ASIC surveillance for researchers
Research providers will be subjected to targeted surveillance by the Australian Securities and Investments Commission (ASIC).
The regulator announced its intention to impose the surveillance regime as part of its announcement around the release of an updated policy guide which it said was intended to improve the quality and reliability of research reports.
It said the guidance was intended to apply to a broad range of research providers on investment products, such as research analysts, securities analysts or research houses and includes measures to address the management of conflicts of interest, and potential conflicts evolving out of business models.
Releasing the guidance, ASIC Commissioner, Peter Kell said that there had been recent serious concerns about the quality of research issued by research providers "particularly in light of various investments failures that had been rated highly".
"Research report providers are important gatekeepers in the financial services industry, standing between product issuers and the investors who purchase investment products either directly, through advisers or through their super fund," he said. 'It is particularly important for research providers to manage conflicts of interest that may affect the ultimate research rating."
Kell said ASIC had undertaken extensive consultation with the industry and broader investment community to produce guidance that would facilitate credible and reliable research "but also make clearer its limitations to the user".
The ASIC announcement said the regulator expected research providers to give clients or subscribers information to help them understand the research service, including the:
- methodology applied and any limitations that apply to it;
- process by which products are selected for coverage and filters applied; and
- spread of ratings (how many products or what percentage each type of rating received over the past year, for example).
Research house Lonsec publicly welcomed the move, which it said would "further support efforts to 'raise the bar' on professionalism, manage conflicts of interest and improve confidence in the independence and quality of research".
Lonsec chief executive Amanda Gillespie also welcomed ASIC's statement that it would not require avoidance of conflicts of interest associated with direct payments from product issuers to research houses.
"It is pleasing that ASIC has acknowledged that indirect conflicts can be as potentially corrosive as direct conflicts to the integrity of the research and that it will not require the latter to be banned," she said.
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