Market Integrity Update - Issue 98 - October 2018

Issue 98, October 2018

Acting against misleading ICOs and crypto-asset funds

We’d like to remind investors that initial coin offerings or token-generation events (together, ICOs), are highly speculative investments that could be a potential blockchain project or scam. While the potential returns may look attractive, these projects are mostly unregulated and the chance of losing your investment is high.

Before you decide to invest in an ICO, we advise that you do a lot of research. Look for forums or websites that explain the product in detail and present a balanced perspective.

We’ve recently intervened to disrupt several ICOs, after identifying misleading or deceptive statements in whitepapers and marketing and promotional materials.

We’ve also seen offers targeting retail investors where the issuer:

  • doesn’t hold an Australian financial services licence
  • appears to operate an illegal unregistered managed investment scheme.

Following our intervention, these offers have either been put on hold or restructured to comply with the applicable requirements.

Particularly problematic for retail investors, these offers may raise capital without appropriate investor protections in place. Where money is raised from investors, it’s important that offerors fully understand their legal obligations and ensure disclosure isn’t misleading or deceptive.

In one instance, we issued a final stop order on a Product Disclosure Statement (PDS) proposing to offer units in a fund investing in a range of crypto-assets because of misleading statements in the PDS. The issuer agreed to the final stop order which meant no units could be obtained under the current PDS.

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Crowd-sourced funding extended to proprietary companies

The law has been updated to allow proprietary companies to raise money from the public under the crowd-sourced funding (CSF) regime.

Previously only available to certain types of public companies, the CSF regime allows companies to raise funds in a flexible and low-cost way by reducing some of the regulatory requirements.

Investor protection remains an important element of the new regime, and proprietary companies wishing to make CSF offers must:

  • have a minimum of two directors
  • prepare annual financial and directors’ reports in accordance with accounting standards
  • have their financial reports audited once they raise $3 million or more from CSF offers
  • comply with the existing related party transaction rules that apply to public companies.

These new obligations will help to ensure the sustainability of the CSF regime and give investors confidence in the market. We’ll continue to monitor CSF offers and related advertising to ensure investors are adequately protected.

The new regime is expected to commence on 19 October 2018, with updates planned to Regulatory Guide 261 Crowd-sourced funding: Guide for public companies and Regulatory Guide 262 Crowd-sourced funding: Guide for intermediaries to assist those interested in using the regime.

Further information can be obtained by contacting us at

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Rules approved for new external dispute resolution scheme

We’ve approved the rules and terms of reference for the new external dispute resolution body to hear complaints from your retail clients from 1 November 2018. 

The Australian Financial Complaints Authority (AFCA) will replace the two existing ASIC-approved external dispute schemes - the Financial Ombudsman Scheme (FOS) and the Credit and Investments Ombudsman (CIO) - and the statutory Superannuation Complaints Tribunal (SCT).

AFCA will deal with complaints about financial firms including banks, credit providers, insurance companies and brokers, financial advisers, stockbrokers, managed investment schemes and superannuation trustees.

We’ll retain our oversight role of the financial services dispute resolution framework and will receive reports from AFCA about systemic issues and serious contraventions by financial firms.

All financial firms that are required to have a dispute resolution system to deal with complaints from consumers and small businesses should have become members of AFCA by 21 September 2018.

Further information can be obtained by visiting AFCA’s website.

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Relief and updated guidance on short selling

We recently issued relief and modifications to the laws in relation to short selling, including the remaking of other short selling instruments that were due to expire (sunset).

ASIC Corporations (Short Selling) Instrument 2018/745 (the Instrument) took effect on 28 September 2018, following consultation earlier this year.

In particular, the Instrument provides the following new relief and modifications:

  • conditional class relief for eligible market makers to make naked short sales of exchange traded funds (ETFs) and managed funds, when making a market in those funds
  • relief for naked short sales by a seller during a deferred settlement trading period in certain circumstances
  • relief for naked short sales that may occur in the context of certain initial public offering sell downs by a saleco or ‘special purpose company’
  • an option for global firms to calculate their short positions as at a ‘global end calendar time’.

Regulatory Guide 196 Short selling has been updated to reflect the new relief and modifications under the Instrument.

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Consolidated MIRs to apply to NSXA market participants

National Stock Exchange of Australia (NSXA) market participants that are not participants of any other securities market must comply with the ASIC Market Integrity Rules (Securities Markets) 2017 from Monday 5 November 2018, and the ASIC Market Integrity Rules (Securities Markets – Capital) 2017 from Monday 6 May 2019 (together, the Rules). 

We’ve engaged with NSXA market participants to:

  • advise that the consolidated Rules contain additional requirements that didn’t form part of the previous NSXA rulebook
  • ensure they’re aware of their new obligations and the relevant guidance under Regulatory Guide 265 Guidance on ASIC market integrity rules for participants of securities markets
  • understand their plans for preparing and implementing changes to their compliance arrangements.

Under the consolidated Rules, some of the additional requirements for NSXA market participants are to:

  • ensure trading by connected persons is pre-approved in writing
  • report suspicious activity
  • comply with the risk-based capital requirements, including maintaining minimum capital levels
  • provide us with monthly risk-based returns detailing capital levels.

We’d like to thank all those NSXA market participants for their cooperation and engagement with the process.

Further information can be obtained by contacting your Intermediary Supervisor.

  • †Read the media release on our consolidated market integrity rules

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Entity identifier requirement under OTC derivative transactions reporting rules

From 1 April 2019, financial entities that are required to report trades in over-the-counter (OTC) derivative transactions under the ASIC Derivative Transaction Rules (Reporting) 2013 must report a standard identifier for any company or other entity (excluding individuals) that is a counterparty to a transaction in an (OTC) derivative, including contracts for difference (CFD) and margin FX.

The standard identifiers to meet this requirement are:

  • Legal Entity Identifier (LEI)
  • if no LEI or interim entity identifier is available for the entity, an
    international business entity identifier issued by Avox Limited (AVID)
  • if no AVID is available, a Business Identifier Code (BIC).

Should an entity not have one of the three standard identifiers, our preference is that it obtains an LEI. LEIs are relatively cheap and easy to acquire and may be obtained either from a domestic or an overseas entity that is accredited or endorsed to issue LEIs, or the local registration agent of such a firm.

Financial entities (including banks, brokers and CFD issuers) that are subject to OTC transaction reporting obligations may not be able to execute a trade with a counterparty entity (including foreign entities) that has not registered and provided the standard identifier to the relevant financial entity.

Further information on LEIs can be obtained by visiting the Global LEI Foundation’s website.

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Report on climate risk disclosure by Australia’s listed companies released

Our recent report on climate risk disclosure by Australia’s listed companies has found more can be done to improve consistency in disclosure practices across listed companies, with very limited climate risk disclosure outside of the top-200 companies.

Report 593 Climate risk disclosure by Australia’s listed companies (REP 593) sets out our high-level findings and recommendations for listed companies following our review of disclosure practices in the market.

The review examined climate risk disclosures:

  • by 60 listed companies in the ASX 300
  • in 25 recent initial public offering (IPO) prospectuses
  • across 15,000 annual reports.

Of the 60 listed companies in our ASX 300 sample, 17% identified climate risk as a material risk to their business. While most of the reviewed ASX 100 entities had considered climate risk to the company’s business to at least some extent, disclosure practices were considerably fragmented, with information provided to the market in differing forms across a wide range of means of disclosure.

In some cases, the review found climate risk disclosures to be far too general, and of limited use to investors. Outside of companies in the ASX 200, there was very limited climate risk disclosure by listed companies.

We encourage listed companies and their directors and advisors to:

  • adopt a probative and proactive approach to emerging risks, including climate risk
  • develop and maintain strong and effective corporate governance which helps in identifying, assessing and managing risk
  • consider how best to comply with the law where it requires disclosure of material risks
  • disclose meaningful and useful climate risk related information to investors.

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Last updated: 30/03/2021 09:22