Australia: A Proxy Advice Regulation Rollercoaster

By: Jim Bulling and Phoebe Naylor

Controversial regulations seeking to govern the provision of proxy advice services were introduced by the Government in late December 2021. The Treasury Laws Amendment (Greater Transparency of Proxy Advice) Regulations 2021 (the Regulations) introduced a definition of “proxy advice” and prescribed it as a financial service. In summary, proxy advice was defined as an offer of voting recommendations to specified entities, in relation to the exercise of their voting rights attached to securities or interests.

The Regulations introduced several significant obligations on those providing proxy advice (Proxy Advisors) in two stages. From 7 February 2022, the Regulations required Proxy Advisors to hold an Australian Financial Services Licence with an applicable authorisation, and provide a copy of their recommendations to companies on the same day they were provided to investors. These obligations had the potential to substantially impair the ability of Proxy Advisors to deliver their services, particularly given the short time frame between the Regulations’ creation and commencement. From 1 July 2022, the Regulations also required Proxy Advisors to be independent of their institutional clients, and required superannuation entities exercising voting rights on behalf of their members to disclose more detailed information on their voting records.

The Explanatory Statement indicated an intention to limit the scope of the Regulations to advice given in relation to Australian companies. Despite this intention, the definition of proxy advice was not limited in this manner. As such, the Regulations had the potential to apply to those offering proxy advice services to Australian companies even regarding international investments.

Three days after coming into effect, the Regulations were disallowed by the Senate on their third sitting day for 2022. The Minister is now not allowed to remake an instrument that contains the same substance as the Regulations for six months without Senate approval.