The Treasury Laws Amendment (Greater Transparency of Proxy Advice) Regulations 2021, registered on Fri 17.12.2021, aims to improve the disclosure of superannuation funds’ voting records on company resolutions and make proxy advice services more accountable. They will require proxy advice firms to be independent of the super funds they advise and give the company, the subject of the advice, a copy on the same day they give the advice to the fund. They will also require the super fund to publicly disclose, on their websites, how they ended up voting (whether in accordance with the advice, or not).
Legislation to this effect was floated earlier in 2021 (see related TT article 1 and article 2), however, the Government failed to get bi-partisan support and elected to proceed by way of regulation, which can be made by the minister alone, albeit disallowable by either (I think) house of Parliament. If an election is called (and Parliament is prorogued) these regulations could have been in effect, for some time, before either house could disallow them.
The Regulations amend the Corporations Regulations 2001 to specify:
- circumstances in which voting advice is proxy advice (a kind of financial service); and
- obligations for financial services licensees who provide proxy advice to:
- provide any proxy advice to the entity that is the subject of the proxy advice on the same day it is provided to the client; and
- be independent of their clients.
The Regulations also amend the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) to
- expand the range of information that Registrable Superannuation Entity (RSE) licensees must make publicly available on the registrable superannuation entity’s website to include a summary of how voting rights attaching to shares in listed companies that the trustee of the registrable superannuation entity holds, or in which the trustee holds beneficial interests, have been exercised.
Commencement
- The amendments, relating to when proxy advice is a financial service, apply in relation to a service provided on or after 7 February 2022.
- The amendments, relating to when proxy advice must be provided to a body or responsible entity, apply in relation to proxy advice provided by a financial services licensee on or after 7 February 2022 and under a contract entered into or renewed on or after the commencement of the Regulations.
- The amendments relating to the independence obligation for financial services licensees apply in relation to proxy advice provided by a licensee on or after 1 July 2022 and under a contract entered into or renewed on or after the commencement of the Regulations.
- The amendments relating to the obligation to make information publicly available on the registrable superannuation entity’s website apply on and after 1 July 2022 in relation to a half of a financial year if the half begins on or after 1 January 2022.
[Federal Register of Legislation – F2021L01801 – Explanatory Statement]
The Morrison Government is strengthening the transparency and accountability of proxy advice services, and improving the disclosure of superannuation funds’ voting records on company resolutions through the Treasury Laws Amendment (Greater Transparency of Proxy Advice) Regulations 2021.
Australia has a highly concentrated proxy advice market which is dominated by just four firms. Proxy firms exercise significant influence by advising institutional investors on positions to take in respect of resolutions put at company meetings. This includes advising superannuation funds, which collectively own around 20 per cent of the Australian Stock Exchange (ASX) worth around $510 billion.
It is therefore important that proxy advice is transparent, independent and its quality and accuracy can be relied upon by investors and companies alike.
The Government’s reforms improve accountability in the proxy advice sector by extending the Australian Financial Services Licensing regime to cover a greater range of proxy adviser activities, and by requiring proxy advisers to be independent of their institutional clients.
The reforms also ensure greater transparency by requiring proxy advisers to provide a copy of their recommendations to companies on the same day they are provided to investors. In addition, superannuation funds exercising voting rights on behalf of their members will be required to disclose more detailed information on their voting records in a way that is consistent across the industry.
The licensing extension and the requirement to provide copies of proxy advice to companies will commence from 7 February 2022, with the new independence and superannuation voting disclosure requirements commencing 1 July 2022.
Together, the Morrison Government’s reforms will support greater consumer and business confidence in proxy advice services and ensure more consistent regulation across the financial services industry.
[Treasurer & Minister for Superannuation’s joint Media Release]
[Tax Month – December 2021 – Previous 2021] 5.1.22 [LTN 244, 17/12/21]