This is a service specifically targeted at the needs of busy non-executive directors. We aim to give you a “heads up” on the things that matter for NEDs in the week ahead – all in two minutes or less.
In this Edition, we consider ASIC’s market integrity update for the month, the key findings from ASIC’s review of select financial reports, the impacts of amendments to Australia’s anti-money laundering and counter-terrorism financing laws and the role of China on iron ore prices.
GOVERNANCE & REGULATION
ASIC releases Market Integrity Update for June 2021. ASIC has published its Market Integrity Update for June 2021, which includes items on ASIC’s expectations for activist short selling campaigns, ceasing LIBOR in new contracts before the end of 2021 and enforcement work. ASIC reminds entities of the new Information Sheet 255 Activist short selling campaigns in Australia (which we reported on in further detail in an earlier edition of Boardroom Brief) and in particular, reminds of ASIC’s preference for entities to adopt the better practices outlined in that Information Sheet and the obligation of market participants to report suspicious short selling activity under the market integrity rules. See ASIC’s update.
ASIC’s review of select financial reports. In last week’s edition of Boardroom Brief, we discussed ASIC’s media release highlighting focus areas for upcoming 30 June financial reports. ASIC has since announced the results from its review of the financial reports of certain entities with a 31 December financial year end. This review was conducted as part of ASIC’s ongoing risk-based reviews of financial reports. ASIC observed that while entities continue to make useful and meaningful disclosure on the impact of COVID-19 conditions on their business, some entities failed to give sufficient attention to the reporting of asset values and financial position. ASIC also noted it will continue to make inquiries where entities appear to have made unrealistic and unsupportable assumptions about future cash flows, and emphasised the importance of such assumptions in circumstances where COVID-19 continues to create uncertainties for forecasting financial information. Another key area of inquiry was the quality of entities’ operating and financial review, with ASIC noting that a comment to the effect that the impacts of COVID-19 on the business cannot be determined will not be acceptable. See ASIC’s media release.
Amendments to Australia’s anti-money laundering and counter-terrorism financing laws. Last week, a number of amendments to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act) and associated rules finally came into effect. These amendments have been propelled by the 2016 Report on the Statutory Review of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 and Associated Rules and Regulations. There are a number of key changes resulting from these amendments. Firstly, reporting entities will now be able to rely on the customer identification procedures conducted by third parties in two new circumstances. Broadly speaking, these circumstances relate to where there is a written agreement between the reporting entity and the third party who is undertaking the customer identification procedures, and separately where the reporting entity has reasonable grounds to rely on the third party’s customer identification procedures. Secondly, the AML/CTF Act now prohibits a financial institution from entering into a banking relationship with another financial institution which allows for its accounts to be used by a shell bank. Financial institutions should therefore review their due diligence processes and ensure that they are adequately checking for this scenario. Thirdly, the AML/CTF Act clarifies that a reporting entity may disclose information about a suspicious matter report to the entity’s external auditor, and also to foreign members of the entity’s corporate group if certain requirements are met.
OVER THE HORIZON
A reminder of China’s mark on iron ore pricing. Iron ore prices are exhibiting substantial volatility, buffeted by a combination of speculative trading and macro-economic factors. Prices fell again on Friday following news of China’s attempts to manage volatility in its commodities markets, offsetting gains prompted by its recently announced stimulus plan. Nonetheless, iron ore producers are expected to report record earnings for FY21 and pay high dividends to investors, also benefitting royalty revenue for State governments, particularly Western Australia: which in turn has prompted renewed calls for the re-writing of the 70% floor on GST payments.