The Australian Securities and Investments Commission (ASIC) has released a consultation paper aimed at better managing conflicts of interest and material, non-public information (MNPI) when providing sell-side research.
The move follows ASIC’s observation of some poor and inconsistent practices among Australian financial services (AFS) licensees.
Areas of concern when it comes to managing conflicts of interests include how the research is structured and funded and decisions about share allocations in capital raisings. Also worrying is the insufficient separation of research and corporate advisory activities (particularly the involvement of research in soliciting business during the capital raising process and the influence of non-research staff over research opinions).
In addition, ASIC has found that some licensees do not have appropriate arrangements to manage situations where staff members come into possession of MNPI. It has also identified instances where pressure is placed on research analysts, either by corporate advisory staff or the company intending to raise capital or its other advisers, related to their valuation or approach to valuation.
ASIC’s chairman Greg Medcraft says the corporate regulator’s proposals include:
- Strengthening the arrangements licensees have in relation to identifying, handling and managing MNPI.
- Placing restrictions on interactions between research analysts, corporate advisory and issuing companies during the capital raising process.
- Recommendations on the structure and funding of research.
- Emphasising the role and importance of appropriate compliance and control functions.
Speaking at a conference Medcraft expected these measures to help ASIC strike an appropriate balance between research analysts’ contribution to a firm’s decision to underwrite a transaction and maintaining the integrity of research.