‘Quis custodiet ipsos custodes’ - or FRAA for short?
The famous dictum "Who will guard the guards themselves?" might well apply to the new oversight agency, the Australian Financial Regulator Assessment Authority (FRAA).
Late last year we looked at the then-temporary changes to Australia’s continuous disclosure regime made in response to the COVID pandemic.
Legislation making those changes permanent commenced on 14 August 2021.1
The crux of the reform makes companies and their officers liable for civil penalty proceedings in respect of continuous disclosure obligations where they have acted with ‘knowledge, recklessness or negligence’. The stated intention behind the change is to lessen the risk of opportunistic class actions against companies and their officers under continuous disclosure laws and, in doing so, to support companies and their officers in releasing forward-looking guidance to the market.
The pre-existing criminal offences for failing to comply with the continuous disclosure obligations set out in the current s674(2) of the Corporations Act remain in force. ASIC also continues to be able to issue an infringement notice for continuous disclosure non-compliance regardless of the state of mind of the entity. The Government has committed to an independent review of the new provisions after two years2, so ensuring that there is a legislated process for considering the effect of the reforms, along with any further changes that may be required.
The Parliamentary Joint Committee on Corporations and Financial Services reported into litigation funding and the regulation of the class action industry at the end of last year and recommended the permanent change. The Committee’s view was that this change would address an imbalance between the benefits to the market of continuous disclosure obligations and the costs imposed on entities and officers. This would also bring Australia’s continuous disclosure regime closer to the regimes in comparable jurisdictions such as the United States and United Kingdom.
The introduction of a mental element will mean that it is more difficult to prove claims of a breach of the continuous disclosure obligations. However, it remains to be seen whether or not in practice this reduces the number of class actions threatened or issued.
As we foreshadowed last year, the market will be monitoring how ASIC will accommodate the change to the continuous disclosure rules as part of its ongoing enforcement strategy. In addition, ASIC Chair, Joe Longo, being in the first few months of his tenure, is considering ASIC’s strategy and approach (see our recent post on ASIC the enforcement agency – a new direction?). We can expect that this will include his vision for ASIC’s enforcement activities.
On point, in an early public statement when asked about ASIC’s enforcement stance and whether there was ‘pressure to be more business friendly’, Mr Longo replied firmly in the negative and made a strong commitment ‘to ASIC remaining an active, credible law enforcement agency.’ Mr Longo’s experience in the 1990s as ASIC’s Head of Enforcement would appear to underline this commitment.
The market will await with interest any further expressions of ASIC’s enforcement attitudes and the approaches of plaintiffs and litigation funders to the new knowledge requirement.
The Federal Government response on 3 September 2021 to the Senate Education and Employment References Committee’s report, Driving a fairer deal: Regulation of the relationship between car manufacturers and car dealers in Australia, confirms it has no major plans for further regulation or review of the automotive sector beyond those already announced.
On 7 September 2021, ASIC released the finalised Regulatory Guide 78: Breach reporting by AFS licensees and credit licensees (RG 78).
© Norton Rose Fulbright LLP 2021