Market Integrity Update - Issue 108 - September 2019

Issue 108, September 2019

Our priorities for supervising market intermediaries in 2019–20

We recently published our priorities for supervising market intermediaries in 2019–20, based on the strategic priorities in the ASIC Corporate Plan 2019–23. We’re focusing on:

  • high-deterrence enforcement action
  • improving governance and accountability
  • protecting vulnerable consumers.

To achieve these priorities, the most significant pieces of work we will undertake include:

  1. Fixed income, currencies and commodities (FICC) markets – targeted transaction reviews, enhanced oversight of bank bill markets, expansion of our program of onsite reviews, compliance with foreign exchange (FX) and BBSW court enforceable undertakings, review of allocation practices for debt capital markets transactions, monitoring the impact of global LIBOR transition, and OTC trade reporting.
  2. Enhanced supervision for market intermediaries – firms that have the most significant market presence, or pose the greatest risk to our priorities, should expect a more intensive level of supervision across all areas of their business.
  3. Risky OTC derivatives – we plan to protect retail investors by educating them about the risks of trading these products, holding individuals and licensees to account for poor conduct, and using a range of our regulatory and enforcement powers to raise industry standards.
  4. Other priority projects – safeguarding retail client money, suspicious activity reporting, CHESS replacing readiness, intermediary resilience and capital adequacy, financial advice by stockbrokers, improving governance, accountability and compliance, equity capital raising and sell-side research, and trade surveillance.

We encourage you to plan for the year ahead by assessing your governance framework against these priorities.

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Increased penalties for breach of market integrity rules

Market intermediaries are reminded that a breach of any market integrity rule now carries a maximum penalty of 15,000 penalty units (currently $3.15 million) for bodies corporate under an infringement notice.

The penalty amount will be determined by the Markets Disciplinary Panel, considering the nature of the conduct. Previously, the amount payable was guided by three tiers of severity, and the maximum amount was three-fifths of the penalty amount for that rule.

The change follows the enactment of the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 on 13 March 2019.

In the case of matters that result in a civil proceeding, a new formula will be used to determine the penalty imposed. For bodies corporate, the maximum penalty is now 2.5 million penalty units (currently $525 million).

The new penalty provisions strike an appropriate balance between providing an adequate deterrent for misconduct and an efficient way to avoid a breach going to court. They are also intended to ensure that penalties do not simply become a cost of doing business, reflecting the Act’s overall purpose of arming regulators with the tools needed to take strong action to deter misconduct.

Regulatory Guide 216 Markets Disciplinary Panel has been updated and reflects the changes outlined above.

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AFCA rule change enabling firms to be named

We’ve approved changes to the Australian Financial Complaints Authority (AFCA) rules to allow financial firms to be named in published determinations. Consumers who are party to a complaint will continue to be anonymised in all determinations.

AFCA applied for approval to change their rules to enable identification of firms following public consultation earlier this year. In approving this change, we considered stakeholder feedback to AFCA’s public consultation, and the statutory approval criteria.

Our view is that naming firms in determinations can help identify conduct or market problems within firms or affecting specific products or services, as well as highlighting where firms have done the right thing. It will also enhance transparency and accountability of firms’ performance in complaints handling and of AFCA’s own decision-making.

To support the new rules, AFCA will soon issue updated operational guidelines which set out examples of the circumstances in which a determination naming a financial firm would not be published. This includes where naming may expose confidential information about a firm’s systems or policies.

Naming firms in AFCA determinations is part of a broader set of reforms aimed at increasing transparency in financial services. This includes Parliament giving ASIC power to collect and to publish internal dispute resolution data at firm level. The UK Financial Ombudsman Service has been naming firms in published determinations since 2013.

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EC equivalence decision on credit rating agencies and the endorsement regime

The European Commission (EC) repealed Australia’s equivalence decision on 29 July 2019, which recognised Australia’s regulatory and supervisory framework for credit rating agencies (CRAs) as equivalent with the EU’s regime.

The EC’s decision does not affect the operation of Australian credit rating agencies as no domestically licensed credit rating agencies operate in the EU under the equivalence regime.

Similarly, the EC’s decision does not affect the endorsement regime which allows credit ratings issued in Australia to be endorsed by an EU registered credit rating agency. In November 2017, the European Securities and Markets Authority deemed the Australian regime as continuing to meet the requirements of the endorsement regime. The endorsement regime allows credit ratings issued in Australia to be endorsed by an EU registered related entity. Endorsed credit ratings are recognised and able to be used for regulatory purposes in the EU.

We recently consulted with CRAs on proposed changes to their regulatory settings for operating in Australia. The proposed changes will require CRAs to, among other things, publicly consult on changes to rating methodologies, report errors in methodologies, and to provide us with a range of information on their operations on an annual basis. We’re currently reviewing the submissions received on the consultation package.

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EC recognises Australian financial benchmark regime as equivalent

The European Commission (EC) recognised the Australian benchmarks and supervisory framework as equivalent under Article 30 of the European Benchmarks Regulation in July 2019.

The decision will allow benchmarks that we’ve declared significant (e.g. BBSW, S&P/ASX200, Bond Futures Settlement Price, CPI and cash rate) to be used in the EU without the need for dual licensing.

Further, financial instruments that reference these significant benchmarks can now be held by EU firms and offered on EU markets without separate compliance with the EU benchmarks regime.

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Last updated: 30/03/2021 09:22