude, policy, rule and course of conduct or practice. ASIC focuses on culture because it’s a key driver of conduct in the financial services industry, and ASIC’s Commissioner Greg Tanzer has disclosed that culture will remain a major priority over the next six months and beyond.

Poor culture can generate costs for businesses including remediation or compensation costs, fines and costs associated with damaging a business’ brand or reputation. The Report suggests a fundamental shift in the culture of the financial industry to developing a culture that focuses on achieving and rewarding good conduct and outcomes for customers, as issues with poor advice and mis-selling of financial products to consumers are all too common. We’ve previously published an article which details how organisations can improve culture, identifying the ‘3 C’s’ framework on culture risk: communication, challenge and complacency.

ASIC’s recent remediation work to improve culture includes working with an organisation to ensure that consumers who have suffered loss due to systematic failures within that organisation are compensated appropriately. Of note is the case where Australia and New Zealand Banking Group (ANZ) refunded $75 million to approximately 235,000 customer accounts after overcharging interest repayments for mortgage accounts.

Retail margin FX trading

The risk of retail margin FX trading comes from the ability of investors to trade with borrowed money and most FX trading products are highly leveraged meaning that the investor only has to pay a fraction of the value of the trade upfront.

Despite the risk, an increasing number of businesses have applied for an AFSL to set up and operate these retail margin FX broker businesses and over the last 12 months, ASIC has shut down, suspended, restrained and cancelled the licences of numerous organisations in Australia. For example, the cancellation of Rainbow Legend Group Pty Ltd ‘s AFSL after an ASIC investigation found that the company had:

  • falsely promoted, on a number of websites, a non-existent insurance compensation scheme for clients of up to $2.5 million;
  • used ASIC’s logo on its websites leading clients to wrongly believe that the company was endorsed or approved by ASIC; and
  • failed to comply with a number of reporting obligations including EOFY financial statements and auditor’s reports.

Illegal phoenix activity

Phoenix activity generally involves current or previous directors of an indebted company intentionally and dishonestly transferring assets of that company to a new company to avoid paying creditors, tax or employee entitlements. This kind of illegal activity leads to high costs for the Australian economy (estimated between $1.78 and $3.19 billion each year).

To combat this illegal activity, ASIC revealed in the Report that they’ve taken the following action:

  • the construction of an industry statutory declaration campaign;
  • the creation of proactive phoenix and registered liquidator surveillance programs;
  • joined the Australian Tax Office (ATO)’s new Phoenix Taskforce;
  • made submissions to the current Senate Inquiry into Insolvency in the Construction industry; and
  • made submissions to the current Productivity Commission Inquiry into business set-up, transfer and closure.

More to come

ASIC has been busy over the last six months.  It has:

  • commenced 136 investigations;
  • completed 137 investigations;
  • brought 82 criminal charges (some of which resulted in jail time);
  • banned 25 individuals;
  • accepted six enforceable undertakings; and
  • disqualified 19 directors;

However, Commissioner Tanzer  says there is more to come. The Commissioner said in an ASIC media release regarding the Report that ‘ASIC is committed to holding those who intentionally break the law to account so that trust and confidence in our financial services industry and markets is strong’.

ASIC is planning to incorporate examinations of culture into their role as regulator. Examinations of culture will be included in their risk-based surveillance reviews and the findings will be used to better understand how culture is driving conduct.


ASIC introduces digital disclosure measures to facilitate financial services delivery

New ASIC guidelines and relief instruments enable businesses to digitally communicate important information to financial services consumers. Regulatory Guide 221 Facilitating digital financial services disclosure was introduced in July 2015 and aims to remove previous barriers to electronic disclosure and facilitate innovative uses of technology in the delivery of information to consumers. The changes remove legal and legislative barriers in order to:

  • enable default delivery of digital disclosure; and
  • allow for more innovative forms of product disclosure statements (PDS), FSGs and SOAs.

What are the new guidelines?

ASIC has introduced the guidelines and provided relief via ASIC instruments from various provisions of the Corporations Act to facilitate the use of digital financial services disclosures.

The new guidelines enable businesses to send disclosures to consumers digitally as the default option. The affected types of disclosures include:

  • ongoing disclosures;
  • periodic statements;
  • confirmations of transactions;
  • annual superannuation information;
  • financial services guides and statements of advice;
  • product disclosure statements (PDS);
  • additional information provided by a superannuation trustee;
  • unsolicited offers to purchase financial products off-market; and
  • additional information on request.

Consumers are able to request postal delivery of physical documents if this is their preference. These guidelines aim to facilitate disclosure between businesses and consumers and to encourage innovation in the communication of information about financial products and services. These guidelines will also enable companies to reduce their printing and mailing costs.

What are the effects of the changes?

Under previous regulation, although providers were able to deliver most ongoing disclosures digitally (usually by publishing them on a website and giving a notification), the provider was generally required to agree to this method of delivery with the consumer. As a result, the default method of disclosure remained printed disclosures sent to a postal address.

An estimated 55 million letters are sent to consumers by financial providers as a result of the regulatory regime’s inability to allow the participants to choose the most effective method of disclosure.

This new approach will benefit consumers who do not currently engage with a paper disclosure e.g. renters who move postal addresses frequently.

A disclosure regime that is technology neutral would allow financial service providers to choose the most appropriate method of communication, without unnecessarily limited choice.

The previous regulations maintained the default of printed disclosure on the basis of consumer protection, given that digital communication was a relatively new phenomenon for some consumers. However, given that 92% of Australian adults are online and that 72% of those online undertake financial transactions using the internet, this position no longer reflects the reality of consumer expectations. The benefit provided to the minority of Australians who are not online is no longer justifiable, especially given the burden on providers and consumers. ASIC’s action has removed the unnecessary red tape that prevented digital disclosure.

What is the impact on financial services providers?

ASIC Commissioner John Price stated that ‘ASIC wants industry to harness the opportunities of digitisation and is encouraging the use of more engaging forms of communication’. Mr Price believes that this change ‘can boost consumer understanding of financial services and products’.

With the change in default delivery method, providers can invest in delivery methods that meet the changing demands of consumers, such as interactive apps, videos, games and audio presentations. Given the importance of the duty of disclosure, financial service providers must ensure that they reach out to vulnerable consumers.  Although safeguards are in place to ensure that providers take steps to ensure that the disclosure is delivered, the onus remains on the consumer to ensure that their contact details are updated.

Providers are still required to provide clear, concise and effective disclosure by using a method and form of delivery that best suits their client. These changes enable providers to minimise the costs associated with printed disclosures, but have the broader aim of improving consumer understanding by shifting to a delivery method that suits current consumer needs.

New compliance standard: AS/ISO 19600:2015

The ISO 19600:2014 Compliance Management – Guidelines (ISO 19600) has now been adopted in Australia as AS/ISO 19600:2015 (AS/ISO 19600).

The Australian Standard was approved on behalf of the Council of Standards Australia on 2 June 2015 and it was published on 22 June 2015.

AS/ISO 19600 replaces the former Australian Standard for Compliance AS 3806:2006 (AS 3806) and should be considered to be the Australian and international benchmark for compliance programs.

We’ve previously written about the origin of ISO 19600 and the motives for introducing a new compliance standard. That blog is available here.

AS/ISO 19600 and ISO 19600

AS/ISO 19600 is identical to, and has been reproduced from, ISO 19600. The extent of duplication is evidenced by the fact that in AS/ISO 19600, references to the ‘International Standard’ have not been replaced with the words ‘Australian Standard’ and so readers are instructed to regard references to the International Standard as references to AS/ISO 19600.

We have previously written about the structure and content of ISO 19600 and how it differs to AS 3806. That blog is available here.

For a refresh, the key differences include:

  • a new approach to compliance: whilst AS 3806 spoke of a compliance ‘program’, AS/ISO 19600 speaks of a compliance ‘management system’;
  • new structure: AS/ISO 19600 refers to seven key themes each with multiple elements, compared to the four key themes and 12 principles in AS 3806;
  • new terminology: including defined concepts such as ‘compliance’, ‘compliance obligations’ and ‘compliance risk’; and
  • risk management: AS/ISO 19600 states that ‘compliance risk assessment constitutes the basis for the implementation of the compliance management system’. This is a significant inclusion as it makes risk management an essential part of a compliance program.

Importantly the expanded new concept of ‘compliance’ meaning, ‘meeting all the organisation’s compliance obligations’ makes it clear that the concept of compliance is much more expansive and extends to obligations such as those set out in an organisation’s standard operating procedures.

What should your organisation do now?

AS 3806 is referenced by numerous Australian regulators including the Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission. Given the substantive differences between AS 3806 and AS/ISO 19600, it’s unclear whether, or when, those regulators will formally adopt the new standard and they have not yet released any form of communications on the issue. Historically, our experience is that regulators can take years to recognise a new Australian Standard and to update their guidelines.

Despite the fact that the regulators have not formally adopted AS/ISO 19600, the fact that it has superseded AS 3806 means that organisations should be adopting AS/ISO 19600 in order to meet their compliance management obligations.

That said, due to the regulators failure to adopt AS/ISO 19600 from the outset, they are unlikely to take any enforcement action in relation to an organisation’s failure to adopt AS/ISO 19600 in the short (or long) term.

Consequently, while it may seem tempting to wait until AS/ISO 19600 has been adopted by regulators before adopting new structures built to AS/ISO 19600, it would be prudent to take steps now to understand what is required to achieve compliance with AS/ISO 19600 and begin the implementation process.

Alternatively you may already have taken steps to review your compliance system and made changes so that it reflects the structure and principles of ISO 19600. If your organisation falls into this category, you will be aware that implementing such changes requires time and resources.

For those organisations that have no current compliance management program, the introduction of AS/ISO 19600 provides a valuable tool for your organisation to create a compliance management system that meets international compliance benchmarks, should you choose to adopt it.

Compliance and culture in focus

AS/ISO 19600 places emphasis on compliance as being ’embedded’ in the culture of the organisation and ‘integrated with the organisation’s financial, risk, quality, environmental and health and safety management processes and its operational requirements and procedures’. It makes it clear that compliance is a responsibility of an organisation’s governing body, and not a mere ‘function’ of the organisation.

The adoption of AS/ISO 19600 is timely given the current focus of regulators, shareholders and the media on the corporate governance practices of organisations.

We’ve previously written about ASIC’s current focus on directors and their duty not only to ensure the viable functioning of a business, but also to ensure that a culture of regulatory compliance, risk management and proper corporate governance exists and is enforced in their organisation. To that end, ASIC introduced the ‘3 C’s’ framework on culture risk for organisations, being:

  • communication;
  • challenge; and
  • complacency.

Now that AS/ISO 19600 has been freshly adopted in Australia, it is impossible for an organisation to ignore the good governance opportunity that this new standard presents to organisations who would like to embrace ASIC ‘3 C’s’ framework and improve their compliance culture.

While a significant amount of work may be required to review and restructure your organisation’s compliance program to reflect the compliance ‘management system’ suggested in AS/ISO 19600, doing so will ensure that your organisation avoids being labelled ‘complacent’ on the compliance front.

How can CompliSpace help?

CompliSpace combines specialist governance, risk and compliance consulting services with practical, technology-enabled solutions.

CompliSpace content is delivered online, in a format that allows clients to quickly and efficiently tailor the content to their own particular specifications.

If you are looking to streamline your existing governance, risk or compliance programs and make them more relevant to your organisation, give us a call.

We are committed to helping organisations to implement sustainable governance solutions.

28 July 2015: Workplace Relations Update for Executives On-the-Go

Criminal charges cleared against an Officer for alleged WHS breaches

In a blog last year we wrote about the first charges to be laid against an ‘officer’ under the harmonised Work Health and Safety Act 2011 (WHS Act) in relation to a workplace incident that occurred in 2012.

In an important development, the charges against Mr al-Hasani as an ‘officer’ of Kenoss Contractors Pty Ltd, have now been dismissed, as the ACT Industrial Magistrate held that Mr al-Hasani did not have a sufficient level of control or influence to be an “officer” within the meaning of the legislation.

The case: a refresh

In R v Kenoss Contractors Pty Ltd [2014] criminal charges were brought against both the company Kenoss Contractors Pty Ltd (Kenoss) and Mr al-Hasani as an officer of the company in the ACT Industrial Court for serious safety breaches which led to the death of a truck driver using their dump site. The company went into liquidation but was nevertheless found guilty of the offences.

The incident that gave rise to the charges involved the fatal electrocution of a truck driver (not an employee of Kenoss) when the elevated trailer on the tip truck he was operating at a road resurfacing project dump site touched a live power line above. The area was under the control of Kenoss, and while their employees had been verbally alerted to the dangers, that appeared to be the extent of the control measures relating to what was a very serious hazard.

The prosecution alleged that verbal instructions were not adequate and that more tangible safety measures needed to be taken to counteract the risk. A series of basic safety breaches were alleged to have contributed to the worker’s death including that:

  • there were no warning signs or flags anywhere to alert workers to the presence of live power lines;
  • there was no spotter to help the worker dump the load safely; and
  • the power had not been turned off, something that can and should be done.

Even though the Industrial Magistrate considered that Mr al-Hasani had breached his safety duty of care as an employee, as he had only been charged in his capacity as an officer, she held that the prosecution had not proved that he had a large enough level of control or influence in the company for him to meet the definition of an ‘officer’ under the Corporations Act 2001 (Cth) (Corporations Act). On that basis she dismissed the charge against him.

What is required of an ‘officer’?

Under the WHS Act the term ‘officer’ can include directors, company secretaries and others who make, or participate in making, decisions that affect the whole, or a substantial part, of the company.

The Act requires officers to exercise due diligence to ensure that the organisation (or Person Conducting a Business or Undertaking, PCBU) meets its obligations under the WHS Act. The duty of due diligence specifically requires an officer to take reasonable steps to:

  • acquire and possess current knowledge of work health and safety matters;
  • gain an understanding of the nature of the operations and any hazards and risks the operations may include;
  • ensure that the PCBU has available resources and processes and uses them appropriately to minimise risks to health and safety;
  • ensure that the PCBU has processes for receiving and considering information regarding incidents, hazards and risks and responding in a timely manner;
  • ensure that the PCBU has, and implements, processes for complying with any duty or obligation the PCBU is required to uphold; and
  • verify that those processes are implemented.

Failure to do so can attract a maximum penalty of $300,000, up to 5 years imprisonment, or both.

It is important to note that all workers are accountable under the WHS Act for their own health and safety and any actions that adversely affect others in the workplace, but the duty is far greater for officers, given their much higher capacity to make and keep workplaces safe.

The bottom line

Although the case has finally come to a close in favour of Mr al-Hasani, companies and senior operatives in a company must remain vigilant to their obligations under the WHS Act.

If convicted, Mr al-Hasani could have been fined $300,000 and left with a criminal record.


Employee who drunkenly abused bosses unfairly dismissed

The Fair Work Commission (the Commission) has found that an employee who sexually harassed colleagues and told his boss to ‘f—k’ off at the company Christmas party and subsequent partying, was unfairly sacked.

The Commission’s decision made findings on a number of significant issues which led to the eventual outcome of unfair dismissal. The full decision of the Commission can be accessed here.

The party and the hangover

Stephen Keenan was a team leader at a Leighton’s joint venture project. He attended Leighton’s Christmas function on 12 December 2014, at a venue away from the workplace, where free alcohol was provided to the joint venture staff, served by venue staff (they were not Leighton’s employees). After the function finished, Keenan and a number of other employees moved on to a nearby bar where they continued to party.

Over the next few days Keenan’s employer Leighton Boral Amey NSW Pty Ltd (Leighton) received a number of complaints against him from other employees. The allegations against Mr Keenan from witnesses included that at the Christmas party and at the subsequent party he engaged in:

  • inappropriate behaviour and language, including aggressive, intimidating and bullying behaviour towards the employee who had organised the function;
  • a number of instances of sexual harassment of co-workers, which took place at the Christmas function, then in the bar where some of the party-goers went after the Leighton’s function, and at a taxi stand after the post-party partying broke up; and
  • bullying.

Leighton conducted an internal investigation into Keenan’s behaviour at the function and the subsequent events, identifying alleged incidents of misconduct by Mr Keenan, namely bullying and sexual harassment.

Leighton consequently dismissed Mr Keenan, after first giving him an opportunity to respond to the allegations and to a penalty of dismissal.


The Vice President found that the dismissal was harsh, after he disregarded those allegations which occurred between Mr Keenan and other employees after the Christmas function. With the remaining allegations, he found dismissal to be grossly disproportionate to the misconduct, given that there were no lasting consequences  in the workplace, Mr Keenan’s good employment record, and similar behaviour by another co-worker who was not dismissed.

Significant Outcomes for Employers

One of the key findings was that Leighton’s, as the employer, was not vicariously liable for Mr Keenan’s harassment of other staff at any of the after-party events, as they were insufficiently related to work. And as they were not liable, therefore they were not able to point to any misbehaviour by Mr Keenan after he left the Christmas party, as being work-related misconduct.

While this appears to be at odds with an employer’s workplace health and safety/workers compensation responsibilities, this does bring a measure of comfort that there are limits to an employers’ responsibilities for staff after hours behaviour. The Vice President found:

“I do not consider that conduct which occurred at the upstairs bar [after the Christmas party] can be said to be in connection with Mr Keenan’s employment. The social interaction which occurred there was not in any sense organised, authorised, proposed or induced by [the employer]. Those who gathered there did so entirely of their own volition. It was in a public place. There was nothing in LBAJV’s Code of Conduct or relevant policies which suggested that they had any application to social activities of this nature.”

Not quite surprising was the Commission’s finding that where the function was connected to employment, such as the Christmas party, it was incumbent upon the employer to provide managerial supervision. Naturally this included the responsibility to take steps to ensure the responsible service of alcohol, and in particular that alcohol was not served to staff who appeared to be intoxicated and behaving badly.

Final Note

Before employers get too excited about the ramifications of what is considered the workplace, it must be remembered that under work health and safety laws, the employer is responsible for the safety of employees after a function to the extent that they can control it, so that letting intoxicated employees drive home after a work function would most likely breach their duty of care to their employees.


Redefining what is bullying ‘at work’

In another recent decision, the Fair Work Commission has confirmed a narrow definition of what constitutes bullying ‘at work’ when considering a claim under the anti-bullying provisions of the Fair Work Act 2009 (the Act).

The case

Three DP World Melbourne Limited (DP) employees applied to the Commission for an order to stop bullying against DP and the Maritime Union of Australia (MUA) alleging that they were the subject of repeated unreasonable behaviour by other employees at the company and MUA officials.

Under s 789FC of the Act the Commission can only make orders to stop ‘bullying’ when it is satisfied that the worker/s have been bullied ‘at work’.

The respondents, DP and MUA, applied to strike out a number of the applicants’ grounds for their application on the basis that they didn’t occur ‘at work’.

The applicants’ grounds included that:

  • offensive and insulting Facebook posts were made about the two applicants by MUA officials, members and DP World employees;
  • MUA failed to provide advice and representation to the applicants who were members of the Union;
  • DP and MUA employees and members made various threats against the applicants and warned others not to associate with them; and
  • some actions not at work may nevertheless provide relevant context and background to other alleged behaviour at work.

The findings

The Commission further refined how it determined whether the bullying behaviour occurred ‘at work’:

  • as a narrower concept than the previous interpretation of conduct that has a ‘substantial connection to work’;
  • covers circumstances in which the alleged bullying conduct occurs at a time when the worker is ‘performing work’, regardless of time of day or location;
  • is not limited to the confines of the physical workplace;
  • includes meal times and other breaks when the worker may not be performing actual work; and
  • extends to when the worker is participating in other activities authorised or permitted by the employer (i.e. accessing social media while performing work).

The Commission’s limitations on when actions occur in order to bring them within the anti-bullying jurisdiction, can be seen as confusing if not somewhat artificial. Situations where a bullying post on social media is made while the miscreant is not at work, would not give rise to a bullying claim unless the employee read the post while at work during the course of their work.

Also, while the worker doesn’t have to be ‘at work’ when any additional comments are posted, the worker making the claim to Commission will have to have accessed the post and the comments that constitute or further the bullying, while ‘at work’.

Good and bad news for employers

The Commission has acknowledged that the definition is not fully developed or perfectly operational in complex cases. It hopes that over time the definition and its application can develop on a case-by-case basis.

Even though it is confusing, any tightening of the application of anti-bullying orders and provisions by the Commission will be welcome news for employers, although generally most bullying cases taken to the Commission are either struck out or settled by mediation.

In reality however, bullying or harassment  between employees which occurs after hours, still has the capacity to affect the mental state (and productivity) of employees when they are in the workplace. To this end employers should strongly consider having a social media policy which establishes what is appropriate and inappropriate behaviour by employees in their after work lives which impacts on the workplace. The policy should also clearly outline that there will be disciplinary sanctions for inappropriate behaviour.


Significant changes to Queensland workers’ compensation scheme proposed

The Workers’ Compensation and Rehabilitation and Other Legislation Amendment Bill 2015 (Bill) has been introduced in Parliament and it proposes a number of changes to Queensland’s workers’ compensation scheme. The Bill, if passed, will amend the Workers’ Compensation & Rehabilitation Act 2003 (Qld) (the Act). According to the Explanatory Notes, the Bill seeks to implement a number of policy proposals made by the State Government as part of its pre-election policy campaign.

If the Bill is passed, the most immediate impact that the changes will have on employers’ day to day operations will be that employers won’t be able to obtain a copy of a prospective employee’s workers compensation claims history as a part of their recruitment process.

Self-insured employers in Queensland are likely to experience some financial implications, as the threshold for all injuries on or after the date of the State election (31 January 2015) will be removed, with additional compensation being available to particular workers impacted by the operation of the common law threshold prior to 31 January.

Further information will be available once there is definitive news on the progress of the Bill.


First anniversary of revised ASX Corporate Governance Principles and Recommendations

It’s now been (just) over a year since the 3rd edition of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (CGPRs) came into effect on 1 July 2014.

All ASX listed entities whose financial year ended on 30 June should be considering how they (many for the first time), will now report against these updated Recommendations for the 2015 financial year.

Some entities may have adopted the CGPRs prior to 1 July 2014 and have previously reported on their compliance with the CGPRs.

In either case, all entities are currently in the dark on the extent to which institutional investors, advisers and analysts will use information disclosed (or not) in accordance with the CGPRs to challenge or reward boards over their corporate governance commitments at reporting time.

Refresh on what has changed

As explained in our previous blog pre-empting the changes, the new ASX CGPRs were completely re-written and re-ordered from the 2nd Edition (2010) which has led to many obvious and not so obvious changes.

Key differences include:

  • greater flexibility with respect to how you publish your Corporate Governance Statement: either in an Annual Report or on a public website;
  • the requirement to lodge a new ‘Appendix 4G’, which is essentially a detailed checklist of each of the recommendations set out in the ASX CGPRs through which an entity must disclose whether they follow a recommendation and “if not why not”;
  • changes to director independence criteria;
  • disclosure of a board skills matrix; and
  • ensure you have a properly articulated risk framework that is working in practice.

Overall, a more comprehensive reporting standard is required from ASX entities.

CompliSpace developed the 2014 ASX Governance Disclosure Checklist which details exactly which disclosures ASX listed entities will need to make either on their public websites or in their Annual Report.  The 2014 ASX Disclosure Checklist is available for download on the CompliSpace website.  Click here to download.

A Greater Focus on Risk Management

An area that was greatly emphasised by the latest edition of the CGPRs was risk management and the need for boards to establish an entity’s ‘risk appetite’. This should be a core consideration in an entity’s risk management approach, the phrase basically meaning the amount and type of risk that an organisation is willing to take in order to meet their strategic objectives. The CGPRs extended the risk management obligations and disclosure requirements of listed entities.

Our previous blog includes information to familiarise yourself with what the industry expects regarding compliance with the CGPRs and relevant developments in risk management for your organisation.

It’s also worthwhile to consider how ‘culture risk’ features in your (current or future) risk register.  ASIC’s recent emphasis on culture coming from above, in the context of improving compliance, means that ASIC is sending a message to directors that they have a duty not only to ensure the viable functioning of a business, but also to ensure that a culture of regulatory compliance, risk management and proper corporate governance exists and is enforced in their organisation.

Gender diversity – if not now, when?

It’s impossible to ignore the media and shareholder focus on listed entities and their diversity policies.  The recent ‘name and shame’ article that featured in the Sydney Morning Herald, naming some of the ASX top 200 entities who have none, or very few, female board members should be the stuff of PR nightmares for any entity. That said, the article points out that many of the ‘shamed’ entities have more of ‘a private-company culture – one that pays less attention to modern-day corporate governance principles’ – which is in part due to the dominance of a majority shareholder over minorities who may have stronger diversity priorities.

Basically, their culture ‘led from above’, is an obstacle to gender diversity at senior levels.

Recommendation 1.5 of the new CGPRs sets out the requirements of an entity’s diversity policy, including that the board set ‘measureable objectives for achieving gender diversity’ and disclose its achievement of those objectives at the end of a reporting period.

ASX entities who may not have succeeded in implementing this recommendation in the 2015 financial year, or who have failed to set and/or achieve measurable objectives, should be wary of the shareholder and media scrutiny which may result.

Achieving gender diversity on boards is a global priority and a recent Credit Suisse report on women in senior management also shows that companies with more women in the boardroom bring better returns and outperform the stock market. The Credit Suisse report is based on its global survey of 28,000 senior managers at over 3,000 companies across 40 countries in all major sectors.  The report makes the point that as the globalisation of economies increases, so too will a cultural change which should make female representation at elite levels in organisations a priority, if not a requirement, of doing business between companies and countries.

Will the 2015/2016 financial year be the year of greater gender diversity for your organisation?

What should your organisation be doing?

For early adoptees of the new CGPRs, the reporting process should not be too much of a rude shock as you have already taken practical steps to implement the changes to the principles and recommendations.

Most of the work will come down to creating a corporate governance statement and having it approved by the board and completing and lodging an Appendix 4G.

For those entities who were late to adopt and implement the new CGPRs, now is the time to get up to speed on the principles and recommendations and understand what steps you should be taking to ensure your organisation’s governance strategy aligns with the CGPRs.

A recent article Raising the Bar by Tony Featherstone, which previously appeared in the May 2015 edition of Company Director magazine,  is a useful resource for all ASX entities to understand what steps they should take to ensure that their governance practices align with the new CGPRs – especially if you are one of those entities who may not have been an early adoptee of the changes.

In his article Mr Featherstone quotes governance expert Steven Cole FAICD, who says: “I suspect some boards will have gone to sleep on these recommendations because they didn’t have to introduce them for 12 months. There’s a lot more in the implementation of these recommendations than meets the eye. There’s also a lot more prescription around how to disclose governance information and the general expectation is that disclosure will need to be more meaningful than it has in the past.”

The ‘name and shame’ article clearly emphasises the importance of taking meaningful steps to implement the diversity recommendations of the CGPRs in an entity’s governance structure and culture.

Mr Featherstone’s article provides 13 board considerations for implementing the CGPRs, with a particular focus on how to address the new increased disclosure obligations in relation to board skills and structure.

How can CompliSpace help?

CompliSpace has been working with ASX-listed entities for over 10 years, assisting them to develop risk and internal control systems that allow them to meet their compliance obligations and most importantly to obtain real value from their investment in robust governance, risk and compliance infrastructure.

ASX publishes updated Guidance on Continuous Disclosure Effective 01/07/15

Earlier this year the Australian Securities Exchange (the ASX) released a consultation paper on proposed changes to Guidance Note 8 Continuous Disclosure: Listing Rules 3.1 – 3.1B (GN 8).  We wrote a blog that explained the changes proposed by that consultation paper.

Now, the ASX has released a final updated version of GN 8, which took effect on 1 July 2015.

Who should be reading the new GN 8?

The ASX has released a variety of documentation to help explain changes it has made to the final GN 8.

They include an updated version of the Continuous Disclosure: Abridged Guide.

Demonstrating just how tricky entities and their advisers find the application of the continuous disclosure obligations under the listing rules, GN 8 is now 84 pages long.  This length is in comparison to the more palatable 15 pages of the Abridged Guide.

As part of the consultation feedback to the proposed changes to GN 8, the Australian Institute of Company Directors (AICD) pointed out that the increasing volume of GN 8 ‘is of some concern as this may impact its usefulness as a guide.’  In response to the AICD’s concern, the ASX refers to the Abridged Guide and notes that:

  • the Abridged Guide is targeted primarily at directors and senior managers of listed entities; versus
  • GN 8 which is targeted primarily at company secretaries, investor relations professionals and legal advisors.

So, based on the ASX’s direction, directors and senior managers should be smiling at avoiding reading the tome that is GN 8…don’t worry we have read both documents.

What has changed?

Our previous article summarised the key changes in the updated GN 8.

The substance of those changes have not been modified by the final version and instead, the changes between the draft consultation version and the final version are mainly additional text to further explain the ASX’s approach to ‘Market sensitive earnings surprises’ at section 7.3 and ‘correcting analyst forecasts and consensus estimates’ in section 7.4.

The additions further explain:

  • the ASX’s guidance on applying the materiality test that formerly appeared under the Australian Accounting Standards to determine wheter or not to update published earnings guidance;
  • that its additional guidance on earnings surprises is not intended in ‘any way’ to discourage listed entities or their boards from issuing earnings guidance but is instead intended ‘to ensure that the market is kept properly informed if an entity’s actual or projected earnings differ materially from its guidance’; and
  • that if an entity’s analysis of analyst forecasts or consensus estimates leads it to conclude that furthter information needs to be disclosed, a market announcement should be made instead of ‘selectively divulging’ information to analysts.

A new section 7.6 ‘Publishing analyst forecasts or consensus estimates to analysts’ has been included in the final version.  This new section advises entities on how to avoid providing ‘de facto earnings guidance’ through providing analysts with information on their forecasts to increase the accuracy of the analysts’ reporting.

One noticeable omission between the final GN 8 and the consultation paper version is in section 7.7 ‘Analyst and investor briefings’.  Previously, the ASX required that any new presentation provided to an analyst or investor briefing should be published on the ASX Markets Announcement Platform.  In the final GN 8 the ASX recognises that an entity may give a series of analyst and investor briefings over a short period of time which contain materially the same information, aside from being tailored for the audience.  ASX does not require ‘second and subsequent’ presentations to also be published on the ASX Markets Announcement Platform, as they are not ‘new’ presentations, unless they contain new market sensitive information.

Other points to note

In addition to the material new content referred to above, the final GN 8 also includes various other amendments to assist an entity to meet and understand its continuous disclosure obligations.

For example:

  • content of announcement: if an announcement is to be made about the signing of a contract relating to a signficant acquisition, the announcement should include information about the parties to the contract;
  • concept of confidentiality: the sharing of management accounts and internal budgets and forecasts (information prepared for management purposes), with bankers, insurers or rating agencies on a confidential basis won’t usually require disclosure of that information to the market; and
  • new judicial guidance: Justice Perrem’s reasoning in the Federal Court decision Grant-Taylor v Babcock & Brown Limited (In Liquidation)  2015, in relation to the scope of the obligation to disclose information to the market under section 674(2) of the Corporations Act 2001 (Cth) in, is used in footnotes as guidance to clarify some key concepts such as the meaning of ‘commonly invest in securities’ regarding the test for determining whether information is market sensitive and requires disclosure, and ‘awareness’ of information.

All of these inclusions in the final GN 8 should provide assistance to any company secretary or legal adviser considering whether a new piece of information may be subject to the disclosure obligations under LR 3.1.

What does this mean for you?

ASIC’s recent announcement that Coal Fe Resources Ltd (now Aus Asia Minerals Ltd) has paid a $33,000 penalty after ASIC served an infringement notice for the company’s alleged failure to comply with continuous disclosure obligations is a reminder to all entities that ASIC is prepared to take action in the event that their continuous disclosure obligations are not met.

To avoid reputational damage and other penalties for non-compliance with Listing Rule 3.1, all entities should be reviewing their disclosure policies in light of the final GN 8.

Changes may be required, particularly if an entity has policies and procedures in place in relation to earnings guidance.

CompliSpace will update the disclosure policy for ASX-listed clients subscribing to the CompliSpace programs.


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