Consultation open to streamline and strengthen Australia's foreign investment framework

The Commonwealth Government has released a discussion paper seeking stakeholder feedback on proposed legislative reforms to Australia’s foreign investment framework which are designed to build on the policy and practice reforms announced by the Treasurer last year. The potential reforms aim to reduce regulatory burdens for low-risk investments, improve the efficiency of managing approved investments and enhance enforcement powers to protect Australia's national interest and security.

We are encouraged by the Treasurer's stated aim to reduce regulatory complexity and improve the investor experience for low-risk transactions, and by efforts to balance the commercial requirements of foreign private capital against the need to maintain a robust regulatory regime to manage risks to Australia's national interest and national security.

In the words of the Treasurer "Our goal is a Foreign Investment Review Board regime that is much stronger where risks are high and much faster where risks are low":

Streamlining the foreign investment framework

Automatic approvals and reduced notification requirements: The Government is considering new categories of lower-risk investments that would require notification – but not pre-approval – drawing on international models such as Canada’s pre-notification regime. As with the Canadian regime, The Treasurer would retain its "call-in" right that is extinguishable only by seeking and receiving approval (either on a mandatory or voluntary basis).

Lower-risk investments could include:

• minor increases in shareholdings within a certain band, or where the actual change in effective control is minimal or nil; and

• low-value acquisitions in non-sensitive sectors , subject to a “call-in” review mechanism for national security concerns.
  
  

Exemption certificates: The Government has proposed implementing new powers to allow ECs to be granted in a broader range of circumstances, including to exempt a fund with passive investors from "foreign government investor" requirements, or excluding the application of the tracing provisions in certain circumstances.

Reducing reporting requirements: Proposals include simplifying obligations under the Register of Foreign Ownership of Australian Assets, such as enabling joint notifications for multi-party transactions (to reduce the reporting obligations for a single transaction which comprises multiple actions), changing the types of interests that are reportable (for example, removing the requirements to report equitable interests) and removing duplicative or low-value reporting requirements.

Tracing of interests: The Government is seeking feedback on amending tracing provisions to better align regulatory oversight with actual economic interests, and to provide flexibility for the Treasurer or the Treasurer's delegate to decide that the tracing requirements do not apply certain specified circumstances.

Efficient management of approved investments: The paper proposes consolidating various powers in respect of issuing no objection notifications (NONs) under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA), as well as proposing a power that would enable the Treasurer to more easily make changes to conditions imposed under a NON.

Certainty over timely decisions: Among other options, the Government has proposed a mechanism to allow for the statutory timeframe to be adjusted or paused in some circumstances by FIRB, rather than at the request of the investor.

Strengthening the foreign investment framework

To address evolving risks and ensure compliance, the discussion paper also touches on the following  suite of measures that are proposed to enhance the framework’s effectiveness:

• Enhanced conditions and undertakings: The expansion of the use of legally binding conditions and court-enforceable undertakings, including for upstream or minority investors and in some instances to take effect pre-closing.

• Improved enforcement powers: Accelerating the operation of disposal orders, restricting disposal to specified high-risk parties, and empowering the Treasurer to issue directions to third parties in cases of actual or apprehended contraventions by investors.

• Expanded scrutiny in sensitive sectors: Mechanisms to designate emerging sensitive sectors for mandatory notification and approval, and to introduce post-acquisition review powers in rare cases where risks materialise after approval.

• Associate relationships, influence and control: Broadening the definition of “associate” and lowering the thresholds for regulatory scrutiny, capturing a wider range of relationships that may confer influence or control.

• Information-sharing: Expanding the circumstances in which protected information can be shared with other regulators, national security partners, and, in some cases, the public, while maintaining appropriate safeguards for commercially sensitive data. Also flagged is the potential for a public register of non-compliance and/or infringement notices, similar to existing registers maintained by ASIC, APRA, and the ACCC.

• Penalties: Allowing the penalty amounts for infringement notices to be adjusted for multiple contraventions of a single provision, and to cover a broader range of breaches, including failures to keep records or respond to information requests.

• Penalising avoidance: The introduction of civil and/or criminal penalties for conduct intended to avoid the application of the foreign investment framework.

Minor and technical reforms

The discussion paper also invites feedback on minor and technical amendments, such as clarifying terminology, refining the treatment of certain asset classes (eg., Australian Carbon Credit Units) and addressing other operational issues identified through stakeholder experience.