![Corporate-people-crowd-walk-walker-office-business-center](https://www.nortonrosefulbright.com/-/media/images/nrf/hero/corporate-people-crowd-walk-walker-office-business-center.jpg?w=265&revision=3d04236d-6ad6-4a07-850d-1f6b56a234e9&revision=5249001779897387904&hash=02AF8A7E35F1B67A8E90E42D1EA1AE7D)
Publication
Keeping your dawn raid guidance current
Unannounced inspections or ‘dawn raids’ are used by antitrust authorities to obtain evidence when there are suspicions that individuals or businesses have infringed the antitrust rules.
Australia | Publication | July 2022
This article was co-authored with Joshua Kan, Remy Michelson, Stephanie Moss and Joel McKay.
The month of June saw an increase of material regulatory and industry updates following the Australian federal election. ASIC released further industry guidance for its expectations regarding sustainability disclosure and has released the remade instruments on disclosure relief for product disclosure statements (PDSs), Financial Service Guides (FSGs) and superannuation dashboards. As we move towards the second superannuation performance test there has been an increased regulatory focus on disclosure.
ASIC has released a new Information Sheet (INFO 271: How to avoid greenwashing when offering or promoting sustainability-related products) to help superannuation and managed funds avoid “greenwashing” in promoting or offering sustainability related products.
Broadly, ASIC describes greenwashing as the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical. It has emerged as a consequence of an increase in investor demand for sustainability related investments and ASIC’s Information Sheet is its latest response to the inherent risks. While the Information Sheet is intended to explain existing obligations under the law as opposed to mandating new requirements, issuers would be well advised to focus on ASIC’s areas of emphasis. In addition, the principles outlined are relevant not only to funds but other financial products that incorporate sustainability-related considerations.
The Information Sheet reminds issuers that “greenwashing” can trigger the general prohibitions against misleading and deceptive conduct contained in the Corporations Act 2001 (Cth) (Corporations Act) and ASIC Act. Particular risks arise in relation to representations made about future matters that are not supported with reasonable grounds. The example given is where an entity states that a carbon emission target will be reached by a certain date. This type of future-looking statement may be deemed misleading if there are no reasonable grounds for the representation.
The Information Sheet sets out nine questions for issuers to self-assess their sustainability related representations:
See here for the Information Sheet. For further information, our recent article on ASIC’s ESG disclosure guidance and greenwashing, can be accessed here.
Following its consultation with a broad array of stakeholders in 2021, the Voluntary Carbon Markets Integrity Initiative (VCMI) has released its Provisional Claims Code of Practice (the Code). The Code aims to assist companies and other non-state actors on their voluntary use of carbon credits as part of their net zero commitments, and to ensure the credibility of their claims.
While the Code has only been released for public consultation and is yet to be finalised, it is anticipated to be adopted as a global standard of best practice for the legitimate use of carbon credits by private actors in connection with net zero claims. In addition, the code serves an important role in ensuring the integrity of voluntary carbon markets, and to abate investors’ concerns over the lack of clarity surrounding net zero, or climate related commitments, and the risk that the use of carbon credits may obstruct, or help, obscure the true position of the company’s climate performance.
While compliance with the code is voluntary, companies are well advised to carefully consider whether they should align with the Code, as there is an increasing demand by investors that businesses demonstrate the credibility of their voluntary use of carbon credits. By contrast, organisations making non-credible claims risk “greenwashing”, entailing potential reputational cost and regulatory action.
The code provides a four step process that a company must adhere to in order to receive “VCMI certification” that it is making credible claims about its voluntary use of carbon credits.
Further information on the code can be found here.
On 30 June 2022, ASIC released a consultation paper that proposes to remake its class order on the financial requirements for issuers of over-the-counter (OTC) derivatives to retail clients. The financial requirements are set out under [CO 12/752] Financial requirements for retail OTC derivative issuers, and are due to expire on 1 October 2022.
The financial requirements are designed to ensure Australian financial services (AFS) licensees have adequate financial resources to ensure compliance with the Corporations Act and to manage the risks inherent to the OTC derivatives market. These legislative requirements include that the licensee have available adequate resources (including financial) to provide the financial services covered by their AFS licence and to carry out supervisory arrangements.
This overarching obligation takes particular form for Retail OTC issuers under [CO 12/752], which specifically requires Retail OTC issuers to:
The proposed changes contained in ASIC’s consultation paper largely preserves the operation of the class order, with one exception: the removal of the NTA requirement that applied until 31 January 2014.
Instead, ASIC has indicated a preference to calculate NTA based on revenue only. This is not a radical departure from ASIC’s current position as it has indicated that the existing financial requirements are operating effectively and efficiently. In addition, ASIC has, at least at this point in time, expressly ruled out adopting a different approach, such as the risk-based capital approach applied in the UK, EU, Singapore and the US jurisdictions.
Further information on the Consultation paper can be accessed here.
ASIC has welcomed the progress made by the International Sustainability Standards Board (ISSB) towards establishing global sustainability reporting standards. The ISSB has recently released two draft standards for consultation:
ASIC has encouraged relevant stakeholders to make a submission to the ISSB, either through participating in a survey or by submitting a comment letter, both are due on 29 July 2022.
This international development signals future changes in the Australian regulatory landscape, with ASIC deputy chair, Karen Chester, stating:
“[s]hould the Exposure Drafts be adopted internationally, they will inevitably impact Australia’s capital markets and participants, as investors continue to demand comparable sustainability and climate-related corporate disclosures”
The Australian Accounting Standards Board (AASB) is also seeking stakeholder feedback on the exposure drafts to gather information on how the proposals might operate in Australia. It is open to submissions until 15 July 2022.
Further information on ASIC’s announcement can be accessed here, on making a submission to the ISSB can be accessed here, and on making a submission to the AASB can be accessed here.
On 23 June 2022, ASIC released a range of documents to assist with the licensing and practical implementation of the Corporate Collective Investment Vehicle (CCIV) regime (which came into effect on 1 July 2022).
The guidance sets out how ASIC will implement “day one” licensing requirements and includes:
As way of background, a CCIV is a collective investment vehicle in the form of a company limited by shares. CCIVs represent the investment vehicle of choice for off-shore investors with equivalent structures being utilised in leading international financial centres such as the Cayman Islands, Hong Kong and Singapore. After much anticipation, the CCIV structure was finally introduced in Australia this year with the passing of The Corporate Collective Investment Vehicle Framework and Other Measures Act 2022.
The updated regulatory guidance indicates ASIC has changed its position on a number of key areas in response to concerns that the CCIV regime needed to be more attractive for industry, including:
While these changes are welcome, there are concerns that the timing of the release of this guidance, just eight days from the commencement of the new CCIV regime, has not given industry participants adequate notice to make appropriate arrangements.
Further information on ASIC’s announcement can be accessed here.
ASIC has remade and combined relief previously contained in seven legislative instruments on financial services disclosure requirements relating to PDSs, superannuation dashboard and FSGs.
The relief is now consolidated in three instruments:
Further information can be accessed here.
In late June, ASIC published the results from its review of superannuation trustees’ communications with their members following the first annual performance test for MySuper products.
ASIC’s report (REP 279) centred on the performance test communications by the 12 trustees of the 13 products that failed the test in 2021. The report revealed that trustees whose products failed typically complied with the legal obligations to notify members of the failed test and to disclosed the failed test on their website. ASIC did however note that communication strategies of some trustees could potentially be considered as confusing or misleading.
REP 279 outlined communication strategies of concern, such as:
Further information can be accessed here and REP 279 can be accessed here.
On 3 June 2022, ASIC released new financial reporting requirements for AFS licensees, as a result of changes to the accounting standards.
The updated reporting requirements mean that AFS licensees’ financial reports must contain disclosures in line with the financial reports of other for-profit entities, prepared under standards fixed by the AASB.
From financial years commencing 1 July 2021, for-profit companies, registered schemes and disclosing entities that prepare financial reports in accordance with Chapter 2M of the Corporations Act and which are not reporting entities, are no longer able to prepare special purpose financial reports that do not include all disclosures required in the full accounting standards. However, entities that do not have public accountability have the ability to rely on a simplified disclosure regime.
The new reporting requirements will apply for the Chapter 7 financial reports of most AFS licensees, adopting the public accountability test. ASIC indicates that licensees, which are unclear as to whether they have public accountability, or those which are large or sophisticates licensees, may choose to err on the side of caution and comply with the disclosure requirements of the full standards. Examples of such licensees include but are not limited to licensees that are regulated by the Australian Prudential Regulatory Authority; corporate directors of a corporate collective investment vehicle; and responsible entities of a registered scheme. The new disclosure requirements apply from financial years beginning on or after 1 July 2021, however deferral and transitional arrangements apply for some licensees.
Further information on ASIC’s announcement can be accessed here.
APRA announced that it has finalised its amendments to the prudential framework for general insurers to support the operation of the Government’s cyclone and related flood damage reinsurance pool. These changes were made following consultation in April 2022 on proposed amendments to the insurance reporting standards to clarify the treatment of reinsurance recoverables from the Australian Reinsurance Pool Corporation.
Further information on APRA’s announcement can be accessed here and letter to the industry on the amendments can be accessed here.
On 16 June 2022, APRA published the annual life supplementary statistical tables and biannual life insurance level-statistics for December 2021.
Further information on APRA’s announcement can be accessed here. The life insurance supplementary statistical tables can be accessed here and life insurance institution-level statistics can be accessed here.
The Financial Services Council has released a new Life Insurance Code of Practice which is set to take effect on 1 July 2023. The new Code of Practice will introduce over 50 new consumer protections including changes to how life insurance products are being designed and sold, and new protections for customers who make a claim or are going through times of vulnerability, financial hardship or experiencing a mental health condition.
Further information on the Financial Services Council’s announcement be accessed here.
Publication
Unannounced inspections or ‘dawn raids’ are used by antitrust authorities to obtain evidence when there are suspicions that individuals or businesses have infringed the antitrust rules.
Subscribe and stay up to date with the latest legal news, information and events . . .
© Norton Rose Fulbright LLP 2023