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The economic disruption caused by the Covid-19 outbreak drove an unprecedented demand for corporate financing, but in some cases financial lifelines came with strings attached. Now, global securities regulators are issuing guidance to address conflicts in debt financing.

The International Organization of Securities Commissions (IOSCO) published guidance for regulators on combatting conflicts of interest and the risk of misconduct that can occur when raising debt capital.

Alongside routine conflicts, the guidance aims to deal with specific concerns that emerged during the Covid-19 crisis — lenders pressuring clients to promise future investment banking mandates in exchange for providing financing during crisis conditions.

In some cases, IOSCO said, these future mandates just involved the banks participating in future fee pools, without providing any actual services.

Regulators are concerned that “banks and lenders behaving in this way may be acting opportunistically and not treating their clients fairly.”

This, in turn, could erode the integrity of the capital raising process, IOSCO noted.

In addition to this extreme example, more typical conflicts can arise in the debt underwriting process, such as the pricing and allocation of securities, and the quality of disclosure available to investors.

“Conflicts of interest and associated conduct risks can weaken investor confidence and undermine debt capital markets as an effective vehicle for issuers to raise funding,” it said.

IOSCO’s guidance is intended to help regulators identify and address these risks in their own markets.

Recently, a government task force in Ontario recommended introducing a prohibition on bundling commercial lending and capital markets services, citing concerns from independent investment dealers about anti-competitive behaviour by the big bank-owned dealers.

The consultation period on the task force’s recommendations ended on Sept. 7. Its final recommendations are expected by the end of the year.