Senate

Revised Explanatory Memorandum

(Circulated by authority of the Assistant Treasurer and Minister for Financial Services, the Hon Stephen Jones MP)

Attachment 1: Updated preface to the regulation impact statement for modernising business communications

Introduction

The Australian Government is committed to lowering costs and ensuring efficiencies for consumers, businesses, and regulators by ensuring Treasury portfolio legislation is technology neutral and provides for modern business communication methods.

The initial Regulation Impact Statement (RIS) for the Modernising Business Communications - improving technology neutrality measure was released on 9 June 2021. The RIS examined proposals dealing with key areas raised by stakeholders, including:

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expanding the range of documents that can be validly signed electronically;

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increasing the range of documents that can be sent electronically to shareholders and amending requirements to contact lost shareholders;

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improving flexibility for customers when changing address and consenting to electronic communication with credit providers;

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removing prescriptive requirements for notices to be published in newspapers, where suitable alternatives have been identified; and

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addressing provisions in Treasury legislation where only non-electronic payment options are in place.

The link to the previously tabled RIS included in the lapsed Bill can be found here: https://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillhome%2Fr6852%22.

The Government subsequently revised the measure based on stakeholder feedback. Substantive amendments since the initial RIS that are included in the amended measure are as follows:

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the credit reforms identified in the initial RIS will now be considered in a subsequent phase of reforms to allow for further consultation on proposed amendments;

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the measure now includes provisions to make it clear that Treasury portfolio regulators can hold hearings and examinations virtually; and

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amendments to extend the ability for a sole director of a proprietary company (without a company secretary) to execute documents electronically under the Corporations Act (the Corporations Act) were implemented by the Meetings and Documents Act.

Treasury has updated its estimates of the regulatory savings of the current phasing of reforms to reflect the updated policy design and receipt of new information during consultation.

In aggregate, these changes have resulted in the overall estimate of deregulatory savings rising from approximately $48.1 million per year to around $59.3 million per year.

The next section details the changes that affect the estimate of regulatory savings. This is followed by a table summarising the updated regulatory savings estimates.

Updates to regulatory saving estimates

1. Publishing notices newspapers

The current law requires businesses to publish selected information in newspapers. As technology has evolved, many of these requirements have become outdated and are no longer fit-for-purpose because businesses can reach their customers and disseminate information publicly in more cost-effective ways.

The Government has identified further opportunities to remove selected requirements to publish notices in newspapers in addition to those outlined in the initial RIS for this measure.

Currently, insurance companies are required to publish notices in a newspaper where a policy is lost or destroyed. In addition, life insurers are required to publish a notice prior to replacing or considering a claim on a lost or destroyed policy.

These requirements can be removed due to advances in technology since these provisions were put in place. Instead of publishing in newspapers, life insurers can publish in any manner that is accessible to the public and reasonably prominent, for example, the company website. The estimated regulatory savings have been amended to reflect this as described below.

Update to estimate

The estimated cost of publishing notices for replacement life insurance policies in newspapers has been updated based on revised data. Updated data indicates that around 7,000 notices are published each year for replacement life insurance policies at an average cost of $125 per notice. In addition, an adjustment was made to account for the number of insolvencies during 2020-21.

The revised estimate of regulatory savings is $3.5 million per year.

2. Communication of documents

In late 2020, temporary laws were made to permit meeting related documents to be sent to members electronically by companies, registered schemes and disclosing entities.

The initial RIS considered extending these laws to non-meeting materials where they are required to be sent to members of companies, registered schemes or disclosing entities under the Corporations Act.

Since then, the Government passed legislation that implemented a new global communications regime for the Corporations Act implemented through the Meetings and Documents Act.

This measure now extends the new global communications regime to non-meeting materials. In addition to the person-to-entity (member) communications, changes are made to expand the policy settings included in the initial RIS to cover entity-to-entity communications, such as companies' communications with their auditors and prospective director communications with the company, not only member communications.

The estimate of regulatory savings has been modified accordingly. It includes all communications required to be sent under Chapters 2A to 2M, 5 to 5D, 6 to 6C, 8A, 9 and Schedule 2 to the Corporations Act, excluding those lodged with ASIC, the Registrar or the Takeovers Panel.

Update to estimate

The assumption of the average number of non-meeting related notices that an entity may send and receive has been increased from four to ten per year to account for the expanded scope of the proposed legislative change as described above. All other assumptions and calculations remain the same.

The revised estimate of regulatory savings is approximately $46.0 million per year.

3. Takeover notices

The current law requires the target of a takeover bid to provide the bidder with the postal addresses of relevant security holders.

This measure will now allow the target of a takeover bid to provide the bidder with electronic addresses in addition to postal addresses. The estimate has been updated to reflected updated data that has become available since the initial RIS. No policy changes have been made that impact the costing for this element as compared to the initial RIS.

Update to estimate

The average number of takeovers each year has been updated to reflect 2020-21 data. This reduces the level of activity slightly from 26 takeovers per year to 25 takeovers per year. The number of shareholders per company has also changed slightly, increasing the savings due to increased use of electronic communications.

The revised estimate of regulatory savings is approximately $6.5 million per year.

4. Sending documents to lost members

The current law requires that an entity must send a notice to the address they possess in relation to the shareholder at least once a year for six years after they have fulfilled the conditions for lost member relief.

The measure will give companies and registered schemes relief from having to send documents that are otherwise required under the Corporations Act to lost members. The measure in the initial RIS was limited to annual reports and meeting materials as covered by the existing ASIC relief and only allowed cessation after two years and two attempts to contact the member. The measure will allow companies and registered schemes to regard a shareholder as a lost member after the following conditions are met:

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the sender has received notification, in relation to each of the address for the receipt that are known to the sender because of the recipient's membership of, or interest in, a company, registered scheme or disclosing entity, that indicates the address is not current;

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the sender reasonably believes that none of those addresses are current; and

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the sender is unable, after exercising reasonable diligence, to ascertain a current address for the recipient.

The measure will now also expand the number of document types that would not be sent by companies to members that fulfil the criteria for being regarded as 'lost'.

Update to estimate

The estimate of regulatory savings has been revised to include an additional 10 documents per year that will no longer need to be produced and sent by businesses. This recognises there are other types of documents that are required to be sent to lost members in addition to annual reports. The cost of sending these non-meeting documents is estimated to be $5 per document. The average cost of sending meeting materials by entities has been increased following stakeholder feedback to include the cost of preparing the annual report and other material - it is now based on company costs assumed to be $24 for each copy of the materials sent to a shareholder.

For the purposes of the regulatory impact assessment, it is assumed that the initial contact used to establish that a member is lost under the proposed arrangements will be made when the meeting materials are sent. It is assumed that:

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half of the follow-up communications prior to stopping communication occur in the same year as the initial contact with the other half in the following year;

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half of the follow-up communication is made in hard copy and the remainder electronically;

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only one follow-up communication attempt is made; and

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0.1 per cent of all shareholdings become lost each year.

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The revised estimate of regulatory savings is $3.3 million per year.

5. National Consumer Credit Protection Act 2009, Regulations 2010 and National Credit Code

This element is no longer included in this measure. The regulatory savings are no longer included in this update.

6. Sole director companies with no company secretary can execute documents electronically

This element was included in the Meetings and Documents Act and has not been included in the updated estimates.

7. Signatures and witnessing

Under current law only certain documents can be signed or executed electronically, implemented in the Meetings and Documents Act.

This measure will allow all documents under the Corporations Act to be signed or executed electronically.

This element remains unquantifiable in the RIS.

8. Payment methods - cheques, money orders and cash

Under current law certain Treasury portfolio legislation prescribes non-electronic payment requirements in certain circumstances.

These amendments will provide consumers with an electronic payment option where the law currently prescribes non-electronic methods only.

No changes have been made to this element that affect the initial RIS estimate.

9. Virtual hearings and examinations

The laws administered by Treasury portfolio regulators that empower them to hold hearings and examinations are proposed to be clarified to provide certainty that hearings and examinations can be held virtually. Regulators can already hold hearings and examinations virtually and the amendments aim to provide consistency for hearings and examinations regardless of whether they are being held in physical, virtual or hybrid form. There is no expected change in the regulatory burden on businesses and individuals as the clarification will not alter current requirements to comply with these hearings and examinations.

As this element is a clarification of existing regulatory actions, no regulatory cost impact is identified.

Summary of updated estimated regulatory savings

Table 1.1

* Unquantifiable