ASIC calls for comment on managing conflicts of interest

TheAustralian Securities and Investments Commission(ASIC) has called for industry comment on draft proposals relating to conflicts of interest management obligations for licensees under the Commonwealth Government’s Corporate Law and Economic Reform Program (CLERP 9) proposals.

The guidelines, presented in a public proposal paper titled ‘Licensing: Managing conflicts of interest’, have been prepared in light of the findings of ASIC’s surveillance report on research analyst independence, released in August this year.

The report revealed “systemic weaknesses in the ability of entities to adequately identify, manage and disclose conflicts of interest” and “limited consistency in compliance practices and procedures across the investment banking industry in relation to sell-side research analysts”.

The policy proposal paper gives details of ASIC’s general expectations of licensees to control, disclose and avoid conflicts of interests, as well as having appropriate procedures to deal with conflicts should they arise, but addresses the requirements for research report providers in more detail.

ASIC executive director of policy and markets regulation Malcolm Rodgers says, “CLERP 9 proposes to impose, for the first time, a direct and specific obligation on licensees to have adequate arrangements to manage their conflicts of interest.”

“There is widespread interest in the management of conflicts of interest for research report providers, such as securities analysts. If the new obligation becomes law, licensees will want to understand what arrangements they may need to have in place to comply,” Rodgers says.

“ASIC is providing guidance on our thinking in this area, and will consult fully with industry, professionals and consumers about our approach to the new obligation.”

A report published in September by the Technical Committee of the International Organisation of Securities Commissions (IOSCO) entitled ‘Statement of Principles for Addressing Sell-side Securities Analyst Conflicts of Interest’ has also influenced the release of the proposal paper.

The Treasurer has requested comments on the draft CLERP 9 Bill by November 10, and ASIC understands the Government proposes to commence the new conflicts management obligation on July 1 2004 at the earliest.