Market Integrity Update - Issue 96 - August 2018

Issue 96, August 2018

Implementing industry funding and your obligations

Regulated entities should have recently received a letter from us about their new industry funding obligations. The letter outlines their requirement to register for the ASIC Regulatory Portal (Portal) and submit their business activity metrics before 27 September 2018.

The Portal was developed in response to changes in industry funding laws, which require regulated entities to be invoiced annually for the regulatory services we delivered in the previous financial year.

Fees for service

The fees we charge for specific regulatory activities changed on 4 July 2018, increasing in most cases. We have also introduced a new fee for market integrity rule (MIR) waiver applications, and applicants will be sent an invoice after we receive their application. The process for submitting MIR waiver applications otherwise remains unchanged.

This is the second phase of the introduction of industry funding for ASIC. While around 90% of our regulatory activities will now be recovered from industry funding levies, the remaining 10% will be recovered through fees-for-service.

Market operators and market participants who use our market entity compliance system (MECS Portal) are also required to log into the new Regulatory Portal to submit their business activity metrics. However, market operators and participants will continue to use the existing MECS Portal for other regulatory transactions until next year when the MECS Portal will be merged with the new Regulatory Portal.

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How client money reforms impact your business

We’d like to remind market intermediaries to carefully consider the impact of the recent client money reforms on their business.

The circumstances in which an Australian financial services (AFS) licensee (and not just those licensees that deal in OTC derivatives) may use derivative retail client money changed from 4 April 2018. 

An AFS licensee can now only withdraw derivative client money from the client money account under s981D when:

  • the entry into the derivative was or will be cleared through an authorised clearing and settlement facility
  • the licensee incurred the obligation, in connection with the derivative, under the operating rules of the facility (e.g. the obligation is incurred by the licensee as a member of the facility).

This means if the licensee or market intermediary is not actually an authorised clearing participant, they’ll no longer be able to use derivative retail client money to satisfy client margin obligations.

If you’re unclear about the impact of the client money reforms on your business, we encourage you to seek professional advice.

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Taking aim at leaked investor education reports

We’re concerned that references to investor education reports are being made public before the prospectus for an initial public offering (IPO) has been lodged with us.

Sometimes articles based on these reports appear to promote the IPO in a way that may be misleading, particularly for retail investors. The law significantly restricts the ability to publicise IPO offers to retail investors before a prospectus is lodged with us. This protects retail investors who are at risk of making their decisions on incomplete and unbalanced information.

When we see this type of publicity, we may require the IPO company to publish a retraction, explaining that we’ve asked them to do so. The retraction will also need to explain that the information does not come from the prospectus and should not be relied on.

We may also obtain investor education reports and review them for compliance with Regulatory Guide 264 Sell-side research. This may result in further regulatory actions that may be detrimental to the IPO.

We encourage investment banks and licensees involved in managing IPOs to have robust processes to ensure their investor education reports do not become public before the prospectus is lodged.

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Court enforceable undertaking accepted from CBA

We’ve accepted a court enforceable undertaking from Commonwealth Bank of Australia (CBA) in relation to their bank bill trading business and their participation in setting the Bank Bill Swap Rate (BBSW). The BBSW is a key benchmark and reference interest rate in the Australian financial system.

We commenced legal proceedings in the Federal Court against CBA in January 2018, alleging that CBA traded in a manner that created an artificial price and a false appearance in relation to certain financial products that were priced or valued off BBSW.

CBA admitted to attempting to influence the BBSW set on five occasions in 2012, and also failing to do all things necessary to ensure they provided honest and fair financial services and adequately trained traders.

As part of the undertaking, CBA will make a $15 million community benefit payment. CBA will also make a $5 million payment towards the cost of our investigation and legal costs. CBA will also engage an independent expert to assess changes CBA has made (and will make) to its policies, procedures, systems, controls, training, guidance and framework for the monitoring and supervision of employees and trading in Prime Bank Bills.

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Setting our sights on technology-enabled crime

Technology-enabled financial crime threatens the integrity of Australia’s financial markets.  Our dedicated technology-enabled team has been established to deal with the increase of market offending enabled by technology. This year it will focus on the detection of hacking and account intrusions in our markets.

Businesses that interact with Australia’s financial markets are high-value targets of cybercrime as they store valuable information. This can include confidential information, personal details about clients and consumers, business strategies and advice provided to other organisations. We have observed cyber-attacks using malicious software to infiltrate their private networks and obtain private information.

Hacking, false identities and scams continue to be used to commit financial market crimes. An example of this is share fraud. Criminals use a variety of identity harvesting techniques to steal an investor’s details, including shareholding information. Using fraudulent identification documents, they pose as the investor to sell the investor’s shareholdings, then transfer the proceeds to bank accounts that have also been created using fraudulent identification documents. Often the victim will be unaware of the theft for some time.

Criminals can also use illegally obtained confidential information to undermine the integrity of the market. This can occur by pre-empting market reactions to unannounced information or triggering a market reaction by leaking non-public information.

If you have poor cyber-resilience capabilities, including poor practices and weak IT infrastructure, you are more likely to be an attractive target of cybercrime. To protect your clients, and our markets, we’ll be closely monitoring firms who fail to put in place adequate technological and operational risk controls.

The work of our technology-enabled team has resulted in IT consultant Stephen Oakes pleading guilty to 10 charges relating to insider trading and unauthorised computer access on 23 July 2018.

To help firms improve their cyber resilience, we’ve published several cyber resilience resources on our website.

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Last updated: 30/03/2021 09:22