ASIC issues proposed guidance on sell-side research and conflicts of interest


sell side research regulation

Australia financial regulator ASIC has released a consultation paper proposing guidance on managing conflicts of interest and handling material, non-public information by Australian financial services (AFS) licensees that provide sell-side research.

Sell-side research is general financial advice prepared and distributed by a financial institution to investors to help them make decisions about financial products.

asic logoThe proposed guidance looks at the key stages of a capital raising transaction and provides specific guidelines on what AFS licensees should do to appropriately manage conflicts of interest at each stage of the process. It also sets out general guidelines for AFS licensees in the identification and handling of material, non-public information and for the structure and funding of research teams.

ASIC is seeking the views of users and providers of sell-side research such as market participants, investment banks, independent corporate advisers, buy-side investors and other interested parties.

Specifically, feedback is sought on proposals related to:

  • the identification and handling of material, non-public information
  • the management of research conflicts during the capital raising process, including the preparation and production of investor education reports
  • the structure and funding of research departments

ASIC Commissioner Cathie Armour said,

The integrity of sell-side research directly affects the integrity of financial markets and investor confidence in those markets.  This is particularly relevant during the capital raising process.

Where material, non-public information is mishandled or conflicts involving research are not managed appropriately, AFS licensees are at risk of breaching financial services laws, including those covering insider trading, market manipulation and misleading and deceptive conduct.

ASIC invites submissions to its proposals, which are due by August 31, 2017, with a view to publishing a regulatory guide on sell-side research later this year.

Background

This consultation paper follows the release in August 2016 of ASIC Report 486 – Sell-side research and corporate advisory: Confidential information and conflicts (REP 486). REP 486 set out key observations from our review of how material non-public information and conflicts of interest are handled in the context of sell-side research and corporate advisory activities.

ASIC’s review showed that AFS licensees involved in providing research would benefit from detailed guidance on managing material, non-public information and conflicts of interest. Regulatory Guide 79 Research report providers: Improving the quality of investment research (RG 79) sets out a framework that applies to a range of research issues, including the proper management of conflicts. The proposed guidance updates and supplements RG 79 in its application to sell-side research.

The ASIC proposals can be seen here (pdf).

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ASIC issues proposed guidance on sell-side research and conflicts of interest

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