Hunting together – time to refresh memorandums of understanding?

10 January 2020
Liam Hennessy, Director, Brisbane

For many years, both State and Federal agencies have formally co-operated under MOUs as an important means of performing their regulatory mandates. In the post-Hayne environment, agencies should consider refreshing their existing MOUs or establishing new arrangements for information sharing and co-ordination with other regulators. Agencies can take guidance from Commissioner Hayne’s comments and the newly released ASIC / APRA MOU.

Change afoot

In his final report, Commissioner Hayne emphasised the need for formalised co-operation and co-ordination between regulators. He stated that this will facilitate the “quicker detection of misconduct and allow for more timely enforcement action”[1] and recommended that the law be amended to obligate the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) to co-operate with each other. Commissioner Hayne also recommended that these regulators should prepare a memorandum of understanding (MOU) setting out how they intend to comply with this obligation and that the MOU should be reviewed biennially.

The amendment to the law is still in the works (the legislation is to be consulted on and introduced by June 2020), though ASIC and APRA’s new MOU was signed on 28 November 2019 (ASIC / APRA MOU). Focused heavily on information sharing and mutual assistance in enforcement matters, in a period of increasingly hawkish regulatory activity in the financial services sector it offers some broader insights for State (and other Federal) supervisory and enforcement agencies to consider how they can more effectively share information and co-operate.

Hunting together

The ASIC / APRA MOU is domestic, though has been inked across the backdrop of an increasing number of international MOUs.[2]

It is the scope of the ASIC / APRA MOU which is particularly interesting; gone is the “permissive or aspirational language”[3] which vexed Commissioner Hayne. It has been replaced with more encompassing and direct obligations. For example, [21] and [22] respectively of the ASIC / APRA MOU provides that:
the agencies agree to engage on investigations or enforcement actions and share appropriate, relevant information wherever possible.
each agency agrees to inform the other agency of breaches, and suspected or potential breaches of regulatory requirements that are relevant to the other’s responsibilities.
This represents a new and sharper paradigm in terms of supervision and enforcement. It is also one reflective of the current regulatory environment, at least in the financial services industry. There is more work to be done, and the elephant in the room remains the forthcoming Federal legislation, but anecdotally and publicly we are already seeing this enhanced co-operation in practice.[4]

Watching from afar

The above changes make it timely for the States’ supervisory and enforcement agencies to consider how they can benefit from refreshing their existing MOUs (or by creating new ones). For example, with respect to environmental legislation which is enforced by several State agencies; this framework is then overlaid by Commonwealth environmental legislation with a corresponding supervisory agency. Another area is industrial relations, which is characterised by multiple State and Federal agencies each tasked with ensuring compliance with similar pieces of legislation.

Information and privacy is still another prime territory given the complicated inter-linking State and Federal legislation and multiple regulators tasked with watching over this area. New MOUs in this space would follow a broader international trend of agency co-operation, which we cover in our separate briefing: CLOUD on the horizon.

The key point is that there are many areas in which State agencies share responsibilities with, or have similar mandates to, other State and Federal agencies. With this in mind, and within the context of guidance from Commissioner Hayne and a new precedent in the ASIC / APRA MOU, it is timely for State agencies to consider whether they would benefit from sharpening their existing MOUs or establishing new arrangements for co-operation with other agencies. Doing so may assist them to move faster in fulfilling their mandates, as is the idea for ASIC and APRA working better together.

New plains ahead?

Australia’s Government agencies, both Federal and State / Territory, have many MOUs which inter-link them. Still more, with their various overseas counterparts. These MOUs provide a necessary and important means of performing their mandates in increasingly complicated markets.

Many of these MOUs are arguably stale heading into 2020. Using a Federal example, APRA and the ACCC’s MOU is dated 1999, while ASIC and the ACCC’s MOU is dated 2004. The APRA / ACCC MOU does not touch on enforcement matters (which is understandable, as APRA has only recently switched gears as an enforcement regulator). The ASIC / ACCC MOU contains permissive language which Commissioner Hayne would no doubt take issue with e.g. information will be shared “on request” (6.1) and “reasonable endeavours” will be used to inform each other of matters within their primary mandates (7.2).

For State agencies heading into new beginnings in 2020, it is a good time to undertake a quick gap analysis of the MOUs they have in place with agencies that may do similar work. That applies to not only whether there is an MOU in existence, but also its apparent quality. Is the old MOU filled with aspirational language or are more direct requirement imposed on the parties? Is it working? There are clear challenges, confidentiality, resourcing and the potential for agencies to double-up on work are two; however, the greater informational and practical advantages to be had will see agencies increasingly meet these challenges in our view.

 


[1] Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Final Report dated 4 February 2019, page 464.
[2] As two recent examples, on 12 November 2019 an MOU was signed by Australian Transaction Reports and Analysis Centre (AUSTRAC) and Qatari Financial Intelligence Unit to cooperate in combatting serious crime and terrorism financing (AUSTRAC has 97 such agreements now) and an MOU was signed on 15 April 2019 by the Australian Competition and Consumer Commission (ACCC) and United States Federal Bureau of Investigation to assist each other in combating cartels and other anti-competitive behaviour.
[3] Ibid, at 460.
[4] A recent example is ASIC’s action in the Federal Court on 6 November 2019 against a superannuation firm for alleged breaches of s.912A(1)(a) of the Corporations Act 2001 (Cth) i.e. the duty to provide services “…efficiently, honest and fairly”. There, APRA supported ASIC with its investigation and provided ASIC with a delegation of key powers under the Superannuation Industry (Supervision) Act 1993 (Cth) in order to achieve what it sees as appropriate regulatory outcomes. This co-operation follows what is arguably a more established feature of the United Kingdom financial services enforcement regime i.e. joint investigations (and sanctions) between the UK Financial Conduct Authority and Prudential Regulation Authority.

 
Authored by:

Liam Hennessy, Director

This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.

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