Government introduces financial market supervision, climate reporting reforms

John Kavanagh

Treasurer Jim Chalmers introduced a bill into Parliament yesterday that includes tougher regulation of financial market licensees and requirements for climate-related financial reporting

Treasury Laws Amendment (Financial Markets Infrastructure and Other Measures) Bill 2024 implements recommendations from the Council of Financial Regulators for reform to strengthen Australia’s financial market infrastructure.

And it introduces a requirement for entities that lodge financial reports under the Corporations Act, and which meet minimum size thresholds, to make disclosures relating to climate.

The changes to financial market regulation includes the introduction of a crisis management and resolution regime, and enhanced licensing, supervisory and enforcement powers for ASIC and the Reserve Bank.

The Reserve Bank will have power to give directions to a clearing and settlement facility provider to manage or respond to a crisis. It will be able to take control of distressed domestic licensees and initiate the transfer of business or shares of a domestic licensee to a third party.

The bill clarifies the circumstances where a licence can be suspended or cancelled and gives ASIC power to impose limits on the scope of activity that an overseas market licensee or clearing and settlement facility licensee is permitted to undertake.

It gives ASIC power to make rules for the purpose of promoting the “fair and effective provision of clearing and settlement facility services”.

It implements a fit, proper and competent person standard for people involved with licensees, and it requires ASIC to approve an entity holding more than 20 per cent voting power in domestically incorporated financial market licensees.

The new climate reporting rules are designed to ensure that relevant entities disclose information about their exposure to material climate-related financial risks and opportunities, including their climate-related plans, greenhouse gas emissions and governance processes.

An entity must prepare a sustainability report if it is required to prepare a financial report under the Corporations Act and it meets at least two of the following conditions: consolidated revenue is $50 million or more; gross assets are $25 million or more; the entity and entities it controls have 100 or more employees; the entity is registered under the National Greenhouse and Energy Reporting Act; or the entity is a registered investment scheme or superannuation entity with funds of $5 billion or more.

New sustainability reports will be prepared in accordance with Australian Accounting Standards Board sustainability standards. The AASB has adapted the IFRS S1 and IFRS S2 standards released by International Sustainability Standards Board last year.

IFRS S1 requires an entity to disclose information about all sustainability-related risks and opportunities “that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short medium or long term.”

It prescribes how an entity prepares and reports its sustainability-related disclosures, with general requirements for content and presentation.

Entities will have to provide disclosures about their governance processes, controls and procedures they use to monitor, manage and oversee sustainability-related risks and opportunities. They will have to report on their strategies for managing those risks and opportunities.

They will have to disclose the processes they use to identify, assess, prioritise and monitor risks and opportunities and they will have to report on their performance in areas such as progress towards any targets they have set or are required to meet by law or regulation.

IFRS S2 is specifically about climate risks. Entities must disclose their exposure to climate-related physical risks and transition risks.

The local standards will be called ASRS 1 and ASRS 2. The AASB has proposed to limit the scope of disclosure requirements based on IFRS S1 to climate-related financial disclosures. In the development of ASRS 1, all references to “sustainability” in IFRS S1 have been replaced with “climate”.

ASRS 1 includes requirements relating to core content disclosures of governance, strategy and risk management. ASRS 2 will cross-reference ASRS 1.