Ownership Matters’s Dean Paatsch hits out at Morrison government over proxy adviser reforms mess

Ownership Matters principal Dean Paatsch accuses the Morrison government of indulging crony capitalists and major business lobbies with its reforms to the proxy advisory industry.

Ownership Matters principal Dean Paatsch has lashed out at the federal government, describing the proxy adviser reforms as a ‘cluster fiasco’. Picture: David Geraghty/The Australian.

Proxy advisers are celebrating the defeat of Josh Frydenberg’s reforms to the industry, with Ownership Matters describing the three-day life of the punishing new regime as a “cluster fiasco”.

The changes – which exposed advisers to fines of up to $11.1m for companies and $1.1m for individuals each time they breached their duties – were rejected by the Senate on Thursday as regulatory overreach.

The die was cast when One Nation and Senators Rex Patrick and Jacqui Lambie voted with the Labor Party.

Ownership Matters principal Dean Paatsch said the entire exercise was a cluster fiasco.

“It was profoundly disappointing that the government indulged crony capitalists and the major business lobbies at the expense of respect for property rights, the freedom to contract and the right to confidential advice,” Mr Paatsch said.

Mr Frydenberg, however, was unrepentant, blaming Labor and the Greens for rolling back reforms designed to improve the accountability and transparency of the proxy advice and superannuation sectors.

The Treasurer said Labor had opposed the most significant changes to super in 30 years, expected to deliver $18bn in savings for members, as well as the need for litigation funders to hold an Australian Financial Services License, which was now law.

“And now they have voted against superannuation funds disclosing to their members how they voted on company resolutions,” he said.

“Our reforms were designed to strengthen the integrity of our corporate governance regime and ensure more consistent regulation across the financial services industry.”

The proxy advisory industry comprises of four firms, employs 30 staff and has total annual revenue of less than $8m.

The regulations, introduced on February 7, created new offences for advisers, including a requirement to send copies of their reports by email to ASX companies on the same day they delivered their advice to clients.

They were required to make notes of verbal conversations about voting issues with investors and send the records to the company.

Mr Paatsch said advisers already made copies of their written reports available to ASX companies as standard market practice.

The new laws, he said, created an “administrative trip wire” and time pressure, imposing fines if the reports were not delivered on the same day.

They also imposed a new duty on advisers to be independent of a range of entities, including super funds, investment managers or “any other entity that makes decisions affecting the exercise of voting rights”.

Ownership Matters said an explanatory statement accompanying the new rules made it clear that this would have restricted advisers’ ability to raise capital and might have prevented them employing staff from those entities or associating with them in professional networks.

“All advisers are currently required to guard against conflicts, but the independence obligation was an illiberal intrusion into the rights of advisers to structure and run their businesses as they see fit”, Mr Paatsch said.

Australian Institute of Company Directors chief executive Angus Armour said he was disappointed that influential players in Australia’s financial markets continued to benefit from a 20 year-old exemption from AFSL licensing.

“The key substantive obligations of AFSL license holders are difficult to argue against: that licensees provide their financial services efficiently, honestly and fairly; have adequate conflict management arrangements in place; and comply with financial services laws,” Mr Armour said.

“Proxy advice is a profitable, global industry.

“Given its highly influential role in Australian markets, it is appropriate that proxy advice is regulated to these reasonable standards.”

Senator Patrick said the Senate had done its job on Thursday.

“This was bad law, crafted to please Josh Frydenberg’s big business mates and political donors, and the Senate rightly rejected it,” he said.

“It’s been wiped from the Federal Register of Legislation, hopefully forever.

“It has got to be a world record start-up then shut down of a regulatory regime. It lasted three days. It was one big thought bubble from the Treasurer that just wasted taxpayers money and the parliament’s time.”

Separately, the Financial Services Council welcomed the passage of legislation for the retirement income covenant and a corporate collective investment vehicle.

FSC acting chief executive Blake Briggs said only 5 per cent of the funds managed in Australia came from offshore ($145bn out of $2.6 trillion), showing the significant scope for Australia to build on its existing strengths to export this to the globe.

The CCIV combines a company structure with flow through tax treatment, which is more familiar to international investors who are more used to corporate investment structures.

The retirement income covenant requires superannuation funds to develop a retirement income strategy for fund members who are retired or nearing retirement.