ASIC report on corporate finance regulation H1 2018

6 mins  02.09.2018

Disclosure of climate risk among the areas of focus for the regulator over the next six months

Overview of ASIC Report 589 ASIC regulation of corporate finance: January to June 2018.  The quality of disclosure, including disclosure of climate risk, is highlighted as among the key areas of focus for the regulator over the next six months. 

Key takeouts

Climate Risk: Despite regulatory uncertainty, disclosure of climate risk was highlighted as an area of focus for ASIC over the next six months.  The regulator flagging (among other things) that a review of relevant regulatory guidance will be published by the end of the year and reiterating that the review of a climate risk disclosure across the ASX 300 is underway with the findings to be released later in 2018.   
'Boilerplate' disclosure remains an area of concern.  ASIC writes that corporate governance statements ‘can be unhelpful and, in some cases, meaningless – entities often only disclose the existence of corporate governance policies rather than how the entity implements those policies in practice’.  
Constructive engagement with proxy advisers: ASIC reiterates that it expects firms to proactively engage with proxy firms including outside peak periods.  

On 31 August the Australian Securities and Investments Commission (ASIC) released: Report 589 ASIC regulation of corporate finance: January to June 2018.  The report provides statistical data and includes guidance about ASIC’s regulation of: fundraising transactions; experts; mergers and acquisitions; and corporate governance issues.  It also outlines ASIC's key observations for the reporting period and identifies ASIC's areas of focus for the next six months.

[Note: For an overview of ASIC's previous report: Report 567 ASIC Regulation of Corporate Finance: July to December 2017 for purposes of comparison, see: Governance News 02/03/2018.]

Corporate Governance

  • Establishment of the Corporate Governance Taskforce: Referencing the government’s 8 August announcement of an additional $70.1m in additional funding (see: Governance News 13/08/2018), ASIC reiterated that that the funding will be used to expand its enforcement and supervisory work, including through the creation of a new corporate governance taskforce to ‘identify and pursue failings in large listed companies’.  ASIC states that various teams across ASIC will contribute the taskforce and that it looks forward to providing updates on the initiatives.  No timeframe or further detail was provided.
  • Disclosure of actual corporate governance practices – ‘boilerplate’ disclosure remains a concern: ASIC writes that the Financial Services Royal Commission has ‘uncovered serious corporate governance failures within financial services entities’ and that in this context, it is concerned that disclosures in entities’ corporate governance statements ‘can be unhelpful and, in some cases, meaningless – entities often only disclose the existence of corporate governance policies rather than how the entity implements those policies in practice’.  ASIC states that entities should focus on ‘how effective those policies are at ensuring entities engage in good corporate governance practices in the context of their operations’.  ASIC notes that in its recent submission to the ASX Corporate Governance Council on the proposed fourth edition to the ASX Corporate Governance Principles and Practices, it proposed an alternate disclosure model aimed at addressing these issues (see: Governance News 13/08/2018.)
  • Climate Risk: While acknowledging ‘a level of uncertainty’ due to the difficulties of anticipating regulatory response to climate risk, ASIC notes that companies have a statutory obligation to disclose material business risks (s299A Corporations Act 2001 (Cth)) and encourages directors to consider the recommendations of the Task Force on Climate Related Financial Disclosures (TCFD).  ASIC adds that over the next six months it plans to:
    • Finalise a review of relevant regulatory guidance to ensure that it continues to provide appropriate principles and high level guidance that stakeholders can apply in meeting their climate disclosure obligations by late 2018.
    • Focus on impairment testing and asset values in upcoming review of 30 June 2018 financial reports.  
    • A review of climate risk disclosure across the ASX300 is underway.  The purpose is to better understand current market practices.  The findings will be released later in the year.  
  • Proxy adviser practices: The report reiterates that ASIC’s expectation is that proxy advisers and companies constructively engage with each other as set out in Report 578: ASIC Review of proxy adviser engagement practices (see: Governance News 02/07/2018 date).  In particular, ASIC states that when engaging with proxy advisers companies should: seek out information about the engagement practices of proxy advisors and engage proactively with them outside peak periods; release their notices of meeting to the market as early as possible; and ensure that the disclosure in those notices is ‘clear concise and effective’.
  • Enforcement action against directors: ASIC states that consistent with statements in Report 568: ASIC enforcement outcomes: July to December (see: Governance News 02/03/2018), ASIC has continued to focus on the conduct of gatekeepers including directors and auditors.  The report highlights two examples of enforcement actions against directors: bringing proceedings in Federal Court against Rio Tinto Ltd, its former CEO and former CFO in relation to alleged misleading or deceptive statement in the company’s annual report (see: Governance News 07/05/2018); and bringing civil proceedings against the former managing director of Quintis Ltd for (alleged) failure to discharge his duties as a director under s180 Corporations Act 2001 (Cth) (see: Governance News 18/06/2018).


In relation to fundraising ASIC reports that in the period:

  • There were 229 original disclosure documents lodged with ASIC, seeking to raise approximately $6.7bn.  This compares to 329 original disclosure documents last period seeking to raise $5bn.   ASIC comments that fundraising by banks for regulatory capital purposes continue to 'dominate corporate finance'.
  • ASIC intervention in fundraising: ASIC states there were significantly more interim stop order than in the last period: 10.5% as compared with 1.8% during the July to December 2017 period.
  • ASIC raised concerns with 19% of prospectuses. The top five most frequent disclosure concerns ASIC raised about prospectuses were:
    1. Business model not fully or adequately disclosed (raised 28 times).  This was also ranked as the top concern (with risk disclosure) in the last report, though it only raised 14 times in that period.
    2. Use of funds – unclear of insufficient detail (raised 20 times).
    3. Misleading or deceptive disclosure – misleading or unclear statement (raised 18 times)
    4. Risk disclosure inadequate or insufficiently prominent or not tailored (raised 15 times).  In the previous report, this issue was ranked equal first among the most frequent disclosure concerns, and was raised 14 times.  
    5. Capital structure or substantial holdings not adequately disclosed (10 times).
  • Areas of focus - Leaked investor reports: ASIC states that over the next six months it will continue to focus on the promotion of IPOS and more particularly on information about IPOS that appears outside formal disclosure documents.  Noting the findings of Report 540: investors in initial public offerings, ASIC states that retail investors can be heavily influenced by this type of information and that notes that the law ‘significantly restricts the promotion of IPOS outside the prospectus’.  ASIC states that in its experience compliance with s734 ‘can be poor’ eg for smaller IPOs ASIC has found some promotional material is misleading and for larger IPOs there is ‘often a problem’ with the media citing detail from investor education reports.
  • Royal Commission and IPOs – disclosure of potential impact to investors: ASIC states that the possible implications of the Royal Commission should be 'carefully considered' for financial service business seeking to list.  The report highlights the issues raised in recent speeches by ASIC Deputy Chair Peter Kell (see: Governance News 23/07/2018) and ASIC Chair James Shipton (see: Governance News 30/07/2018) as relevant in this regard.  The report goes on to say that if a financial services company raises funds through an IPO over the coming period, ASIC considers that ‘investors should be given candid information about how the business may be affected by the issues being raised’ which may include: ‘relevant historical and current interaction with regulators and possible outcomes, and the specific regulatory risks that the business may encounter including risks relating to the treatment of consumers’.
  • Pre-commitment by institutional investors: ASIC states that retail investors may interpret statements about a large pre-commitment by institutional investors as a sign the IPO is a good investment and follow suit on this basis and notes that there is a risk, that these statements could be misleading and/or cause issues for market integrity.
  • Omission of comparative half year information: ASIC notes that ‘on rare occasions’ it has permitted companies to omit comparative information where it was either difficult to compile in the circumstances or not material and gives examples of these circumstances.
  • Initial Coin Offerings/Cryptocurrency: ASIC states that over the last six months, a number of ICOs have been withdrawn or significantly modified due to ASIC action in relation to misleading or licensed conduct.  ASIC states that if advising on an ICO, the ‘legal character of the coin or token being offered’ and Australian Financial Services licensing requirements should be considered.  In addition, ASIC notes that regardless of whether the coin or token offered is a financial product, any promotional material must not be misleading.
  • Issues relating to Chinese Company Seals or chops: Each company incorporated in the People’s Republic of China (PRC) is required to have a Company Official Chop which is registered with the public security bureau.  The chop represents the company towards third parties and is binding even without a signature.  ASIC notes that ‘Poor controls can result in very adverse consequences’ and adds that it will look for disclosure about what chops a PRC company has and how their security is managed.  In addition, ASIC notes that the prospectus should explain the procedure for the use of the chops and whether logbooks are kept to record transactions and whether the chops are stored with third party custodians (‘reputable accountants or lawyers’).


  • The Independence of experts will be an area of focus for ASIC over the next six months including geologists and technical specialists due to recent problems highlighted in the area.  When considering the independence of an expert, ASIC states entities should have regard to the considerations set out in Regulatory Guide 112 Independence of Experts.

Mergers and acquisitions

  • ‘Truth in takeovers’: ASIC states that ‘truth in takeover’ statements have become ‘commonplace’ in Australian takeovers with statements by bidders and target holders the most frequent.  Over the last six months, ASIC states that it has intervened on numerous ‘truth in takeovers’ statements by market participants and sets out the steps that should be taken when making truth in takeovers statements.  ASIC adds that it intends to review Regulatory Guide 25, due to the frequent reliance on the policy and market practices that have emerged since the guidance was published in 2002.  ASIC will consider how the guide could be updated to provide greater certainty to the market about the application and enforceability of ‘truth in takeovers’ policy. 
  • Commenting on target value: ASIC states that it has been 'concerned' by the approach of some bidders when commenting on expert reports of the value of target securities and writes that bidders need to ‘take care’ when commenting on the value of target securities, including when challenging an expert’s valuation of a target.
  • Other issues: Other issues highlighted in the report include: bid conditions, the need to approach ASIC when changing terms during the scheme meeting and disclosure of relevant agreements relating to a substantial holding among others.

[Source: 18-251MR ASIC reports on corporate finance regulation – January to June 2018


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