Three days after they were introduced into federal parliament, the Senate has overturned Treasurer Josh Frydenberg's regulations on proxy advisers.
Proxy advisers are the people who advise big investors, including superannuation funds, on how to vote on issues impacting the re-election of company directors.
Board directors are increasingly being taken to task by superannuation funds and other big institutional investors on a broad range of issues from CEO pay and climate change to sexual harassment and money laundering.
One week out from Christmas, Treasurer Josh Frydenberg passed regulation that would have stripped these advisers of their ability to provide their services under their existing financial services licence within 52 days.
On Wednesday independent senator Rex Patrick moved to disallow the regulations, and succeeded by 29 votes to 25.
The new regulatory regime which came into effect on February 7 lasted only three days.
Senator Patrick's motion gained the support of the entire Senate crossbench, including One Nation.
"The Labor Party has sided with the Greens again to roll back reforms designed to improve the accountability and transparency of the proxy advice and superannuation sectors," My Frydenberg told the ABC.
He said after voting against a number of other government reforms, the parties had "voted against superannuation funds disclosing to their members how they voted on company resolutions".
'The Senate did its job'
But Senator Patrick told ABC News the laws would have been detrimental for shareholders.
"The Senate did its job today," he said.
"It's been wiped from the Federal Register of Legislation, hopefully forever.
"This has got to be a world record start up then shut down of a regulatory regime. It lasted three days. It was one big thought bubble from the Treasurer that just wasted taxpayers' money and the parliament's time."
Greens senator Nick McKim called it "a significant blow to the government's agenda of looking after its billionaire mates".
"We need far greater scrutiny of corporations in this country, not less," he said.
"This was nothing less than a naked attempt to shield the likes of Gerry Harvey and Solomon Lew from scrutiny and criticism.
"The Liberals should be ensuring that billionaires and big corporations pay their fair share of tax, instead of letting them off the hook in every way possible."
Shadow Assistant Treasurer Stephen Jones said it was "a great outcome for transparency and shareholders".
"I congratulate all the senators who worked together on getting a good outcome."
'Government indulged crony capitalists', says proxy adviser
There are four proxy advisers in Australia — the Australian Council of Superannuation Investors (ACSI), CGI Glass Lewis, Ownership Matters and ISS — and they give big investors advice by way of written reports, as well as verbally.
Ownership Matters co-founder and director Dean Paatsch said "the entire exercise was a cluster fiasco".
"I thank the Senate, in particular Senator Patrick, [Senator Jacqui] Lambie and One Nation, who were prepared to stand up for free market principles that the government abandoned" he said.
He said the new laws "weaponised financial services laws to punish advisers" with hefty fines and would have slapped restrictions on advisers' access to capital, as well as adding constraints on who operators can employ or associate with.
The regulations had added in a requirement for proxy advisers to send copies of their reports by email to ASX companies on the same day they deliver their advice to clients.
"Advisers were required to make notes of verbal conversations about voting issues with investors and send those records to the company," Mr Paatsch said.
He said this would have exposed advisers to fines of up to $11.1 million (for companies) and $1.1 million (for individuals) if the duties to report were breached.
Australian Council of Superannuation Investors (ACSI) chief executive Louise Davidson said she was pleased the "unprecedented rules" had been disallowed.
One of the changes would have required proxy advisers to be independent of their clients, potentially signalling the end of ACSI's current model. The organisation is owned by some of the nation's largest industry super funds.
"Proxy advisers play an important role in facilitating informed shareholder voting at listed Australian company meetings on a range of financially material issues," Ms Davidson said.
She said advisers would have faced "more onerous red tape" including the fines of up to $11 million for "small administrative errors".
CPA Australia spokeswoman Jane Rennie said: "It wasn't only that the substance of these reforms was bad, the purpose and processes underlying them were manifestly inadequate."
"The reforms were made without adequate justification, explanation, consultation and consideration," she said.
"These are pretty fundamental requirements for good lawmaking. It's appropriate that they have been disallowed in the Senate."
"This would in turn decrease the accountability of boards and management and deliver poor outcomes for shareholders, especially superannuation fund members."
But Australian Institute of Company Directors (AICD) managing director Angus Armour said they were disappointed that the regulations did not get up.
"The key substantive obligations of AFSL licence holders are difficult to argue against: that licensees provide their financial services efficiently, honestly and fairly; have adequate conflict management arrangements in place; and comply with financial services laws," he said.
"Given its highly influential role in Australian markets, it is appropriate that proxy advice is regulated to these reasonable standards."
