In review: capital markets law in Australia – Lexology
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Australia has vibrant, professional and well-regulated capital markets open to foreign issuers.2
The recent ‘Why Australia: Benchmark Report 2022’ from the Australian Trade Commission indicates that Australia’s capital markets comprise, inter alia:
Australia is a federation with three different levels of government: Commonwealth (or federal), state and territory, and local (or municipal). As a general rule, Commonwealth legislation governs access to, and the operation and supervision of, Australia’s capital markets. Under the Constitution, the Commonwealth has power to legislate in relation to, among other matters, corporations, interstate and international trade and commerce, taxation, banking and insurance. Australia has an independent judicial system that reflects the constitutional division of powers between the Commonwealth government and the state and territory governments.
The broad framework for the regulation of the financial sector, including capital markets, is determined by the Commonwealth government. The issuance and trading of debt and equity securities, derivatives, securitisation and other financial products are primarily governed by Chapters 6D and 7 of the Corporations Act 2001 of Australia (Corporations Act) (which applies throughout the country), as well as by the common law and principles of equity.4
Under the Corporations Act, the term ‘financial product’ is defined in general terms and there are specific inclusions and exclusions. Broadly, a financial product is any facility through which a person makes a financial investment, manages financial risk or makes non-cash payments, even if the facility is used for some other purpose.5 The specific inclusions illustrate the wide scope of the concept and include equity and debt securities, interests in managed investment schemes (i.e., unit trusts and other collective investments), derivatives, foreign exchange contracts, most insurance contracts, most superannuation (retirement savings) products, most deposit-taking facilities provided by Australian banks and other authorised deposit-taking institutions (ADIs), and government debenture and bond issues. The specific exclusions are generally products that are more suitably regulated under some other regime (such as credit facilities and payment systems).
Australia’s framework for the regulation of the financial sector and the issuance of financial products is based on three separate agencies operating on functional lines. These regulatory bodies have primary responsibility for maintaining the safety and soundness of markets and regulated institutions, protecting consumers and promoting systemic stability through implementing and administering the applicable regulatory regimes. Specifically:
The Council of Financial Regulators (CFR) is the coordinating body for Australia’s main financial regulatory agencies. It is a non-statutory body whose role is to promote the stability of the Australian financial system, contribute to effective and efficient financial regulation, and in doing so, promote a competitive, efficient and fair financial system. Its membership comprises the RBA (which chairs the CFR), APRA, ASIC and the Commonwealth Treasury.6
In addition, the Australian Competition and Consumer Commission (ACCC) is responsible for competition policy, with a mandate that extends across the entire economy, including the financial services sector.
The vibrancy of Australia’s capital markets is underpinned by:
In addition to participating in the domestic capital markets, the Commonwealth, state and territory governments, semi-government authorities and companies have regularly issued securities and other financial products in international capital markets and the domestic capital markets of a number of foreign countries (most commonly, the United Kingdom, the United States and Japan).
APRA’s core objective is ‘the financial safety of institutions and the stability of the Australian financial system’, together with the supplementary considerations of efficiency, competition, contestability and competitive neutrality.7 The framework for prudential regulation includes requirements regarding capital adequacy, credit risk, market risk, covered bonds, securitisation, liquidity, credit risk management, large exposures, associations with related entities, outsourcing, business continuity management, audit and related matters, governance, and fit and proper management.8
In the prudential standards for ADIs, APRA formally introduced the Basel III definition of regulatory capital, the minimum requirements for the different tiers of capital and stricter eligibility criteria for capital instruments with effect from 1 January 2013. Similar requirements have been introduced for life and general insurance companies and are now in the process of being extended to private health insurers.
In implementing Basel III APRA has adhered closely to the Basel III definition of regulatory capital, the Basel III minimum requirements and eligibility criteria for regulatory capital instruments, and the Basel III regulatory adjustments to capital, with only minor exceptions. It has tended not to exercise the discretion to adopt the concessional treatment available for certain items in calculating regulatory capital, where it considers that to do so would not be consistent with the objective of raising the quality and quantity of regulatory capital.9 APRA continues to review its capital standards regularly, updating them in the light of developments in the Basel III framework.
In accordance with the Basel III framework, APRA has introduced a liquidity standard (APS 210) requiring certain ADIs to maintain a liquidity coverage ratio (LCR) and net stable funding ratio (NSFR).10 The NSFR may influence the tenor and type of funding raised by ADIs to which it applies.
Due to the relatively low levels of government debt on issue at the time, the RBA established a committed liquidity facility (CLF) to support an ADI’s holdings of high-quality liquid assets (presently limited to Commonwealth and state government securities). As issues of government debt have increased, especially following the covid-19 pandemic, APRA has announced that it expects ADIs to reduce their usage of the CLF to zero by the end of 2022, subject to market conditions.11
Standardised ADIs are now required to meet a minimum common equity capital requirement of 7 per cent of risk-weighted assets.12 APRA has also introduced a countercyclical capital buffer (CCyB) which APRA can deploy in periods of high system-wide risk. From1 January 2023, the CCyB will be increased from zero per cent to a new default level of 1 per cent of risk weighted assets.13
APRA has also developed a framework for dealing with domestic systemically important banks (D-SIBs), which came into effect on 1 January 2016. This framework includes an additional 1 per cent D-SIB buffer.
An Australian entity is not required to obtain any general government authorisations or consents prior to issuing securities in Australia. In most cases, the only authorisations and consents required are those prescribed by the issuer’s constitutional documents or governing statute.
Foreign companies are also not subject to any direct government controls in issuing securities in Australia14 and, since April 1991, foreign governments, their agencies and international organisations have also been permitted to raise funds in the Australian domestic debt capital markets, subject to some limited restrictions (e.g., the debt securities must be in registered, not bearer, form). However, the issuance of other types of financial products, and the trading of both securities and other financial products, may require the issuer or trader to hold an Australian financial services licence (AFSL) from ASIC under Chapter 7 of the Corporations Act (or be exempt from the requirement to do so).
A person who carries on a financial services business in Australia (including a person who engages in conduct that is intended, or likely, to induce people in Australia to use his or her financial services)15 is required to hold an AFSL (or be exempt from the requirement to do so).16 A person provides a financial service if he or she engages in certain activities, in particular:
Although numerous exemptions are available for particular financial services or financial products (e.g., an entity issuing its own securities,18 or the acquisition and disposal of a financial product if a party is dealing on its own behalf provided that it is not the issuer of that financial product),19 there are few exemptions of general application. Certain regulated foreign financial institutions that operate in foreign jurisdictions that have a level of investor protection similar to Australia’s can apply for a modified form of AFSL licence, known as a ‘foreign AFS licence’, authorising them to provide financial services to wholesale clients or professional investors in Australia.20 Transitional arrangements apply to certain foreign financial service providers (FFSP) until either the FFSPs have been granted a foreign AFS licence or 31 March 2023 (whichever occurs first).21
There is no requirement that financial products issued in Australia be governed by Australian law, although investors are generally more familiar with Australian law, and there may be investment restrictions precluding a particular investor from purchasing financial products governed by foreign law. In certain cases, there is an expectation that financial products will be governed by Australian law – for example, issues of many financial products to retail clients (see below) and the issue of debt securities in the kangaroo bond market.22
Securities issued by Australian financial institutions that are intended to qualify as regulatory capital are required to have provisions relevant to loss absorption governed by Australian law.23
A person who undertakes the business of providing financial product advice (e.g., recommending the purchase of securities) requires a licence.24 Financial advisers are subject to duties to act in the best interests of their clients (subject to a reasonable steps qualification) and to place the best interests of their clients ahead of their own when providing personal advice to retail clients. Conflicted remuneration structures (including commissions and volume-based payments) in relation to the distribution of, and advice about, a range of retail investment products are banned in Australia.25
An institution that wishes to conduct banking business must be granted an ADI licence by APRA prior to conducting business as an ADI. As at 31 March 2022, there were 142 ADIs operating in Australia.26 Australian ADIs are major issuers in the domestic and international capital markets, with APRA’s June 2021 statistics showing approximately A$912 billion in combined total short-term and long-term borrowings for selected ADIs.27 In May 2018, APRA announced a restricted ADI framework which allows eligible entities to seek a restricted ADI licence to conduct a limited range of business activities for two years while they build their capabilities. It establishes the eligibility criteria, minimum initial and continuing requirements, and the application of the prudential and reporting standards during the restricted phase of operation.28
APRA generally takes the position that foreign banks soliciting and operating an active business in Australia should be subject to Australian prudential regulation and supervision, regardless of where the business is booked. However, APRA does not object to a foreign bank conducting limited business with Australian counterparties from its offshore offices, provided certain conditions are satisfied.29 Foreign ADIs are not restricted to issuing bonds into the Australian market from their Australian branch; such bonds may be issued from their head office. Recently, issuers from Canada, Korea and Singapore have issued in the Australian market through both their Australian branches and head offices, and issuers incorporated in China and Japan have also issued through their Australian branches.
APRA also has extensive powers to make rules and issue directions relating to the lending activities of non-ADI lenders where it has identified material risks of instability in the Australian financial system.30 However, these powers do not extend to the continuing prudential regulation and supervision of non-ADI lenders that APRA currently exercises over ADIs.
Offers for the issue and (in certain cases) the sale or purchase of equity and debt securities31 in Australia are regulated by Part 6D.2 of the Corporations Act, whereas the issue of other financial products is regulated by Part 7.9 of the Corporations Act. The provisions of the Corporations Act relating to offers of securities, and other financial products for issue or sale, do not apply to offers received outside Australia.32
As a general matter, a person must not offer or invite applications for the issue, sale or purchase of securities in Australia (including an offer or invitation that is received by a person in Australia) unless a prospectus or other disclosure document that complies with the form and content requirements of the Corporations Act has been lodged with ASIC. A similar requirement concerning the lodgement with ASIC of a product disclosure statement (PDS) is set out in Part 7.9 of the Corporations Act for offers for the issue and (in certain cases) the sale or purchase of other financial products.
The basic regulatory approach is based on disclosure. There is no general requirement for a prospectus, PDS or other disclosure document to be vetted or reviewed by ASIC or any other regulator before lodgement and publication. However, ASIC has signalled that there should be a shift away from overreliance on disclosure for consumer protection with the introduction of design and distribution obligations (DDO) and ASIC’s product intervention powers to target consumer detriment for financial and credit products.33
At a high level, a prospectus or other disclosure document in relation to securities must contain all information that investors and their professional advisers would reasonably require to make an informed assessment of specific matters, including the rights and liabilities attaching to the securities offered, and the assets and liabilities, financial position and performance, profits and losses, and prospects of the issuer.34
The information must be presented in a clear, concise and effective manner. Similar requirements apply to a PDS or other disclosure document for other financial products, although the precise content requirements vary depending on the financial product. ASIC has published regulatory guidance concerning the main disclosure requirements of Chapter 6D of the Corporations Act, including:
The Corporations Amendment (Simple Corporate Bonds and Other Measures) Act 2014 significantly changed the legal processes, documentation and liability for simple corporate bonds offered by an Australian listed company to retail investors.
The legislation aimed to reduce the disparity between requirements for retail debt offers, retail rights issues of additional equity and wholesale debt offers. The key changes are as follows:
Since 2016, only three companies have issued simple corporate bond in Australia. There remain many other commercial and market forces that need to align for the Australian domestic retail corporate bond market to develop significantly. These include minimising the comparative costs of accessing the wholesale and retail markets by reducing the regulatory burden for issuance into the retail market.
The requirement to issue a prospectus or other disclosure document for an offer of securities does not apply where the relevant securities are issued for a consideration of at least A$500,000 per offeree (disregarding amounts lent by the offeror and its associates). In addition, a prospectus or other disclosure document is not required if potential subscribers and buyers are restricted to professional investors (as defined in the Corporations Act)38 or the requirements of another exemption are satisfied,39 allowing an issue for a lesser consideration to occur without disclosure in accordance with the Corporations Act. Similar restrictions can apply to the offering of securities for sale or purchase in the secondary market in certain cases.
Regarding other financial products, similar (but subtly different) exemptions apply: the requirement to issue a PDS or other disclosure document only applies to an offer to a retail client (defined as a person who is not a wholesale client). In summary, a person is a wholesale client if at least one of the following four tests applies (all other persons are retail clients):
The vast majority of offers of debt securities and other financial products by foreign issuers or offerors are structured so as not to require the issue of a prospectus, PDS or other disclosure document in compliance with the form and content requirements of either Part 6D.2 or 7.9 of the Corporations Act. It is important to note that a foreign company that offers debentures in Australia or guarantees debentures offered in Australia will be deemed to carry on business in Australia for the purposes of the Corporations Act, unless the offer is structured so as not to require the issue of a prospectus.41
A person must not offer securities or other financial products under a prospectus, PDS or other disclosure document that is misleading or deceptive or omits material required to be included by either Part 6D.2 or 7.9 of the Corporations Act. Those who may be liable include the issuer, directors of the issuer, other persons named in the disclosure document and persons otherwise involved in the contravention of the disclosure requirements. There is a range of defences to liability for a disclosure document; these are broadly based on the concepts of reasonable enquiry and reasonable reliance (i.e., due diligence defences).42
Irrespective of whether the offering of securities or other financial products requires disclosure to investors in accordance with either Part 6D.2 or 7.9 of the Corporations Act, an issuer or offeror may incur liability under various provisions that prohibit:
In general terms, these prohibitions are unlikely to impose any greater restrictions on an issuer or offeror than would be encountered in many segments of the international capital markets.
Proving that an alleged disclosure or non-disclosure caused a plaintiff loss is an essential element of continuous disclosure and misleading or deceptive conduct claims. In recent decisions, Australian courts have held that plaintiffs do not need to establish individual reliance on the impugned disclosure or non-disclosure but can prove loss through ‘market-based (or indirect) causation’.44
As noted above, offers for the issue of debt securities (i.e., debentures) in Australia are regulated by Part 6D.2 of the Corporations Act, whereas the issue of derivatives is regulated by Part 7.9 of the Corporations Act. Where structured notes are offered, in light of two decisions of the Federal Court of Australia, consideration needs to be given as to whether the note is properly classified as a debenture or a derivative, as this may affect who is licensed to distribute or invest in the note and other duties in respect of the offer.
In the first decision,45 the Court found that certain complex collateralised debt obligations were properly characterised as ‘undertaking[s] by the [issuer] to repay as a debt money deposited with or lent to the [issuer]’ (i.e., they could have been debentures (although they were not in the particular facts of the case)). In the second decision,46 the Court found that certain constant proportion debt obligations (CPDOs) in the form of notes were derivatives. It is difficult to reconcile aspects of the reasoning applied in the two decisions.
The second Federal Court decision mentioned above is also notable for the finding that Standard and Poor’s (S&P) was liable for misleading and deceptive conduct and negligence, by assigning an AAA rating to the CPDOs. The Court held that the rating conveyed the representation that S&P had reached this opinion based on reasonable grounds and as a result of an exercise of reasonable care. In this case, the representation was misleading and there was a breach of the duty to take reasonable care.
The ASX operates the primary securities exchange in Australia. Its operation is supported by ASIC, which is responsible for the supervision of trading activities by market participants.
All listed entities must prepare and lodge audited financial reports, complying with Australian accounting standards (which are based on International Financial Reporting Standards) and governance reporting requirements. In addition, listed entities and the responsible entities of listed managed investment schemes must comply with the continuous disclosure requirements of the Corporations Act and the ASX Listing Rules,48 and must immediately disclose (via announcements made to the ASX) any information concerning itself that a reasonable person would expect to have a material effect on the price or value of its securities.49
Cboe Australia (formerly Chi-X Australia Pty Ltd) operates as an alternative securities exchange.50 Cboe Australia has ASIC approval to trade in all S&P/ASX 200 component stocks and ASX-listed exchange traded funds. However, it operates only as an execution forum through which securities quoted on the ASX can be traded.
The ASX operates the Clearing House Electronic Subregister System (CHESS) to provide a clearing system for equity and debt securities (other than wholesale securities). The ASX is currently preparing a replacement for CHESS, with the introduction of the replacement system to be used as soon as it is safe to do so.51 This may not be until late 2024.52
Wholesale debt securities, however, are cleared in the Austraclear system. Austraclear is not an exchange and does not provide price discovery. Instead, participants in the wholesale debt market trade on an over-the-counter basis among themselves. Debt securities may be quoted on the ASX if they are ‘approved financial products’ for the purposes of CHESS. Securities confined to wholesale investors may be quoted on the ASX as a wholesale debt security. These securities are cleared via Austraclear and not CHESS.
Market participants (e.g. brokers) are subject to certain minimum capital requirements imposed by ASIC. The ASIC Market Integrity Rules (Capital) 2021 create a common set of rules for this capital.
Under APS 111, mutually owned ADIs are permitted to issue shares that are eligible under Common Equity Tier 1 without losing their mutual status. The Treasury Laws Amendment (Mutual Reforms) Act 2019 provides for a bespoke mutual capital instrument (MCI) under the Corporations Act 2001 for all eligible mutual entities to raise equity capital.53 This framework is not confined to mutual entities that are subject to prudential supervision by APRA or intending to raise regulatory capital and MCIs are not confined to instruments that meet APRA’s definition of common equity. On 24 December 2020, Australian Unity Limited issued the first mutual capital instrument.54
Many Australian financial institutions and corporates raise finance in capital markets by way of hybrid securities, being securities that combine elements of both debt securities and equity securities. The current market for such securities is dominated by financial institution issuers offering regulatory capital meeting APRA’s prudential standards with Additional Tier 1 (AT1) capital being issued principally in the retail market and Tier 2 capital in Australia principally in the wholesale market. Australia’s taxation system has made AT1 securities attractive to retail investors, as the securities are generally treated as equity for tax purposes and distributions carry an imputation credit that may be offset against other income.55
The Corporations Act prescribes certain mandatory obligations, including: the reporting of over-the-counter (OTC) derivatives to trade repositories; the clearing of standardised OTC derivatives through central counterparties; and the execution of standardised OTC derivatives on exchanges or electronic trading platforms.
The Derivative Transaction Rules (Reporting) 2013 and the Derivative Trade Repository Rules 2013 establish comprehensive rules relating to reporting entities and the information required to be reported. These rules also regulate the manner in which repositories provide their services and ASIC’s approach to regulation of overseas-based repositories.
ASIC has granted various forms of relief from the application of the rules for specified periods of time.56 The rules also permit single-sided reporting for entities with low levels of OTC derivative transactions, provided that their counterparty is already required to or has agreed to report.57
Central clearing obligations also operate for OTC interest rate derivatives denominated in Australian dollars and G4 currencies (US dollars, euros, British pounds and Japanese yen).58
To assist with reporting requirements, the ASX has established a domestic central clearing system for participants in the Australian OTC market. This framework includes the OTC Interest Rate Derivatives Clearing Service for dealer activity, and the Australian Client Clearing Service.
End users do not have to comply with the reporting requirements under the derivative transaction rules.59
The rules are currently under review and ASIC plans to introduce amended rules from 1 October 2023.60
The Financial System Legislation Amendment (Resilience and Collateral Protection) Act 2016 strengthens the enforceability of certain financial collateral arrangements and removes restrictions on certain Australian institutions from providing margins to clearing systems.
Prudential Standard CPS 226 (Margining and risk mitigation for non-centrally cleared derivatives) affects certain APRA-regulated entities that transact in non-centrally cleared derivatives. Among other things, CPS 226 requires an APRA-covered entity to have appropriate margining practices in relation to non-centrally cleared derivatives and to apply risk mitigation practices (such as trading relationship documentation, trade confirmation, valuation processes and dispute resolution processes).
The Treasury Laws Amendment (2017 Measures No. 5) Act 2017 and the ASIC Supervisory Cost Recovery Levy Amendment Act 2017 establish a framework for a financial benchmark regulatory regime.61 The laws give ASIC powers to designate significant financial benchmarks if satisfied that the designated benchmark is systemically important in Australia or there would be a material risk of financial contagion or a material impact on Australian retail or wholesale investors if there was a disruption to the operation or integrity of the benchmark. Administrators of designated significant financial benchmarks are also required to obtain a new benchmark administrator licence from ASIC, which is able to impose conditions on the grant of a licence. On 1 January 2017, ASX took over the role of administrator of Bank Bill Swap (BBSW) rates.62 In June 2018, ASIC made the ASIC Financial Benchmark (Administration) Rules 2018, which impose certain key obligations on licensed benchmark administrators and require contributors to licensed benchmarks to cooperate with ASIC.63 Previously, BBSW was the subject of litigation in 2018, when ASIC commenced legal proceedings against three of Australia’s major banks for unconscionable conduct and market manipulation in setting the BBSW rate.64 Consequently, changes to BBSW administration has resulted in ASIC having power to compel the inputs to BBSW.65 The International Swaps and Derivatives Association’s consultation on benchmark fallbacks identified the cash rate as the fallback rate for BBSW, and while, unlike LIBOR, there is no imminent demise of BBSW, regulators expect market participants to have ‘robust, reasonable and fair’ contractual fallback provisions to address any cessation or material change to the BBSW benchmark. To promote use of appropriate fallbacks, all floating rate notes and marketed asset-backed securities issued after 1 December 2022 must contain such fallback provisions in order to be eligible for use as collateral in the RBA’s domestic market operations.66 The RBA has also indicated that not all BBSW tenors are as robust as others. In particular, the RBA announced that users of 1-month BBSW should consider using an alternative benchmark given the lack of liquidity in this market and can prepare for the contingency of BBSW ceasing to exist.67
These proposals aim to facilitate equivalence assessments under overseas regimes, including under the European Benchmarks Regulation. BBSW is now allowed to be used in the European Union and is also included on the European Securities and Markets Authority’s register for third-country benchmarks.
As part of its response to the global financial crisis, the Commonwealth government established both the Financial Claims Scheme (FCS) and the Australian Government Guarantee Scheme for Large Deposits and Wholesale Funding.68
The FCS is capped at A$250,000 per person per institution. The FCS is designed to protect depositors by providing them with timely access to their deposits in the event that their ADI becomes insolvent, and APRA has promulgated a prudential standard setting requirements on how locally incorporated ADIs manage accounts protected under the FCS.69 This cap is estimated to protect in full the savings held in around 99 per cent of Australian deposit accounts. A claim on the FCS would be met from Commonwealth revenue.
The Australian capital markets have high expectations of corporate governance, which continues to evolve.
Directors’ duties are prescribed by legislation, in particular the Corporations Act, and an extensive body of case law (common law). Directors are fiduciaries and owe stringent duties:
Directors have duties regarding financial and other reporting and disclosure, and can be liable under various laws, including for breaches of fundraising, anti-money laundering, environmental, competition and consumer, privacy, and occupational health and safety laws.
Some defences are available to directors, including under a limited business judgement rule in certain circumstances, for reliance on good faith after making an independent assessment and for appropriate delegation.
In recent years, there has been a series of important court judgments on directors’ and officers’ duties. In particular, these cases have considered how these duties relate to continuous disclosure requirements and financial reporting.70
In addition to the liabilities imposed by the Corporations Act, a wide range of Commonwealth, state and territory statutes impose personal criminal or civil liability, or both, on directors and officers for the actions of their companies. The Personal Liability for Corporate Fault Reform Act 2012 of Australia (the Reform Act) has harmonised the approach of all Australian jurisdictions to personal criminal liability for corporate fault. Among other measures, it removes personal criminal liability for corporate fault unless a person is dishonestly involved in the relevant contravention, and removes the burden of proof on defendants to establish a defence to a charge.71
On 5 March 2018, the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Act 2017 was passed to strengthen APRA’s crisis management powers.72 The legislation included clear powers for APRA to set resolution planning requirements and ensure banks and insurers are better prepared for times of financial crisis. The laws also equip APRA with an expanded set of crisis resolution powers to facilitate the orderly resolution of a distressed bank or insurer. The laws do not include a formal bail-in regime for debt capital instruments, although APRA does have powers to stop payments by regulated entities in certain circumstances.73
The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 establishes an anti-money laundering regime that is administered by the Australian Transaction Reports and Analysis Centre. The regime covers all entities providing designated services through a permanent establishment in Australia.74
Australia’s anti-money laundering framework also includes sanctions laws. The Autonomous Sanctions Act 2011 (Cth) enables the Minister of the Department of Foreign Affairs and Trade to sanction designated persons or entities or specify circumstances that will constitute a sanctioned act. The Sanctions Act also gives effect to sanctions resolutions passed by the UN Security Council and given effect under the Charter of the United Nations Act 1945.
Australia has an elaborate privacy law regime governed by the Privacy Act 1988 (as amended). The regime regulates the collection, use, storage and disclosure of personal information and access to and correction of that information. The Privacy Act is currently under review by the Commonwealth Government.75
The Competition and Consumer Act 2010 is the primary competition and consumer protection legislation in force in Australia.76 The Act is administered by the ACCC. The ACCC has an active enforcement policy that may affect capital markets transactions in certain circumstances.
In June 2018, an ACCC investigation led to criminal cartel charges laid against three major financial institutions – ANZ, Citigroup and Deutsche Bank – relating to trading in ANZ shares held by both Citigroup and Deutsche Bank. The cartel conduct is alleged to have taken place following an ANZ institutional share placement in August 2015. Criminal charges were laid against several senior executives of these financial institutions.77 In September 2018, ASIC also commenced proceedings to pursue ANZ over allegations that it failed to comply with its continuous disclosure obligations under the corporations law in relation to the same placement.78
In February 2022, the Commonwealth Director of Public Prosecutions (CDPP) withdrew the criminal charges against all parties on the basis that there were no longer reasonable prospects of conviction. This decision followed the accused parties raising a number of issues before the court in relation to deficiencies in the ACCC’s criminal investigation and faults in the indictment prepared by the CDPP.79 ASIC’s proceedings against ANZ in relation to continuous disclosure obligations remain ongoing.
The discontinuance of the proceedings before hearing means the implications for capital markets are unclear and market participants remain in a state of uncertainty as to the application of competition law to capital markets. This is particularly relevant given collaboration between commercial parties is common practice in complex equity and debt capital transactions.
To increase access to banking products and consumer data by consumers and third parties if consumers consent, an ‘open banking regime’ commenced on 1 July 2020 for deposits, transaction accounts and credit and debit cards; from 1 November 2022, this will extend to business and asset finance, investment loans and certain savings accounts. The effects of the open banking regime are not yet known.80
In September 2020, ASIC released revised practice guidelines that included ASIC’s expectations of AFS licensees engaged in debt capital market transactions. These included the identification and management of potential conflicts of interest, having effective policies and procedures to identify and manage confidential and market-sensitive information, having processes to ensure information provided is not misleading or deceptive, and having active and effective supervision to monitor transactions.81
In May 2021, ASIC commenced proceedings in the Federal Court against Westpac Banking Corporation, alleging insider trading, unconscionable conduct and breaches of its Australian financial services licensee obligations in contravention of Sections 912A and 1043A of the Corporations Act and Section 12CB of the ASIC Act. ASIC is seeking declarations, pecuniary penalties and ancillary orders for the hedging of large exposures, relating to the privatisation of a majority stake in electricity provider, Ausgrid. While the outcome of the proceeding is not yet known, it serves as a reminder that, in Australia, insider trading provisions are not confined to dealing in exchange traded products and extend to wholesale or OTC securities markets.82
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