A proxy road ahead: regulations aimed at proxy advisors disallowed

The Senate recently resolved to disallow the Treasury Laws Amendment (Greater Transparency of Proxy Advice) Regulations 2021 (the Regulation), made under the Corporations Act 2001 (Cth) and the Superannuation Industry (Supervision) Act 1993 (Cth).

The Regulation had intended to introduce stricter obligations on financial services licensees who provide proxy advice (ie proxy advisors).

Proxy advisors typically provide advice services to large institutional investors, advising on the appropriateness of executive remuneration and the reappointment of directors at the annual general meetings of particular entities.

The Regulation would have specified:

• circumstances in which voting advice is proxy advice (a kind of financial service) – which would have the effect of requiring providers of proxy advice to hold an Australian financial services licence covering the provision of that service; and
• obligations for financial services licensees who provide proxy advice to:
  • provide any proxy advice to the entity that is the subject of the proxy advice on the same day it is provided to their client. This included providing all advice in writing to the subject, regardless of whether the original advice was delivered in writing, orally or a combination of both; and
  • be independent of their clients.

Concerns were raised following the introduction of the Regulation, including with these new obligations being enacted through a regulation (as opposed to being enacted through legislation, which would have resulted in more consultation and oversight), the non-commercial outcomes that would result from having to provide the proxy advice to the subject of that advice, and uncertainty around that constitutes being ‘independent’.

Now that the Regulation has been disallowed, it will not be of any force or effect, and an instrument of the same substance cannot be made again within six months of being disallowed. It is not yet clear if the Government will seek to reintroduce similar obligations (whether in a further regulation or in some other form) in the future.