Whistleblower reform in Australia – new legislation enacted

Whistleblower reform is underway in Australia after the Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2017 (Bill) was passed on 19 February 2019.

The new law is likely to commence on 1 July 2019, assuming Royal Assent is given by 1 April 2019.  If this occurs, the obligation for public companies to have a compliant whistleblower policy will apply from 1 January 2020 (potentially later for large proprietary companies).

In this briefing, our Australian team explain a number of the key changes that the new law will introduce and the considerations that organisations should be thinking about in terms of implementing these changes in their businesses, or considering if existing global processes are compliant.  There have been a number of changes to the new law since the initial Bill was first read in December 2017 so, even if organisations have previously considered the new law in one of its former iterations, the final version now needs to be assessed.

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Filed under ASIC, Australia, Corporate Crime, Draft Legislation, Investigations, Non-UK regulation, Regulatory Reform

Time to Mobilise: EBA finalises Guidelines on Outsourcing Arrangements

Following consultation in the second half of 2018, the European Banking Authority (“EBA“) published its Final Report on Draft Guidelines on Outsourcing Arrangements (the “Guidelines“) on 25 February 2019.

Most provisions of the Guidelines will enter into force on 30 September 2019. At the same time, the Guidelines will replace those issued by the EBA’s predecessor organisation, the Committee of European Banking Supervisors (“CEBS“), in 2006 and will also incorporate the EBA’s 2017 Recommendation on Outsourcing to Cloud Service Providers which came into effect on 1 July 2018.

The Guidelines are intended to establish a more harmonised framework for all financial institutions that are within the scope of the EBA’s mandate. The Guidelines apply to credit institutions and investment firms which are subject to the Capital Requirements Directive (“CRD“) as well as payment and electronic money institutions.

The Guidelines are issued under Article 16 of Regulation (EU) No. 1093/2010, the Regulation establishing the EBA. Member States’ competent authorities and financial institutions “must make every effort to comply” with the Guidelines. However, the EBA has acknowledged the need for proportionality within the text of the Guidelines, so that a firm and its competent authority(ies) should have regard to the nature, scale and complexity of the firm’s activities when complying with (or in the case of competent authorities, monitoring compliance with) the Guidelines.

The Guidelines will apply to all outsourcing arrangements entered into, reviewed or amended on or after 30 September 2019. Institutions should review and amend their existing outsourcing arrangements for compliance accordingly. Where an institution has not completed a review of an outsourcing arrangement which relates to critical or important functions by 31 December 2021, this should be notified to the relevant competent authority, along with an explanation of the measures which the institution proposes to take to either complete the review or exit the arrangement.

For many firms, the finalisation of the Guidelines will be a catalyst for a significant programme to review (and potentially rationalise or change) existing outsourcing arrangements. Cross-functional working will be essential, as various control and business functions will have an interest in the use of third party suppliers. Programmes are likely to bring together legal, operational risk, regulatory, compliance, procurement, and audit expertise, while oversight within the three lines of defence approach will need to be allocated not only to business functions but also to appropriate senior management, risk committee and board level to provide good governance of the processes and to ensure that decisions are aligned with business strategy and risk appetite.

We are conducting a detailed review of the Guidelines and will publish a more comprehensive analysis shortly.

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HKMA turns up the heat and announces consultation on IBOR transition

On 12 February 2019, the Hong Kong Monetary Authority (HKMA) announced in a briefing to the Legislative Council Panel on Financial Affairs that the Treasury Markets Association (TMA) will hold a long-awaited consultation this quarter on alternative reference rates.

The announcement follows signals from regulators globally that firms should transition away from the London Interbank Offered Rate (LIBOR) and other IBORs to alternative, risk-free, reference rates.

While there is no immediate plan to discontinue the Hong Kong Interbank Offered Rate (HIBOR), the HKMA noted that “as a FSB member, [the HKMA] has an obligation to put in place an alternative reference rate as a contingent fall-back”, tentatively suggesting the HKD Overnight Index Average (HONIA) as the most suitable alternative. Click here to read more.

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HERBERT SMITH FREEHILLS’ 2019 GUIDE TO CORPORATE INVESTIGATIONS IN CHINA

Authors: Kyle Wombolt and Anita Phillips

Kyle Wombolt, global head of corporate crime and investigations, and Anita Phillips, professional support consultant, have updated their guide to corporate investigations in China. This forms part of GIR’s acclaimed text, The Practitioner’s Guide to Global Investigations 2019, third edition. It is regarded as the only text covering the nuts and bolts of multi-jurisdictional corporate investigations.

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Filed under Asia, China, Corporate Crime, Investigations, Sanctions and Money Laundering

SFC seeks to halt “rolling bad apples” in their tracks with licensing reforms

On 1 February 2019, the Securities and Futures Commission (SFC) announced significant changes to its licensing forms and processes (Licensing Reforms). Included in these changes was the long-awaited arrival in Hong Kong of measures intended to stop the “rolling” of “bad apples” within the financial industry by requiring licensed corporations and registered institutions to provide the SFC with more information about the circumstances under which their employees depart.

In addition to these reforms targeting “bad apples”, the Licensing Reforms also include:

  1. sweeping changes to the SFC’s licensing forms. These changes include streamlining and consolidating the forms, as well as reforms which will mean that applicants must now provide the SFC with significantly more granular information regarding matters relevant to fitness and properness; and
  2. a thorough refresh of the SFC’s Licensing Handbook, which now includes key aspects of the licensing-related guidance issued by the SFC since the publication of the previous Licensing Handbook in April 2017.

The new licensing forms can be used from 11 February 2019. However, the SFC will accept current standard forms during a two-month transition period, before the new forms become compulsory from 11 April 2019.

We have been following these developments for some time and were part of the informal consultation held by the SFC in late 2018. We will be holding a seminar in Hong Kong to share our insights on how these developments will impact licensed corporations in Hong Kong and form part of broader conduct and culture-focused reforms across the Asia-Pacific region. Read our full client briefing and register for the seminar here.

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Australia: Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry released

The Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Hayne Report) was released to the public on 4 February 2019. The Federal Government has agreed to take action on all 76 recommendations contained in the Hayne Report, and in a number of areas has indicated it intends to go further, including conducting an immediate review of financial counselling services.  Herbert Smith Freehills have prepared a briefing paper which identifies the following key themes and reforms contained within the Hayne Report:

  1. Governance overhaul – Boards will need to exercise greater scrutiny over their governance systems, policies and procedures;
  2. Conflicts – a number of the changes proposed are designed to alter the objective from one of ‘managing’ to one of ‘eliminating’ conflicts of interest;
  3. Individual accountability – the proposed changes to remuneration and accountability regimes are significant, with individuals to be held to account more than ever before for the adequacy of complex systems, policies and procedures;
  4. Principles not prescription – the Hayne Report observes that prescriptive laws which are vast and complex may be less effective than statements of broad matters of principle, suggesting that now may be an apt time to revisit the current approach to regulation of the provision of financial services within Australia;
  5. Enforcement revolution – above all, the Hayne Report recommends greater personal accountability coupled with stronger regulators with an incentive to investigate and hold wrongdoers to account, making for an ‘enforcement revolution’. Organisations which do not proactively seek to identify and address inadequacies in their systems will likely find themselves redirecting resources toward activities which will do little to enhance their reputations or shareholder wealth.

The briefing paper considers in detail the key changes recommended in the Hayne Report and what these changes will mean for businesses and the Australian financial services landscape.

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High Court orders disclosure of SFO documents in s.90A FSMA shareholder class action

In a recent decision, the High Court has ordered that documents provided to Tesco plc (“Tesco“) by the SFO for the purpose of negotiating a deferred prosecution agreement (“DPA“) must be disclosed by Tesco in the separate civil action relating to the same subject matter, brought by its shareholders under s.90A of the Financial Services and Markets Act 2000 (“FSMA“): Omers Administration Corporation & Ors v Tesco plc [2019] EWHC 109 (Ch). The court reached this conclusion notwithstanding the fact that these documents were obtained by the SFO from third parties using its powers to compel the production of information/documents under s.2 of the Criminal Justice Act 1987 (“CJA“), and provided to Tesco during the DPA process on the understanding between the SFO and Tesco that the information they contain would be kept confidential.  In this briefing, our litigation team considers the rationale for and implications of the decision. Continue reading

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Filed under Commercial Litigation, Corporate Crime, Investigations, UK

OFAC Imposes Blocking Sanctions on PdVSA

Authors: Susannah Cogman, Partner, London; Daniel Hudson, Partner, London; Jonathan Cross, Counsel, New York; Geng Li, Associate, New York; and Christopher Milazzo, Associate, New York.

On January 28, 2019, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) announced the designation of Venezuelan state-owned oil producer Petroleos de Venezuela, S.A. (PdVSA) as a Specially Designated National (“SDN”), which follows the White House’s earlier announcement recognizing Venezuelan National Assembly President Juan Guaidó as the Interim President of Venezuela. The sanctions are significant because PdVSA has a monopoly in the Venezuelan oil sector and contributes significantly to Venezuela’s foreign trade income. Concurrent with the designation announcement, OFAC also issued a number of general licenses that authorize a range of activities involving PdVSA and its subsidiaries.

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Filed under Americas, Corporate Crime, Herbert Smith Freehills, Latin America, Sanctions and Money Laundering, Sector Updates by Herbert Smith Freehills, US

SINGAPORE PAYMENTS AND FINTECH UPDATE

In this bulletin we cover the following key developments in the payments and fintech space:

  • Payment Services Bill: On 14 January 2019, the Payment Services Bill (Bill) was passed by the Singapore Parliament. When it comes into force, the Payment Services Act (as the enacted Bill will be known) will introduce two regulatory frameworks: a designation scheme which enables the Monetary Authority of Singapore (MAS) to designate significant payment systems for financial stability reasons, and a licensing regime which allows MAS to regulate a wider range of payment services, including cryptocurrency dealing and exchange services, in a proportionate manner depending on the scope and scale of the provider’s services.
  • Sandbox Express: On 14 November 2018, MAS released a consultation paper on Sandbox Express, which comprises of a set of to pre-defined sandboxes to complement the existing approach of customised sandboxes.
  • Digital Token Offerings: On 3 December 2018, MAS updated its Guide to Digital Token Offerings which provides general guidance on the application of the securities laws administered by MAS to offers or issues of digital tokens in Singapore.

For more information on the key developments in the payments and fintech space and the implications of the Payment Services Bill, Sandbox Express and Guide to Digital Token Offerings, please see our full bulletin here.

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SFC publishes findings and guidance on protection of client assets following reviews of brokers’ internal controls and supervision of account executives

Last month, the Securities and Futures Commission (SFC) published a circular, a report and a self-assessment checklist to provide guidance on the standards expected of licensed corporations (LCs) regarding internal controls for the protection of client assets and supervision of account executives (AEs). For our full briefing, please click here.

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