Major reforms to the Listing Rules and Guidance Notes
In November 2018, the ASX undertook a public consultation on proposed extensive changes to the ASX Listing Rules and Guidance Notes: Simplifying, clarifying and enhancing the integrity and efficiency of the ASX Listing Rules. The ASX grouped its proposed changes into eight categories:
- improving market disclosures and other market integrity measures
- making the Rules simpler and easier to follow
- making aspects of the listing process and ongoing compliance with the Listing Rules more efficient for users and for the ASX
- updating the timetables for corporate actions
- enhancing the ASX’s powers to operate the market and to monitor and enforce compliance with the Listing Rules
- correcting gaps or errors in the Listing Rules
- general drafting improvements, including removing redundant Rules and
- more and better guidance.
The ASX has confirmed that (subject to regulatory approval) it will shortly be releasing the updated Listing Rules and Guidance Notes, to come into effect on 1 December 2019. The ASX is conducting a national roadshow on the major package of reforms during late October and early November 2019.
Updates to Guidance Note 9 Disclosure of Corporate Governance Practices
An updated version of Guidance Note 9 will come into effect on 1 January 2020, when the Fourth Edition of the Corporate Governance Principles and Recommendations also commences. The updates include:
additional detailed guidance (in new section 9) on how to complete Appendix 4G, which Listing Rule 4.7.3 requires to be given to the ASX at the same time the ASX is given an entity’s annual report.
New section 8 of Guidance Note 9 points out that Appendix 4G is not a substitute for, and is not to be confused with, the entity’s corporate governance statement. These documents serve different purposes and must be produced separately. The purposes of Appendix 4G are to act as:
- a key designed to assist readers to locate the governance disclosures made under Listing Rule 4.10.3 and under the Recommendations; and
- a verification tool for listed entities to confirm that they have met the disclosure requirements of Listing Rule 4.10.3.
a new section 10 on disclosure of corporate governance policies.
In this section the ASX draws the reader’s attention to the fact that, whereas the Third Edition of the Corporate Governance Principles and Recommendations allowed entities to disclose a summary of their governance policies, the Fourth Edition requires disclosure of the entity’s policies — in particular its diversity policy (Recommendation 1.5), code of conduct (Recommendation 3.2), whistleblower policy (Recommendation 3.3), anti-bribery and corruption policy (Recommendation 3.4) and continuous disclosure policy (Recommendation 5.1)— in full.
The ASX notes that some entities’ approach to governance policies is to develop short high-level statements of principles (called a “policy”) that are supplemented by “processes”, “procedures” or “guides”, setting out in more detail how to comply with the principles.
As to what documents should be disclosed in those circumstances, the ASX states that it:
“expects entities to comply with the spirit, intention and purpose of the Council’s recommendations. The evident purpose of recommendations 1.5, 3.2, 3.3, 3.4 and 5.1 is to provide investors with sufficient information about an entity’s key governance polices to assess the quality and integrity of its governance arrangements.”
The ASX notes that the commentary to each of these Recommendations includes suggestions for the contents of the associated policies. The ASX states that if an entity’s policy document addresses the bulk of the issues in the suggested contents, with supplementary documents simply addressing matters of process or detail, the ASX will generally be satisfied with disclosure of the policy. On the other hand, if the bulk of the issues in the suggested contents are addressed in supplementary documents rather than the formal “policy”, the ASX will expect both the “policy” and the supplementary documents to be disclosed.
a new section 11, providing guidance on the amended Recommendation 1.5, regarding diversity.
The ASX emphasises that for an entity to represent in its corporate governance statement and its Appendix 4G that it follows Recommendation 1.5, it must have set measurable objectives for achieving gender diversity in the composition of the board, the senior executives and the workforce generally. It must also disclose for each reporting period what its measurable objectives were for that period and its progress towards achieving them.
a new section 14, providing guidance on new Recommendation 4.3, regarding a listed entity’s process to verify the integrity of periodic corporate reports.
The ASX distinguishes between documents and reports that are audited or reviewed by the external auditor (such as the annual financial statements) and those that are not. For example, an entity’s annual directors’ report would typically be in the latter category, with the auditor’s examination of it limited to identifying whether there is any material inconsistency with the audited financial statements. The ASX says that in such cases, to comply with Recommendation 4.3, the entity should include in its annual report or on its website a description of the process it undertakes to verify the integrity of the information in its annual directors’ report.
The ASX also notes that the definition of “periodic report” in the Corporate Governance Principles and Recommendations does not specifically mention the half-year directors’ report prepared under section 306 of the Corporations Act 2001 (Cth) (Corporations Act). In the ASX’s view, Recommendation 4.3 would apply to the half-year directors’ report, which is of a similar character to those specifically mentioned in the definition.
Additional Updates in August 2019 - Guidance Notes 8 and 27
During August 2019, the ASX released updates to Guidance Note 8 Continuous Disclosure – Listing Rules 3.1–3.1B and Guidance Note 27 Trading Policies. The updates reflect the new penalties under the Corporations Act, following the enactment of the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 (Cth).
In Guidance Note 8, sections 7.3 and 7.5 have also been amended, to provide further guidance on analyst forecasts and consensus estimates in relation to market expectations of earnings.
How CompliSpace can help
Combining specialist advice with practical, technology-enabled solutions, CompliSpace helps ASX listed entities to manage their governance, risk and compliance requirements in an increasingly complex regulatory environment. For clients subscribing to our on-line services updated ASX governance policies will be available for publication prior to the 1 December 2019 and 1 January 2020 commencement dates.
For more information, contact Katharine Wilkinson on 1300 132 090.