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Proxy advice reforms to bring ‘greater transparency and accountability’

The Morrison government says reforms surrounding proxy advice will not only improve transparency and accountability of services but also improve the disclosure of superannuation funds’ voting records.

The reforms are set to be introduced next year, which the government said would strengthen proxy advice services.

“Australia has a highly concentrated proxy advice market which is dominated by just four firms. Proxy firms exercise significant influence by advising institutional investors on positions to take in respect of resolutions put at company meetings,” a statement released on Friday (17 December) read.

“This includes advising superannuation funds, which collectively own around 20 per cent of the Australian Stock Exchange (ASX) worth around $510 billion.

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“It is therefore important that proxy advice is transparent, independent and its quality and accuracy can be relied upon by investors and companies alike.”

The reforms will see the extension of the Australian Financial Services licensing to cover a greater range of activities and require proxy advisers to be independent of their institutional clients.

Proxy advisers will be required to provide a copy of their recommendations to companies on the same day as investors, which was an area of concern raised last month by the Financial Services Council (FSC).

In October, the reforms required advisers to give companies five days’ notice of their recommendations which the FSC argued would have a “significant impact” on the current proxy voting processes of funds.

“Institutional investors do not typically execute their votes until near the cut-off date so that issuer companies have enough time (around 10 days) to provide additional feedback and information on the voting recommendations,” the FSC said in a submission to Treasury earlier this year.

“Adding a five-day pre-notification period would risk making this process unachievable in the time available.”

On Friday, the FSC welcomed the reforms, with new acting CEO Blake Briggs saying it is pleased the government responded to industry feedback.

“Superannuation funds manage almost $3.5 trillion on behalf of Australians, so it is critical that proxy voting arrangements are transparent so consumers can be confident that trustees and fund managers are exercising their voting power according to members’ best financial interests, Mr Briggs said.

“The government’s reforms align with existing industry best practice, reflected in the FSC’s enforceable standards for our members on proxy voting and asset stewardship.”

The licensing extension and the requirement to provide copies of proxy advice to companies will start from 7 February 2022, while the new independence and superannuation voting disclosure requirements will be introduced from 1 July 2022.

Proxy advice reforms to bring ‘greater transparency and accountability’
Proxy advice reforms
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Neil Griffiths

Neil Griffiths

Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily.

Neil is also the host of the ifa show podcast.

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