## _cr06437 — Executive Summary and Selected Findings on Investor Protection and Corporate Governance in Australia

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### Overview and scope
- Purpose: Reviews selected issues on investor protection and corporate governance in Australia, focusing on disclosure and transparency, the corporate reporting framework, implementation and enforcement in practice, and government efforts to maximize the likelihood that investors will make informed choices based on disclosure provided.
- Scope: Selective treatment emphasizing investor protection perspective; not a formal or comprehensive assessment of corporate governance in Australia.
- Preparation: Note prepared as part of the assessment conducted in Australia by the International Monetary Fund, pursuant to the Financial Sector Assessment Program; prepared by Felice Friedman, a consultant with the World Bank on securities markets and regulation.

### Key conclusions on the state of corporate governance
- Findings:
  - The corporate governance framework for Australian listed companies is largely healthy and dynamic.
  - Disclosure and corporate governance are embedded in the fabric of doing business; authorities have built disclosure and corporate governance practices into their supervisory model.
  - An activist shareholder environment, including institutional shareholders and shareholder groups, and an active financial press, has become significantly stronger and promotes compliance and accountability.
  - Limitations: No guarantee against corporate fraud or failure; disclosure is not perfect, especially among smaller companies.

### Disclosure framework and practices
- Legal/regulatory foundation:
  - Legislative and regulatory framework includes disclosure requirements that meet or exceed requirements in many other countries.
- Periodic disclosure:
  - Legal basis: Sections 292 and 302 of the Corporations Act.
  - Listed companies must prepare annual reports and half-year reports; both filed with ASIC and audited by a registered company auditor independent of the company.
  - Annual financial statement components: balance sheet, income statement, statement of changes in equity, cash flow statement, and notes.
  - Both annual and semi-annual reports must include a directors’ report and a directors’ declaration that financial statements comply with accounting standards and give a “true and fair view.”
  - The audit of the half-year report may be limited to a “review.”
  - Quarterly reports are not required; reliance on continuous disclosure regime between periodic reports.
- Continuous disclosure (ASX Listing Rule 3.1 and statutory reinforcement):
  - ASX Listing Rule 3.1 requires that “once an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity’s securities, the entity must immediately tell ASX that information.”
  - “Aware” defined broadly: a director or executive officer who has, or ought reasonably to have, come into possession of the information in the course of their duties.
  - Statutory reinforcement: Section 674 of the Corporations Act obliges listed entities to comply with listing rules; contravention of Listing Rule 3.1 is also a contravention of the Corporations Act and may give rise to civil or criminal liability.
  - Exceptions to disclosure apply only if: (i) a reasonable person would not expect disclosure; (ii) information is confidential and ASX has not formed the view it ceased to be confidential; AND (iii) one or more of five factors in Listing Rule 3.1 is present.
  - The five factors: (i) it would be a breach of law to disclose; (ii) concerns an incomplete proposal or negotiation; (iii) matters of supposition or insufficiently definite; (iv) generated for internal management purposes; (v) a trade secret.
  - ASX introduced “false market” concept and Guidance Note 8 to limit abuse of exceptions; ASX stresses compliance “in the spirit of continuous disclosure.”
- Corporate governance disclosure:
  - ASX Corporate Governance Council published 10 core principles and 28 best practice recommendations.
  - ASX adopted an “if not, why not?” (comply-or-explain) regime; Listing Rule 4.10.3 requires companies to disclose the extent to which they followed the Recommendations or explain why not.
- Concerns:
  - Principles-based approach has, paradoxically, led to a surfeit of disclosure and excessive detail in the corporate governance arena.
  - Product Disclosure Statements (PDS) noted as anything but “clear, concise and effective.”
  - ASX recommendations are detailed and may cause confusion among smaller companies.

### Implementation, monitoring and enforcement
- Roles and interplay:
  - ASX monitoring backed by ASIC enforcement is largely effective.
  - ASX has balanced assisting listed companies to comply and aggressively monitoring continuous disclosure reporting.
  - Cooperation between ASX and ASIC on potential disclosure breaches has improved.
- ASX-specific considerations:
  - Recommendation: ASX should continue to work with ASIC to highlight the importance of good corporate governance and candid, timely disclosure, with extra attention to smaller companies.
  - Conflict sensitivity: No evidence ASX’s supervisory role has been compromised by demutualized status, but ASX must remain sensitive to potential conflicts between regulatory and commercial roles.
- ASIC enforcement:
  - Reputation: ASIC’s enforcement reputation has grown considerably stronger in the past five years.
  - New tools: ASIC attained new infringement notice and penalty authority under CLERP 9; effectiveness depends on bringing more infringement notice cases and following through when cooperation is not forthcoming.
  - Oversight of auditors: CLERP 9 increased ASIC’s role in monitoring audit firms; ASIC will need to intensify inspection and oversight activities and may require additional resources if given enhanced inspection and information-gathering powers.

### Legislative and supervisory backdrop
- Key milestones:
  - A national corporations act and a national securities act introduced in 1989.
  - Wallis Committee’s 1997 report recommended a “twin peaks” system of regulation.
  - ASIC became Australian Securities and Investments Commission and APRA created in July 1998.
- CLERP program:
  - Corporate Law Economic Reform Program (CLERP) initiated in 1997.
  - CLERP 9 reforms implemented in July 2004 focused on strengthening financial reporting, audit reform and corporate disclosure.
  - CLERP principles: market freedom, investor protection and quality disclosure of relevant information to the market.

### APRA and prudential governance standards
- APRA proposals are more specific than ASX Principles, imposing detailed requirements on APRA-regulated entities relating to board composition, audit committees, and director independence.
- Rationale: APRA is a prudential supervisor applying prudential standards to financial institutions; international best practice recognizes prudential supervisors have an important role and may warrant a more prescriptive governance framework for regulated financial institutions.
- APRA’s draft standards (Governance for APRA-regulated Institutions; Fit and Proper Requirements) provoked industry concern they were excessively prescriptive and potentially duplicative of ASX guidance.

### Internal controls, directors’ duties and board practices
- Legal duties summarized from the Corporations Act:
  - Sections 180 and 181: duty of due care and diligence; act in good faith in the best interests of the company.
  - Sections 182 and 183: prohibited from using position or information to gain advantage or cause harm.
  - Sections 180(2) and 180(3): statutory protection for honest, informed and rational decisions (business judgment rule).
- Case law: ASIC v. Adler held the business judgment rule cannot protect blatant breaches absent proper good-faith business judgment.
- Corporate practice:
  - ASX Recommendations (e.g., Recommendation 5.1) encourage written policies to ensure compliance with ASX Listing Rule Disclosure requirements and senior accountability.
  - Largest listed companies generally split CEO and Chairman roles; many have boards with a majority of independent directors.

### External auditors and CLERP 9 reforms
- CLERP 9 measures (enacted July 2004):
  - CEOs and CFOs must certify annual financial statements present a “true and fair” view.
  - Annual directors’ report must include an operating and financial review.
  - Auditors must attend the annual general meeting; shareholders may submit questions in writing before the AGM.
  - Auditor independence measures: general standard; annual declaration of maintained independence; five year rotation for the lead audit partner and review partner; disclosure of fees for non-audit services; directors must state non-audit services do not compromise independence.
  - Auditor oversight: expanded role for the Financial Reporting Council (FRC); ASIC remains responsible for surveillance, investigation and enforcement; FRC and ASIC entered a Memorandum of Understanding.
- ASIC surveillance:
  - ASIC’s first-round surveillance of the “Big 4” audit firms found documented policies generally adequate; no breaches of the Corporations Act identified in inspections; ASIC intends more in-depth inspections and has been given additional resources.

### Treasury Consultation Paper (September 2005) — enhanced audit inspection powers
- Proposals:
  - Amend the ASIC Act to authorize ASIC to enter arrangements with foreign audit regulators to carry out inspection functions.
  - Expand ASIC’s powers to gather information from audit firms on behalf of overseas regulators and for its own purposes to avoid a “two-tier” audit inspection framework.
  - Give ASIC “discrete audit inspection and information gathering powers” permitting a general examination of processes and systems an audit firm has in place to meet audit obligations generally.
- Expected effect: better equip ASIC to conduct audit oversight and enforce CLERP 9 audit requirements.
- Contextual statistics:
  - Together the Big 4 firms audit approximately 54 percent of companies listed on ASX and 91 percent by market capitalization of the 300 largest entities.

### ASX monitoring, supervisory arrangements and conflicts
- ASX surveillance:
  - ASX examines announcements for sufficiency and may halt trading pending dissemination; may initiate Share Price Queries prompted by press or unusual movements.
  - ASX does not undertake comprehensive cyclical or risk-based reviews of annual and semi-annual reports; supervisory focus centers on continuous disclosure obligations and corporate governance disclosure.
- ASXSR:
  - ASX Supervisory Review (ASXSR) established in 2000 as a subsidiary to monitor ASX supervisory arrangements and assess compliance with ASX license obligations; majority of ASXSR board members are independent and appointed by ASX from a list approved by ASIC.
  - ASXSR reports directly to ASIC; ASIC recommended strengthening arrangements for handling conflicts of interest and broadening ASXSR’s mandate.

### Compliance findings and gaps
- Continuous disclosure compliance:
  - General consensus: continuous disclosure regime administered by ASX operates efficiently and effectively, especially among the largest listed companies.
  - As of spring 2002, the average number of announcements made per company had grown 65 percent since continuous disclosure introduced in 1994.
  - Reluctance to disclose persists among some directors; poor disclosure practices more prevalent in smaller companies and in technology, biotechnology, telecommunications and exploration industries.
  - ASIC’s 2004 annual review found inconsistencies in ASX’s monitoring and enforcement; ASX restructured monitoring with improvements in consistency.
- Corporate governance disclosure:
  - ASX’s 2004 analysis of 1,222 annual reports: contacted 392 companies, clarified disclosure on 186 occasions, identified 16 companies needing additional educational support, obtained additional disclosure announcements from 39 companies with another 6 pending.
  - Independent reviews of the top 250 companies found a persistent “corporate governance gap”; based on 2003 annual report information approximately half the companies’ corporate governance structures could be described as good or better, with approximately one-third lacking in key areas.

### ASIC implementation and enforcement capability
- ASIC review practices:
  - ASIC conducts cyclical review of listed companies’ financial reporting, reviewing approximately a quarter of listed companies each year.
  - ASIC announced focus on adoption of Australian equivalents of international financial reporting standards in its 2005-06 surveillance program.
  - Past surveillance (2003-2004): ASIC reviewed financial reports of 400 listed companies and stated “overall compliance with accounting standards appeared to be high.” Findings included 35 companies with a qualified audit report and another 27 companies still being investigated; 73 companies failed to file annual reports on time and eight companies were late filing semi-annual reports.
- ASIC powers:
  - May begin investigations where it suspects contraventions; can compel production of books and records, issue orders requiring “all reasonable assistance,” and require appearances on oath.
  - Possible outcomes: administrative sanctions, civil proceedings, criminal referrals, suspension of trading.

### Enforcement reputation, new administrative tools and private enforcement
- ASIC reputation:
  - Historically perceived as “a fairly passive regulator”; by the early 2000s reputation improved with “aggressive and creative enforcement.”
  - ASIC developed “enforceable undertaking” administrative tool; breach permits court order to compel compliance without establishing contravention of underlying legislation.
- Infringement notices and CLERP 9:
  - ASIC obtained power to issue infringement notices and administrative penalties for breaches of continuous disclosure.
  - Under CLERP 9: a company can be fined up to $A 1,000,000 for breach; a court can assess a civil penalty of up to $A 200,000 against an individual “involved” in the contravention.
  - ASIC’s first infringement notice issued to Solbec Pharmaceuticals Limited related to a November 23, 2004 announcement; the notice was issued on August 1, 2005 (approximately 10 months after the breach).
- Private enforcement:
  - Shareholder class actions have increased; removal of some legal obstacles facilitated class formation; speculative fees permitted; litigation funders may accept contingency fees.
  - Statutory derivative action introduced in 1999 provides a shareholder remedy but has not become a major source of enforcement.
  - Shareholder activism short of litigation: CLERP 9 permits shareholders to name a corporate entity as proxy; government proposal to change requisition thresholds (controversial).

### Investor education and financial literacy
- Rationale: Disclosure-based governance requires investor education so investors can make informed decisions; excessively complex disclosure or low investor expertise undermines disclosure effectiveness.
- Superannuation context and statistics:
  - 1992: introduction of universal compulsory contribution system requiring employers to pay 9 percent of an employee's earnings to a superannuation fund or retirement savings account.
  - Superannuation savings growth: from $A 229 billion at 30 June 1995 to $A 740 billion at 31 October 2005.
  - Coverage as of end of September 2005: estimated over 98 percent of permanent employees and 72 percent of casual employees.
  - Choice introduced as of 1 July 2005 allowing employees to choose the superannuation fund for employer contributions.
  - Growth in funds: estimated approximately 291,000 individual super funds as of end of October 2005 (number expected to decline through consolidation); 99 percent of funds, accounting for 23 percent of total superannuation assets, have fewer than five members.
- ASIC initiatives:
  - “Consumer education strategy” for 2001-2004 focusing on retirement planning and superannuation.
  - Joint projects with industry; consumer website (www.asic.gov.au/fido) with fact sheets and Q&A; outreach to indigenous populations.
  - Industry compliance initiatives: policy statement on product disclosure statements (PDS); “superannuation switching” campaign; “shadow shopping”; Fee Disclosure Model; “model statement of advice.”
- Resource constraints:
  - ASIC’s activities are resource intensive; additional resources beyond those tied to the superannuation campaign would help expand investor and consumer education and protection.

### National strategy and Financial Literacy Foundation
- Taskforce and foundation:
  - February 2004: Treasury announced Consumer and Financial Literacy Taskforce; consultation paper June 2004; recommended a national financial literacy body; Financial Literacy Foundation created a year later.
- Financial Literacy Foundation mandate, governance and funding:
  - Purpose: raise financial literacy and enable Australians to better manage their money.
  - Institutional placement: within the Department of Treasury with a ten-member independent advisory board chaired by Paul Clitheroe.
  - Funding: $A 5 million per year (indexed) until 2008-09 and an additional $A 13 million for an information program in 2006.
  - Goals: (i) raise and measure awareness; (ii) provide organized accessible information and resources; (iii) raise financial literacy levels in the community.
  - Key initiatives: nation-wide information campaign; website for financial literacy resources; school and workplace programs; original research.
- Implementation timeline:
  - From 2008, all Australian children will receive financial literacy education from Kindergarten to Year 10.
- Policy implications:
  - Maintain and evaluate nation-wide campaigns and resources.
  - Expand resourcing for ASIC to sustain and broaden consumer education efforts beyond the superannuation campaign.
  - Continue development of school- and workplace-based financial literacy programs.

*Source: _cr06437 — IMF Financial Sector Assessment Program note on investor protection and corporate governance in Australia*

### Executive Summary ......................................................................................................

### Executive Summary

### Overview and scope
- Purpose: Reviews selected issues on investor protection and corporate governance in Australia, focusing on disclosure and transparency, the corporate reporting framework, implementation and enforcement in practice, and government efforts to maximize the likelihood that investors will make informed choices based on disclosure provided.
- Scope: Selective treatment emphasizing investor protection perspective; not a formal or comprehensive assessment of corporate governance in Australia.
- Preparation: The Note was prepared as part of the assessment conducted in Australia by the International Monetary Fund, pursuant to the Financial Sector Assessment Program. The Note was prepared by Felice Friedman, a consultant with the World Bank on securities markets and regulation.

### Key conclusions on the state of corporate governance
- General assessment: The corporate governance framework for Australian listed companies is largely healthy and dynamic.
- Cultural embedding: Disclosure and corporate governance are part of the fabric of doing business in Australia; authorities have built disclosure and corporate governance practices into their supervisory model.
- Activist shareholders: An activist shareholder environment, including institutional shareholders and shareholder groups, and an active financial press, has become significantly stronger and promotes compliance and accountability.
- Limitations noted: No guarantee against corporate fraud or failure; disclosure is not perfect, especially among smaller companies.

### Disclosure framework and practices
- Legislative/regulatory foundation: The legislative and regulatory framework includes disclosure requirements that meet or exceed the requirements that exist in many other countries.
- Periodic vs continuous reporting:
  - Periodic disclosure requirements are consistent with international best practice.
  - Listed companies are not required to issue quarterly reports.
  - Continuous disclosure statutory requirement is highlighted as providing a framework through which market discipline is effectively exercised.
- ASX corporate governance disclosure approach:
  - ASX adopted the “if not, why not?” regime (a flexible “comply or explain” approach).
  - This approach is described as well suited to a market with a wide range of listed companies and consistent with international best practice and the OECD Corporate Governance Principles.
- Concerns of over-disclosure:
  - A principles-based approach has, paradoxically, led to a surfeit of disclosure and excessive detail in the corporate governance arena.
  - Product Disclosure Statements are noted as being anything but “clear, concise and effective,” despite the legal requirement.
  - The ASX Corporate Governance Council balances broad principles with quite specific and detailed best practice recommendations, which may cause confusion among smaller companies.

### Implementation, monitoring and enforcement
- General effectiveness: Implementation and enforcement of disclosure and corporate governance requirements seems quite strong, particularly among the top tier of listed companies.
- Roles and interplay:
  - ASX monitoring backed by ASIC enforcement is largely effective.
  - ASX has struck a balance between assisting listed companies to comply and aggressively monitoring continuous disclosure reporting.
  - Cooperation between ASX and ASIC on potential disclosure breaches has improved in recent years.
- ASX-specific considerations:
  - Recommendation: ASX needs to continue to work with ASIC to highlight the importance of good corporate governance and the benefits of candid and timely disclosure, with extra attention to smaller companies.
  - Conflict sensitivity: While no evidence that ASX’s supervisory role has been compromised by its demutualized status, ASX needs to remain sensitive to potential conflict or appearance of conflict between regulatory and commercial roles.
- ASIC enforcement:
  - Reputation: ASIC’s enforcement reputation appears to have grown considerably stronger in the past five years.
  - New tools: ASIC recently attained new infringement notice and penalty authority; effectiveness depends on bringing more infringement notice cases and following through when cooperation is not forthcoming.
  - Oversight of auditors: CLERP 9 reforms increased ASIC’s role in monitoring audit firms; ASIC will need to intensify inspection and oversight activities and may require additional resources if given enhanced inspection and information-gathering powers with respect to audit firms.

### Legislative and supervisory backdrop
- Historical milestones and structure:
  - A national corporations act and a national securities act were introduced in 1989.
  - In 1990, the Chairman of the newly formed Commission formed an advisory group to recommend action to promote higher standards of corporate conduct.
  - The Wallis Committee’s 1997 report recommended a “twin peaks” system of regulation.
  - The Australian Securities Commission became the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulatory Authority (APRA) was created in July 1998.
- CLERP program:
  - The Corporate Law Economic Reform Program (CLERP) was initiated in 1997.
  - CLERP 9 reforms were implemented in July 2004, focusing on strengthening Australia’s financial reporting framework and improving transparency, including audit reform and corporate disclosure.
  - CLERP principles: market freedom, investor protection and quality disclosure of relevant information to the market.

### APRA and prudential governance standards
- APRA proposals: APRA’s corporate governance proposals are more specific than the ASX Corporate Governance Principles, imposing detailed requirements on APRA-regulated entities relating to board composition, the audit committee, and director independence.
- Rationale and international context:
  - APRA is a prudential supervisor seeking to apply prudential standards to financial institutions.
  - International best practice recognizes prudential supervisors of financial institutions have an important role in corporate governance oversight, supporting a more prescriptive governance framework for regulated financial institutions.

### Investor education and financial literacy
- Multi-prong efforts encouraged: ASIC and the Australian government should continue multi-prong efforts to increase investor education and financial literacy.
- ASIC approach: ASIC takes both a supply and demand side approach—working with advisers and fund managers on obligations and compliance, and developing and providing a wide variety of information and assistance to investors.
- Government initiatives: The Australian government, with its Financial Literacy Foundation, has taken a longer-term approach, putting significant resources into raising financial literacy.
- Resource needs: Additional resources beyond those tied to the superannuation campaign would help ASIC expand its role in investor and consumer education and protection during and beyond the transition to superannuation choice.

*Executive Summary — IMF Financial Sector Assessment Program note on investor protection and corporate governance in Australia*

### 22.      As part of the CLERP program, the Wallis Committee recommendations were

### 22.      As part of the CLERP program, the Wallis Committee recommendations were

### Consolidation of financial product regulation (CLERP / FSRA)
- Financial Services Reform Act 2001 (FSRA) implemented Wallis Committee recommendations and extended them.
- Under the FSRA, functionally similar products are to be regulated in a consistent manner.
- Result: virtually all financial products, including securities and derivatives and certain insurance and superannuation products, are regulated under a single scheme for licensing, disclosure, and market conduct.

### Institutional responsibilities and interplay (ASIC, APRA, RBA, Treasury, ASX)
- ASIC
  - Primary government agency responsible for disclosure and transparency implementation and enforcement in Australia.
  - Responsible for enforcing the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001.
  - Established as an independent statutory authority; Commission consisting of between three and eight members and a full-time chair.
  - Responsibilities include companies and auditor registration and regulation, market regulation, and regulation of financial services providers.
  - Enforcement tools: civil, administrative and criminal powers.
  - Does not possess actual rule-making powers; Governor-General makes regulations on the advice of the relevant Minister under the Australia Constitution.
  - Possesses specific and general exemptive powers to exempt persons or classes from compliance with regulations.
  - Active in issuing policy statements that, while not legally binding, guide ASIC’s exercise of powers.

- APRA
  - Mandate includes protecting consumers in their capacity as “depositors and policy holders.”
  - Focus is primarily on preventing institutional failure (prudential concerns).
  - APRA and ASIC often affect the same institutions (e.g., superannuation funds licensed by ASIC but prudentially regulated by APRA).

- Interaction and cooperation
  - Ongoing cooperation between ASIC and APRA is critical because prudential concerns (APRA) and investor protection/disclosure concerns (ASIC) can conflict.
  - Since the failure of HIH Insurance Ltd. in 2001, APRA and ASIC have entered into an MOU and a number of protocols to enhance cooperation and information sharing.
  - Effectiveness depends on commitment to a culture of cooperation at all levels.

- Australian Stock Exchange (ASX)
  - Plays an important role in ensuring market dissemination of information as the front-line regulator for disclosure to the market.
  - Imposes requirements through listing rules and corporate governance standards.
  - ASX is a private entity (demutualized and self-listed in 1998).
  - ASX lacks disciplinary or enforcement mechanisms beyond suspending trading or delisting; must refer matters to ASIC for further action.
  - ASIC and ASX have a memorandum of understanding to set parameters for cooperation.

- Reserve Bank of Australia (RBA)
  - Remains responsible for monetary policy, overall financial system stability, and the payments system.

- Treasury
  - Plays a significant role in the development of securities regulatory policy and is likely to consult ASIC in the development and issuance of regulations.

### Disclosure and transparency: legal and market framework
- Disclosure and transparency are core to OECD Principles of Corporate Governance: ensure timely and accurate disclosure on material matters including financial situation, performance, ownership, and governance.
- Australia’s disclosure framework rests on legislative requirements, common law precedents, listing rules, policy statements and voluntary good practice guidelines.
- Fundamental requirement: material information must be disclosed to the market; in Australia this has been in place since the early 1990s.
- Disclosure types required of listed entities:
  - Periodic disclosure (annual and half-year reports).
  - Continuous disclosure (timely market updates on material developments).
  - Corporate governance disclosures in annual reports.

### Periodic disclosure requirements
- Legal basis: Sections 292 and 302 of the Corporations Act.
- Listed companies must prepare:
  - Annual reports and half-year reports; both filed with ASIC and audited by a registered company auditor independent of the company.
  - Annual financial statement components: balance sheet, income statement, statement of changes in equity, cash flow statement, and notes (summary of significant accounting policies and other explanatory notes).
  - Both annual and semi-annual reports must include a directors’ report and a directors’ declaration that financial statements comply with accounting standards and give a “true and fair view.”
- The audit of the half-year report may be limited to a “review.”
- Quarterly reports are not required; Australia relies on the continuous disclosure regime to update the market between periodic reports.
- Reference: periodic requirements consistent with international best practice and IOSCO Principles for Ongoing Disclosure and Material Development Reporting by Listed Entities, October 2002.

### Continuous disclosure regime (ASX Listing Rule 3.1 and statutory reinforcement)
- Continuous disclosure defined as the “timely advising of information to keep the market informed of events and developments as they occur.”
- ASX Listing Rule 3.1 requires that “once an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity’s securities, the entity must immediately tell ASX that information.”
- Concept of “aware” is broad: an entity is “aware” if a director or executive officer has, or ought reasonably to have, come into possession of the information in the course of their duties.
- ASX disseminates information to investors and requires confidentiality until ASX acknowledges release to the market to ensure simultaneous investor access.
- Statutory reinforcement: Under Section 674 of the Corporations Act, listed entities are obligated to comply with the listing rules of the market on which their securities are listed; a contravention of ASX Listing Rule 3.1 is thus also a contravention of the Corporations Act and may give rise to civil or criminal liability.
- Exceptions to disclosure under Listing Rule 3.1:
  - Information does not have to be disclosed if:
    - (i) a reasonable person would not expect the information to be disclosed;
    - (ii) the information is confidential and ASX has not formed the view that the information has ceased to be confidential; AND (emphasis added)
    - (iii) one or more of the five factors listed in ASX Listing Rule 3.1 is present.
  - The five factors are:
    - (i) it would be a breach of law to disclose the information;
    - (ii) the information concerns an incomplete proposal or negotiation;
    - (iii) the information comprises matters of supposition or is insufficiently definite to warrant disclosure;
    - (iv) the information is generated for the internal management purposes of the entity;
    - (v) the information is a trade secret.
- ASX guidance and enforcement posture:
  - ASX has sought to limit use of the exceptions, stressing Listing Rule 3.1 be complied with “in the spirit of continuous disclosure.”
  - All conditions of the exception must be present for it to apply; ASX provided guidance elaborating each condition.
  - ASX introduced the “false market” concept: even if exceptions appear to apply, ASX may require disclosure to rectify or prevent the creation of a “false market.”
  - ASX Guidance Note 8 and other guidance materials aim to reduce abuse of the exception.

### Role of continuous disclosure in market integrity
- Continuous disclosure is central to Australian corporate governance and market fairness: “continuous disclosure plays a vital role in the mechanism for information provision to Australian securities markets and in ensuring that the markets are fair and efficient.”
- Listed entities routinely use frequent market announcements to manage disclosure obligations and keep the market informed.
- ASX works with cross-listed entities to address timing issues across time zones.
- ASX cautions against using the continuous disclosure platform for advertising or inappropriate purposes.

### Corporate governance disclosure and ASX Corporate Governance Council
- In 2002 ASX formed the Corporate Governance Council in response to corporate collapses; the Council includes 21 representatives of different stakeholders.
- The Council published a corporate governance code with:
  - 10 core principles for effective corporate governance.
  - 28 best practice guidelines.
- ASX Listing Rules require listed companies to include in their annual report a statement “disclosing the extent to which the entity has followed the best practice recommendations set by the ASX Corporate Governance Council during the reporting period.”
- If a company has not complied with the principles or recommendations, it must explain why.

*Source: _cr06437 - 22.      As part of the CLERP program, the Wallis Committee recommendations were*

### 37.      The Australian approach to corporate governance recommendations is thus

### 37.      The Australian approach to corporate governance recommendations is thus

### ASX: "if not, why not?" flexible, disclosure-based approach
- ASX takes an “if not, why not?” approach to corporate governance rather than mandating that all listed companies follow certain prescribed practices.
- The approach is flexible and disclosure-based, purposely intended to be sufficiently adaptable to apply to diverse companies, and relies on market discipline mechanisms to promote good governance.
- Quote from ASX Corporate Governance Council Chair (Singapore, 2004): “the disclosure requirement is the only thing that is prescriptive about our work. . . . ASX doesn’t consider its role is to prescribe how companies should manage their affairs, any more than we see it as our role to tell investors what to value and where to invest. Our role is about facilitating informed and free choice.”
- ASX Listing Rule referenced: 4.10.3.

### Consistency with international best practice
- The “if not, why not?” approach is consistent with international best practice and mirrors the global “comply or explain” approach used by many exchanges.
- European Commission: proposed amendments to the 4th and 7th Company Law Directives would impose on EU issuers the obligation to publish a yearly corporate governance statement; the Commission endorses “comply-or-explain.”
- OECD Corporate Governance Principles: stress that policy makers should put in place a framework flexible enough to meet widely different corporate circumstances (OECD Corporate Governance Principle IA, 2004). OECD Corporate Governance Principle VA8: companies should report corporate governance practices; in several countries reporting on a “comply or explain” basis is mandated.

### ASX Principles versus Recommendations
- ASX adopted a principles-based approach believing excessively detailed rules can encourage avoidance, and broad guidelines “designed to produce an efficiency, quality or integrity outcome” are preferable.
- Despite the principles-based philosophy, the accompanying Recommendations are considerably more detailed:
  - There are 28 best practice recommendations that are quite specific and narrow the scope for company compliance, which is assessed against the recommendations.
  - Example principles: Principle 1 — “Lay solid foundations for management and oversight.” Principle 2 — “structure the board to add value.”
- ASX views a principles-based approach as “less of a risk to the cost of capital” than a more rules-based approach.

### APRA’s more prescriptive corporate governance approach
- APRA issued a discussion paper and draft prudential standards on “Governance for APRA-regulated Institutions” and draft standards on Fit and Proper Requirements (May and June of the cited year).
- Proposed APRA standards would impose detailed requirements on APRA-regulated entities (e.g., board composition, the audit committee, and independence of directors).
- Industry reaction: proposals created significant uproar among regulated industry and private sector participants who viewed them as excessively prescriptive, inflexible, potentially duplicative and perhaps inconsistent with ASX guidelines; some suggested APRA was venturing outside its territory.
- Objections included concerns about over-regulation and lack of concern for burdens and costs of compliance, especially for smaller institutions.
- Context for APRA initiative:
  - APRA’s short tenure as national regulator was defined by major corporate collapses of HIH, FAI, One.Tel and Ansett in 2001 and subsequent reforms.
  - Following the NAB foreign exchange losses in 2004, APRA imposed higher minimum capital requirements, ordered temporary closure of the currency trading business to big corporate clients, and revoked NAB’s authorization to use its own internal model for capital adequacy purposes.
- Rationale: APRA frames its proposals as harmonizing and modernizing corporate governance standards across regulated entities; supervisors view minimum governance standards for financial institutions as appropriate given their special role in the economy and the impracticality of daily supervisory monitoring for large, complex banks.
- Basel Committee relevance: governance requirements for financial institutions are necessary; Basel II explicitly stresses strong corporate governance as a prerequisite for allowing advanced risk measurement and management approaches.
- Under APRA’s proposed approach, an institution could, in principle, convince APRA it achieves compliance in a manner other than prescribed.

### Implementation, compliance and enforcement — overview
- Effective corporate governance depends on implementation in practice, shaped by company structures to promote compliance, the external auditor’s role and independence, supervisory enforcement activities, and private enforcement.
- Key actors: companies’ internal controls and governance structures; external auditors; ASIC, APRA, and other supervisory agencies.

### Internal controls and company governance (directors’ duties and board practices)
- Legal duties:
  - Directors owe a duty of due care and diligence to shareholders and must act in good faith in the best interests of the company as a whole (Corporations Act, Sections 180 and 181).
  - Directors are prohibited from using their position or information to gain an advantage or cause harm to the company (Corporations Act, Sections 182 and 183).
  - Directors are legally protected from personal liability for honest, informed and rational decisions taken in good faith for the best interests of the company (Corporations Act, Sections 180(2) and 180(3)); the common law business judgment rule was reinforced by statute in 1999.
  - Case law limitation: In ASIC v. Adler the court held a director could not rely on the business judgment rule to protect blatant breaches absent a “business judgment” made in good faith for a proper purpose and without personal interest.
- Corporate responses and guidance:
  - ASX Corporate Governance Council Best Practice Recommendations propose specific implementation practices (e.g., Recommendation 5.1: establish written policies and procedures to ensure compliance with ASX Listing Rule Disclosure requirements and ensure accountability at senior management level).
  - ASX best practice guidance suggests boards adopt formal job descriptions, review responsibilities regularly, assess director independence, and provides suggestions for audit committee structure and composition.
  - Many listed companies have adopted recommendations: largest listed companies almost all split CEO and Chairman roles; many have boards with a majority of independent directors; reduction in number of directors holding many multiple board positions.
  - Stakeholder guidance: Australian Institute of Company Directors (AICD) issued a protocol for directors outlining principal legal obligations; AICD sponsors director training (e.g., “International Company Directors Course” announced December 2004).
  - ASIC activities: Commissioners speak on compliance issues; ASIC has conducted targeted reviews of listed company disclosure (e.g., September 2000 review found a number of high tech companies potentially in breach of disclosure obligations due to directors’ lack of public company experience). As of 17 February 2005, approximately half of all listed entity full year financial reports had been reviewed for compliance with accounting standards (ASIC Media Release No. 05-31).

### Role of the external auditor and post-CLERP 9 reforms
- Importance: external auditors play an essential role in company compliance; auditor independence and oversight were emphasized following corporate collapses and international reforms such as the Sarbanes-Oxley Act of 2002.
- CLERP 9 reforms (enacted July 2004) aimed to improve financial reporting and disclosure and to strengthen auditor independence and oversight:
  - CEOs and CFOs of listed entities must certify that annual financial statements are in accordance with applicable laws and present a “true and fair” view.
  - Annual directors’ report must include an operating and financial review.
  - Auditors must attend the annual general meeting of a listed client; shareholders may submit questions in writing before the AGM.
  - Auditor independence measures: a general standard of auditor independence; auditors must make an annual declaration that they have maintained independence; five year rotation for the lead audit partner and review partner; listed companies must disclose fees paid to the auditor for each non-audit service; directors must state that provision of non-audit services does not compromise auditor independence.
  - Auditor oversight: CLERP 9 expanded the role of the Financial Reporting Council (FRC) as a policy adviser on auditing standard setting and auditor independence. ASIC remains responsible for surveillance, investigation and enforcement; FRC and ASIC entered a Memorandum of Understanding to ensure cooperation.
- Post-enactment enforcement and surveillance:
  - ASIC issued policy statements and practice notes and initiated a first round of surveillance of the “Big 4” audit firms to assess compliance.
  - ASIC found that “all firms had documented policies in place and these were generally adequate,” stated it did not “seek to comprehensively test for breaches of the audit independence requirements,” and that “no breaches of the Corporations Act were identified in the course of the inspections.”
  - ASIC intends to undertake more in-depth inspections in coming years and has been given additional resources to do so; strict enforcement will be important to ensure effective auditor oversight.

*Source: _cr06437 - 37.      The Australian approach to corporate governance recommendations is thus*

### 54.      In September 2005, the Treasury issued a Consultation Paper proposing

### _cr06437 - 54.      In September 2005, the Treasury issued a Consultation Paper proposing

### Enhanced audit inspection powers (Treasury Consultation Paper, September 2005)
- Proposal to amend the ASIC Act to authorize ASIC to enter into arrangements with foreign audit regulators to carry out inspection functions to ascertain compliance with the relevant foreign audit requirements.
- Proposes expanding ASIC’s powers to gather information from audit firms on behalf of overseas audit regulators and to gather information from audit firms for its own purposes so as to avoid creating a “two-tier” audit inspection framework.
- Would give ASIC “discrete audit inspection and information gathering powers” permitting a general examination of the processes and systems an audit firm has in place to meet its audit obligations generally, not just in relation to the business of an audit client.
- If adopted, the proposals would better equip ASIC to conduct audit oversight and enforce the new CLERP 9 audit requirements.
- Contextual statistics from the source:
  - Together the Big 4 firms audit approximately 54 percent of companies listed on ASX and 91 percent by market capitalization of the 300 largest entities.

### ASX monitoring and enforcement role
- ASX monitors company compliance with continuous disclosure requirements and corporate governance disclosure requirements.
- ASX’s supervision of listed companies is supervised by a quasi-independent entity within ASX, called ASX Supervisory Review (ASXSR).
- The quality and effectiveness of ASX monitoring, and the activities of ASXSR, are assessed by ASIC.
- ASX’s surveillance process for price-sensitive information:
  - Once a company gives information to ASX for release, ASX examines it to decide whether disclosure is sufficient and whether trading needs to be halted pending dissemination.
  - ASX may initiate a “Share Price Query,” informally or by letter, if alerted by press reports or unusual stock price movements.
  - ASX may contact the company, request disclosure, permit trading halts, enter into written correspondence, and has the right to release that correspondence to the market.
- ASX does not undertake comprehensive cyclical or risk-based reviews of annual and semi-annual reports; supervisory focus centers primarily on continuous disclosure obligations and systematic review of corporate governance disclosure.

### Compliance findings and gaps
- Continuous disclosure compliance:
  - Compliance among the largest listed companies is reportedly strong: “The general consensus is that the continuous disclosure regime for listed companies administered by ASX is operating efficiently and effectively.”
  - As of spring 2002, the average number of announcements made per company had grown 65 percent since the statutory requirement for continuous disclosure was introduced in 1994.
  - Nonetheless, reluctance to disclose persists, particularly with some directors “drag[ging] their feet in disclosing bad news and view compliance as a burden rather than as a strength.”
  - Independent studies (2001 and later) identified reluctance to disclose and reactive behavior by some companies, with poor disclosure practices particularly prevalent in smaller companies in the technology, biotechnology, telecommunications and exploration industries.
  - ASIC’s 2004 annual review found inconsistencies in ASX’s monitoring and enforcement of disclosure provisions and recommended remedial measures; ASX restructured monitoring and supervision with significant improvements in consistency.
- Corporate governance disclosure:
  - ASX’s 2004 analysis of 1,222 annual reports: contacted 392 companies to discuss disclosure, clarified disclosure requirements on 186 occasions, identified 16 companies requiring additional educational support, obtained announcements of additional disclosure from 39 companies, with another 6 announcements pending.
  - ASX determined the large majority of listed companies “have fulfilled their reporting requirements satisfactorily, either confirming adoption of the Recommendations or providing ‘if not, why not?’ reporting.”
  - Independent reviews over three years of the top 250 Australian companies by market capitalization found a persistent “corporate governance gap” between top companies and lesser ranked companies; the most recent report based on 2003 annual report information concluded approximately half the companies’ corporate governance structures could be described as good or better, with approximately one-third of the companies lacking in key areas.

### ASX governance, conflicts of interest, and supervisory arrangements
- ASX’s demutualized, for-profit, self-listed status raises questions about incentives to carry out supervisory roles.
- Concerns noted that market surveillance and listing rules supervision roles might be better given to an independent body.
- The Corporations Act requires ASX to establish and maintain adequate market supervision arrangements and manage conflicts between commercial interests and supervisory responsibilities.
- ASXSR:
  - Established in 2000 as a subsidiary to monitor ASX supervisory arrangements and assess compliance with ASX license obligations.
  - Responsible for reviewing ASX decisions relating to entities with commercial or competitive relationships with ASX.
  - Majority of ASXSR board members are independent, appointed by ASX from a list approved by ASIC, with appointments and removals requiring agreement of ASIC and Treasury.
  - ASXSR reports directly to ASIC.
- ASIC recommended ASX strengthen arrangements for handling conflicts of interest, broaden ASXSR’s mandate, and restructure supervisory areas to ensure coordinated supervision and clearer lines of accountability.

### ASIC implementation and enforcement capability
- ASX refers potential breaches of the Corporations Act or Listing Rules to ASIC because ASX’s sanctions (suspension/delisting) may penalize shareholders.
- ASIC review practices:
  - ASIC does not have systematic procedures for comprehensive review of listed company disclosure.
  - ASIC conducts a cyclical review of listed companies’ financial reporting obligations, reviewing approximately a quarter of listed companies each year.
  - ASIC announced a focus on adoption of the Australian equivalents of international financial reporting standards in its financial reporting surveillance program for 2005-06.
  - ASIC undertakes occasional reviews of non-financial statement disclosure and targets specific investor-protection topics.
  - ASIC intends to move towards a more systematic risk-based approach to financial statement reviews.
- Past financial reporting surveillance (2003-2004):
  - ASIC reviewed the financial reports of 400 listed companies and stated “overall compliance with accounting standards appeared to be high.”
  - Findings included 35 companies with a qualified audit report and another 27 companies still being investigated.
  - Survey found 73 companies had failed to file their annual reports on time and eight companies had been late filing semi-annual reports.
- ASIC powers and enforcement options:
  - Under the ASIC Act, ASIC may begin investigations where it suspects contraventions of the Corporations Act or other laws concerning company management/affairs or involving fraud or dishonesty.
  - ASIC can compel production of books and records, issue orders requiring persons to “give all reasonable assistance,” and require appearances before ASIC to answer questions on oath.
  - Upon concluding an investigation, ASIC may impose administrative sanctions, commence civil proceedings, initiate or refer matters for criminal prosecution to the Commonwealth Director of Public Prosecutions, and seek suspension of trading in securities.

*Source: _cr06437 - 54.      In September 2005, the Treasury issued a Consultation Paper proposing*

### 68.      Despite its broad enforcement powers, ASIC has not historically been viewed as

### _cr06437 - 68.      Despite its broad enforcement powers, ASIC has not historically been viewed as

### Enforcement reputation and administrative tools
- Historically perceived as "a fairly passive regulator, burdened with a huge administrative responsibility." (parliamentary study quotation).
- By the early 2000s, perception improving: reputation for "aggressive and creative enforcement" has improved; prosecution and conviction of HIH officers and directors enhanced ASIC’s standing.
- ASIC developed the "enforceable undertaking" administrative tool:
  - ASIC may accept enforceable undertakings given by a person regarding any matter in which ASIC has a function or power.
  - If a person breaches an enforceable undertaking, ASIC can apply to the court for an order to compel compliance, without having to establish a contravention of the underlying legislation originally the subject of the enforceable undertaking.

### Infringement notices and CLERP 9: powers, use, and controversy
- ASIC lobbied for and obtained power to issue infringement notices and assess administrative penalties directly for breaches of continuous disclosure obligations (under CLERP 9).
  - Prior to CLERP 9, ASIC had to initiate civil proceedings or refer matters to the Department of Public Prosecutions for criminal proceedings.
  - ASIC argued that the power to impose fines of substance would add discipline through financial impact and public nature and enable quick responses.
- CLERP 9 features and effects:
  - ASIC can issue an infringement notice imposing a financial penalty where ASIC has reasonable grounds to believe a disclosing entity breached continuous disclosure obligations.
  - Compliance with an infringement notice is not an admission of liability.
  - ASIC will publish details of the notice but cannot commence further proceedings against the entity in relation to the breach described in the notice if the company complies.
  - If the company does not comply, ASIC may commence either civil or criminal proceedings.
- Controversy and procedural protections:
  - Concerns that the new powers permit ASIC to act as both prosecutor and judge, raising constitutional implications.
  - ASIC issued a Guide describing the infringement notice process, including built-in procedural protections (e.g., only an ASIC officer not involved in the investigation will decide whether to issue a notice; the company will have the opportunity to present information beforehand).
  - ASIC indicated intent to use the remedy for "less serious beaches." [sic—text as in source]
- Changes in penalties under CLERP 9:
  - Prior to CLERP 9, a court could fine a company up to $A 200,000 for breach of continuous disclosure requirements and could order compensation for damage suffered.
  - Under CLERP 9, a company can be fined up to $A 1,000,000 for the breach.
  - A court can assess a civil penalty of up to $A 200,000 for breach of the continuous disclosure requirements against an individual "involved" in the contravention.
- Actual early use:
  - ASIC did not issue its first infringement notice until over a year after receiving the power.
  - On August 1, 2005, ASIC announced it had issued an infringement notice to Solbec Pharmaceuticals Limited for breach of the continuous disclosure provisions.
  - The Solbec breach occurred on 23 November 2004 (announcement of positive animal trial results), with a subsequent clarification announced on 26 November 2004; the share price nearly doubled after the 23 November announcement and then declined over the next two days.
  - The infringement notice was issued approximately 10 months after the breach, illustrating that the power was not always exercised as an immediate "on the spot" fine.

### Private enforcement mechanisms
- Shareholder class actions:
  - Important complement to official enforcement by ASX and ASIC.
  - Increase in shareholder class actions for corporate malfeasance, including breaches of disclosure obligations.
  - Removal of some legal obstacles has facilitated class formation (easier to form a litigant class without ensuring each class member has a viable action against each respondent).
  - Attorneys may not accept contingency fees, but speculative fees (no-win, no-pay) are permitted; litigation funders may accept contingency fees.
- Statutory derivative action:
  - Introduced in 1999 alongside the statutory business judgment rule.
  - Allows shareholders to sue on behalf of the company; provides directors safe harbor if they acted appropriately and in the best interests of the company.
  - Has not become a significant source of shareholder enforcement actions but may give shareholders additional leverage.
- Shareholder activism short of litigation:
  - CLERP 9 permits shareholders to name a corporate entity as their proxy for shareholder meetings, increasing leverage for organizations such as the Australian Shareholders Association.
  - Government proposal to tighten conditions for demanding an emergency meeting (proposed elimination of the 100-member option in Section 249D(1) of the Corporations Act and reducing from 100 to 20 the number of shareholders required to put a resolution to the annual general meeting) is controversial:
    - Some view it as disenfranchising small shareholders.
    - Others believe it will reduce frivolous actions and is consistent with requirements in many developed markets.
  - The 5 percent threshold for requisitioning meetings is referenced as consistent with some international proposals.

### Investor education and financial literacy
- Rationale:
  - A disclosure-based corporate governance framework requires investor education and financial literacy so investors can make informed decisions.
  - Excessively complex disclosure or low investor expertise undermines disclosure's effectiveness.
- Importance due to superannuation and Choice:
  - 1992: introduction of universal compulsory contribution system requiring employers to pay 9 percent of an employee's earnings to a superannuation fund or retirement savings account.
  - Massive growth in superannuation savings: from $A 229 billion at 30 June 1995 to $A 740 billion at 31 October 2005.
  - As of the end of September 2005, coverage estimated at over 98 percent of permanent employees and 72 percent of casual employees.
  - Choice introduced as of 1 July 2005: employees have the right to choose the superannuation fund into which their employer pays the compulsory contribution.
  - Growth in superannuation funds: estimated approximately 291,000 individual super funds as of end of October 2005 (number expected to decline through consolidation); 99 percent of funds, accounting for 23 percent of total superannuation assets, have fewer than five members.
- ASIC's initiatives:
  - Developed a "consumer education strategy" for 2001-2004 focusing on retirement planning and superannuation to improve financial literacy.
  - Joint project with industry on superannuation and other education initiatives.
  - Maintains a consumer website (www.asic.gov.au/fido) with fact sheets and Q&A on topics including superannuation; issued documents to help investors choose superannuation funds and focused outreach to indigenous populations in rural and remote locations.
  - Industry-focused compliance initiatives:
    - Issued a policy statement on product disclosure statements (PDS) providing guidance for preparing a PDS in compliance with the Corporations Act.
    - Initiated a "superannuation switching" campaign reviewing adviser compliance when recommending switching funds; identified patterns of advisers recommending switches with little or no investigation of the client's current fund.
    - Conducted "shadow shopping" to test advice given to consumers about superannuation.
    - Warned that a financial services license is a prerequisite to providing advice about investment strategy or switching to a self-managed superannuation fund.
    - Issued materials such as the Fee Disclosure Model to promote full and transparent fee disclosure.
    - Issued a "model statement of advice" to help advisers prepare Statements of Advice that explain the basis for personal advice and disclose all remuneration including commissions.

*Source: _cr06437 - 68.      Despite its broad enforcement powers, ASIC has not historically been viewed as*

### 84.      In addition to investor education, the Australian authorities are engaged in an

### _cr06437 - 84.      In addition to investor education, the Australian authorities are engaged in an

### National strategy and Taskforce
- In February 2004, the Treasury announced the formation of a high-level Consumer and Financial Literacy Taskforce to develop a national strategy for improving levels of consumer and financial literacy.
- The Taskforce released a consultation paper in June 2004 and in August recommended the establishment of a national financial literacy body.
- A year later the Financial Literacy Foundation was created.

### Financial Literacy Foundation: mandate, governance, and funding
- Purpose: to give Australians the opportunity to better manage their money and to raise financial literacy levels in the Australian community.
- Institutional placement: established within the Department of Treasury with a ten-member independent advisory board chaired by Paul Clitheroe.
- Funding:
  - $A 5 million per year (indexed) until 2008-09
  - an additional $A 13 million for an information program in 2006
- Goals:
  - (i) to raise and measure awareness of financial literacy and its benefits;
  - (ii) to provide consumers and stakeholders with well organized and accessible information to enable them to link to financial literacy information and resources;
  - (iii) to raise financial literacy levels in the Australian community.
- Key initiatives (as part of its strategy):
  - nation-wide information campaign to raise awareness of financial literacy and its benefits;
  - development of a website for financial literacy information and education resources;
  - assisting in developing financial literacy programs in schools and workplaces;
  - engaging in original research on these issues.

### ASIC role and complementary measures
- ASIC activities:
  - works with advisers and fund managers to ensure they understand their obligations;
  - monitors compliance by advisers and fund managers;
  - provides a wide variety of information and assistance to enable investors to be as informed as possible.
- Emphasis: ASIC’s supply-side and demand-side activities are built around observed market practices.
- Constraints:
  - ASIC’s activities are highly resource intensive and ASIC has only limited budget available to devote to consumer education.
  - Additional resources, beyond funds earmarked for the superannuation education campaign, would enable ASIC to respond to growing demand from people seeking alternatives to industry as their preferred source of financial sector information.

### Risks, implementation, and education timelines
- The Australian government recognizes "the tremendous risks that exist in introducing the discretionary investment of retirement savings on a massive scale to a population largely unfamiliar with financial products and financial markets."
- Implementation milestone:
  - From 2008, all Australia children will receive financial literacy education from Kindergarten to Year 10.

### Assessment and policy implications
- The Australian authorities have taken a multi-prong and proactive long-term approach to investor education and financial literacy.
- Policy implications and needs identified:
  - Maintain and evaluate the Financial Literacy Foundation’s nation-wide campaigns and resources.
  - Expand resourcing for ASIC to sustain and broaden consumer education efforts beyond the superannuation campaign.
  - Continue development of school- and workplace-based financial literacy programs to address population unfamiliarity with financial products and markets.

*Source: IMF staff text from _cr06437 - 84. In addition to investor education, the Australian authorities are engaged in an effort to improve financial literacy on a more widespread basis.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06437.pdf_