For the first time in over 20 years, the Australian Securities and Investments Commission (ASIC) is updating its guidance on managing conflicts of interest — which it says are a key source of investor harm.
ASIC issued a consultation paper seeking feedback on proposed revisions to its guidance on dealing with conflicts, last updated in 2004.
“[Conflicts of interest] are a significant driver of potential misconduct and often have adverse outcomes for market efficiency and investor fairness,” the paper noted.
The proposals aim to enhance the industry’s treatment of conflicts and align the guidance with changes in law and regulatory policy over the past 20 years.
Since the current guidance was published, there have been “significant developments,” ASIC said, including the introduction of a best-interest duty for financial advisors, prohibitions on certain conflicted compensation models and reforms to market integrity rules.
Among other things, the revised guidance sets out how firms can comply with their conflicts management obligations; spells out the types of conflicts that need to be identified and managed; and details the kinds of arrangements needed to properly manage conflicts.
The proposals also strengthen guidance on specific conflicts in public and private markets, including those that can arise in private equity deals, fund governance, asset valuation and equity allocation decisions.
“Conflicts of interest are more than mere moral dilemmas. They can undermine trust, integrity and performance, causing serious harm to consumers, investors and overall market confidence,” said ASIC commissioner Kate O’Rourke in a release accompanying the paper.
“These updates support ASIC’s strategic priority to improve transparency and consistency across products and markets, and aim to ensure financial markets operate efficiently and fairly,” O’Rourke said.
The proposals are open for consultation until Sept. 5.
Later this year, ASIC also intends to publish findings from its surveillance of auditors’ compliance with independence and conflicts management obligations.