The federal government lost a vote in the Senate for new regulations on proxy advisors that would have shielded directors and officers from investor scrutiny.
Independent Sen. Rex Patrick successfully sabotaged the Treasury Bills amendment on Thursday after introducing a motion of disallowance in the Senate, with 29 votes for his motion and 25 against.
Treasurer Josh Frydenberg has waged war on proxy advisors and the pension industry over the past year. Proxy companies provide independent, non-binding advice to large investors on how they should vote on critical issues such as social governance and executive compensation.
One of the concerns raised by the government has been the dominance of pension funds in the investment landscape, with funds owning around 20% of the Australian Stock Exchange. Four firms provide the majority of power of attorney advice.
Among a range of other demands, Mr. Frydenberg has sought to require proxy advisors to give companies a copy of their advice when they give it to clients or face heavy fines and to ensure that pension companies and proxy advisors are independent of each other.
The Australian Council of Superannuation Investors, which provides guidance to pension funds holding $1 trillion in assets, previously criticized the changes as an “unprecedented intervention”.
The draft regulation of proxy advice was welcomed in December by the Financial Services Council, which said it was essential that proxy voting arrangements for pensions were transparent so that consumers could ensure that trustees cast their votes in the best financial interests of members.
The regulations were announced by Mr Frydenberg a week before Christmas, who said it was important that proxy advice was transparent, independent and of high quality.
But the move quickly came under fire from critics who noted there had been little to no public demand for the regulations that exposed proxy advisory firms to heavy fines for even minor violations. Parts of the regulations, covering the provision of proxy advice to affected companies, only came into force on Monday. The others were to start from July 1.
Treasurer Josh Frydenberg was quick to comment on the Senate’s decision to rescind its regulations governing proxy advisors.
He accused Labor of siding with the Australian Greens to end reforms ‘designed to improve accountability and transparency in the proxy advice and superannuation sectors’.
“They opposed the biggest changes to the super in 30 years that are expected to save members about $18 billion,” he said.
“They objected to the requirement for litigation funders to hold an Australian Financial Services License, which is now in effect.
“And now they’ve voted against pension funds by disclosing to their members how they voted on company resolutions.”
The Senate motion rescinding the settlement was jointly presented in the Upper House by the Greens and Independent Senator Rex Patrick.
But the director of proxy advisor Ownership Matters, Dean Paatsch, said the Senate had done its job in striking down bad laws. “The whole exercise was a fiasco for the cluster. I thank the Senate, especially Senator Patrick, Lambie and One Nation, who were prepared to defend the free market principles that the government abandoned,” he said.
“It was deeply disappointing that the government indulged in crony capitalists and big business lobbies at the expense of respect for property rights, freedom to contract and the right to confidential advice.”
Mr Paatsch said that under the regulations, the maximum fines for failing to send an email were higher than the annual nationwide sales of proxy advice.
He said the government was now barred from making new rules affecting proxy advisors for at least another 6 months.
Senator Patrick said the Senate had done its job. “It was bad legislation, designed to please Josh Frydenberg’s big business partners and political donors, and the Senate rightly rejected it. It has been erased from the federal register of legislation, hopefully forever,” he told the Sydney Morning Herald and The Age.
“It has to be a world record start and then the closure of a regulatory regime. It lasted three days. That was a big thought bubble from the Treasurer who just wasted taxpayers’ money and Parliament’s time.