In the wake of ASIC’s BBSW investigation and continuing litigation, the Government has recently introduced a Treasury Laws Amendment (2017 Measures No. 5) Bill 2017 (Bill) to Parliament which, if passed, will amend the Corporations Act to provide for a new regulatory regime that must be observed by financial benchmark administrators. The Bill is intended to reflect the International Organization of Securities Commissions Principles for Financial Benchmarks, which prescribe desirable characteristics of a regulatory regime for financial benchmarks and aligns Australia’s regulatory regime with that of other key jurisdictions, including the UK, EU, Japan, Singapore and Canada. Currently, systemically important financial benchmarks are not subject to a specific regulatory regime. The new regime aims to strengthen financial regulation in Australia in order to better protect Australians from the possible abuse and manipulation of financial benchmarks. The Bill contains the following features:
- Administrators of ‘significant financial benchmarks’ must be licensed according to a new licensing scheme, administrators of ‘other financial benchmarks’ can voluntarily opt-in to this scheme.
- ‘Significant financial benchmarks’ are those that ASIC declares as ‘systemically important to the Australian financial system’ and those benchmarks where, if the availability or integrity of the benchmark were disrupted, there would be a material risk of financial contagion or systemic instability, or a material impact on retail or wholesale investors in Australia.
- Body corporates can apply for a Benchmark Administrator Licence (licence) by lodging an application with ASIC. ASIC may grant a licence to administer a specified financial benchmark where they are satisfied that the application was made in accordance with certain regulatory requirements, the applicant will comply with its obligations and that no disqualified individual appears to be involved in the applicant.
- Multiple financial benchmarks may be specified in the same licence, however the legislation applies as if each benchmark was covered under a separate licence (ie, in the event of suspension or cancellation of a licence, each benchmark is dealt with separately).
- Foreign body corporates are only eligible for a licence if they are registered bodies corporate under the Corporations Act. Where a benchmark is generated or administered overseas, ASIC may rely on a regulator in a foreign country in exercising its regulatory functions. ASIC may only do so if it is satisfied that there is an adequate level of supervision of the financial benchmark based on its assessment of the regulatory regime in the foreign jurisdiction. If ASIC is not satisfied by the foreign regulator’s supervision, then ASIC must be satisfied there are adequate cooperation arrangements in place with the foreign regulator to ensure that the benchmark is adequately supervised.
- Licensees are subject to a number of obligations, including obligations relating to compliance, reporting, access to facilities, and the provision of assistance to ASIC, APRA and the Reserve Bank where applicable.
ASIC may make financial benchmark rules that apply in relation to licensees and the financial benchmarks they administer. ASIC may also make compelled financial benchmark rules, to deal with certain critical circumstances such as the failure of a significant financial benchmark. In such a circumstance, ASIC will have power to compel market participants to make submissions to ensure the continued generation of a financial benchmark. This has been introduced to ‘futureproof’ the regulatory regime, as no significant Australian benchmark currently rely on submissions). The Bill also introduces specific criminal offences and civil penalties which will apply to conduct that manipulates a financial benchmark or manipulates a financial product used in Australia to set a financial benchmark. The Treasurer has stated that he intends the Bill be passed before the end of the year so that the regime commences simultaneously with that of the EU.
The Government has also recently introduced the ASIC Supervisory Cost Recovery Amendment Bill 2017 (Levy Amendment Bill). The Levy Amendment Bill applies the industry funding regime (discussed in our earlier update) so that benchmark administrator licensees are added to a certain category of entities from which ASIC may recover its regulatory costs. Other entities in the same category include market licensees, participants in a licensed market, clearing and settlement facility licensees and derivative trade repository licensees.