ACSA Industry Wrap - April 2021
Monday, 26 April 2021
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Posted by: Kate Dent
ACSA BOARD CHANGES | 
| Congratulations to Sally Surgeon, the new chair of ACSA. Sally has been on the ACSA Board since 2018 representing Northern Trust where she is Senior Vice President, Head of Client Services and Head of Sydney Office.
Sally takes the reins from David Knights (NAB) who has held role of chair since 2015. David remains as a director on the Board. |  | Jennifer Saunders has been appointed as Deputy Chair, the role formerly filled by Sally Surgeon. Jennifer is Senior Vice President, Chief Operating Officer Investor Services Australia and has been on the ACSA Board since 2019. Congratulations Jennifer. See ACSA media release 28 April 2021 for additional details. |
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ATO - THIRD PARTY RELIANCE | The ATO consultation paper “Tax risk management and governance – tax controls over third party data” issued in January 2021 has been the subject of extensive review by the Tax Working Group, including collaboration with ASFA and the FSC on a joint (peak body) industry response. The ATO outlines four proposed reform principles, including:Principle 1 - The entity needs to understand the roles and responsibilities of the third-party service providers Principle 2 - The entity needs to be satisfied that the tax policies of third-party service providers are prepared in accordance with the tax law Principle 3 - The entity needs to be satisfied that the returns and tax outcomes of investments are properly reflected in the reporting obligations Principle 4 - The entity needs to seek assurance from independent parties in relation to the accuracy of the data received and processed by service providers
In this context the “entity” is the tax payer (for example, a superannuation fund) or the party responsible for providing tax information (a managed fund). ACSA members are key third-party providers, many supporting accounting and tax outsource services. A sub-committee has been formed to represent ACSA in finalising the joint response, consisting of Duncan Lyon (JP Morgan), Vivienne Saunders (Citi), Philip Barlin (NT), Edward Keating (State Street) and Doug McMeekin (NAB), with corresponding delegations being made by ASFA and the FSC. The peak bodies are initially responding to Principles 1 and 2 and have suggested a further direct collaborative consultation approach with the ATO on formulating responses to Principles 3 and 4 – including requesting the ATO to provide guidance on key risk areas. The key points contained in the industry submission include: - An overarching position that the costs to consumers (the members of superannuation funds, and investors in managed funds) should be relative to the inherent complexity of the entities and their tax risk.
- Support for a principles-based approach. This accommodates ATO policy objectives while recognising the diversity of entity types (including differences in nature, size, resources and investments) operating models and risk appetites.
- Endorsement of a minimum standard that provides a “safe harbour” and justified trust for entities with simpler tax risk and complexity.
- Ensuring a full understanding of current industry practice. This includes existing robust control frameworks in place for material outsourcing, process and controls audit, financial statement audits and the extensive initial and ongoing due diligence in place by entities engaging outsource service partners.
- Reinforcing the significant investment made by custodians in the development and maintenance of tax policy (as key outsource providers), plus the systems and controls in place to deliver the service.
- Seek collaborative guidance from the ATO on specific risks and therefore allow scoped extension where necessary to support targeted change. This would allow industry to address Principles 3 and 4 cost effectively, potentially through the extension of existing frameworks (for example, GS007), and aligned to the concept of minimum standards outlined above.
The joint submission will be shared with members once finalised. |
ACSA PEOPLE | 
| Industry stalwart Miles O’Connor retired this month. Miles spent almost four decades “in custody” with NAB, UBS and most recently over 15 years with Citi. Through his career Miles was an active contributor to ACSA and the industry more generally. In 2015 he was recognised by his peers for his contribution receiving an ACSA service award. Miles’ experience and insight helped shape our Association’s success in driving systemic efficiency improvements in settlements, corporate actions and positive engagement through the service chain. Miles is recognised for his generosity in sharing knowledge, working with teams across the industry and a pragmatic focus on "getting stuff done". We wish him all the best for the future. |
FUNDS 2.0 – TRANSACTIONS (ORDERS, TRANSFERS, AND CORPORATE ACTIONS)
| Overall, the Funds 2.0 initiative has provided a number of important forward steps including the soon to be released tax data standard and a number of separate threads of constructive industry dialogue - digital on-boarding, fund coding gaps and reconciliations to name a few. Understandably, engagement on some work streams was impacted by pandemic disruption through much of last year. The pandemic also focussed attention on some long-standing inefficiencies including wet-ink signatures and physical documents. This month provided an opportunity for a stocktake on the Transaction work stream and review of next steps. A core group of representatives from Calastone, Clearstream, Netwealth and the ASX convened to reflect on the group’s composition and potential areas of focus, including: - fund holdings and transaction statement market practice (opportunities to streamline the reconciliation process between platforms, custodians and unit registries);
- common market practice and nomenclature for settlement date;
- electronic transfers (in particular, individual to platform);
- quoted funds (the same security – market traded, and unlisted orders).
The meeting provided a vote of thanks to Tim Long (J.P. Morgan) for previously chairing the sub-group.The meeting recommended extending engagement to platforms and institutional investors, plus the fund manager (issuer) community to highlight the effect these processing inefficiencies have on costs, risks and the end investor experience. |
| DEFERRED DIVIDENDS | In early 2020 a significant number of listed entities cancelled or deferred dividends. This is understandable in the environment of extreme uncertainty that prevailed under COVID-19 related measures, escalating business impact and the need for companies to preserve cash. Notwithstanding the needs of companies to retain flexibility in extraordinary circumstances, cancellation and deferrals of dividends has significant downstream impact to investors, especially where announced dividends were cancelled or deferred close to or even on the day of payment. ACSA raised awareness of the down-stream impact to investors and their service providers within the industry, to the ASX and ASIC. See Deferred Dividends. Through ACSA’s advocacy to the ASX, listing rule changes were proposed to provide greater certainty to the market. Subsequent to consultation, the original proposal (new Listing Rule 12.13) is not proceeding, however the ASX has decided to: - expand LR 3.21(a)(iii) to require a listed entity to notify ASX immediately if it “makes a decision to cancel, defer or reduce a dividend or distribution on a quoted security that it has previously announced it will pay”;
- add a paragraph to the end of LR 3.21 stating:
An announcement under rule 3.21(a)(iii) must include an explanation, satisfactory to ASX, of the entity’s reasons for cancelling, deferring or reducing the dividend or distribution.
- likewise expand LR 3.22(a)(iii) to require a listed entity to notify ASX immediately if it “makes a decision to cancel, defer or reduce an interest payment on a quoted debt security or quoted convertible debt security that it has previously announced it will pay”; and
- add a paragraph to the end of LR 3.22 stating:
An announcement under rule 3.22(a)(iii) must include an explanation, satisfactory to ASX, of the entity’s reasons for cancelling, deferring or reducing the interest payment.
Operational challenges will continue to be experienced, and investors impacted, under future crisis scenarios – and this is unavoidable. As the consultation outlines, there may be regulatory reasons and solvency considerations that leave companies with no alternative. For custodians, heightened awareness of investor impacts, and greater disclosure obligations included in the Listing Rule amendments should at least have a positive impact on client communications. |
| MEMBERSHIP FOCUS | Engagement with ACSA member C-suite representatives to discuss the Association’s strategy for 2021 is well underway. The results of the survey and one-on-one interviews will be assessed by the Board in May and shared with members. Early feedback confirms the core focus of ACSA, and that the assessment of landscape and relative priorities in our strategy over the coming year are on track. On the practical front, many have voiced a strong desire to get back to physical events (COVID permitting) in the second half of this year. It has never been more important to foster industry dialogue on systemic challenges - face-to-face forums offer both more effective engagement and the added benefits of informal networking. Bring it on! |
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