The Australian Securities and Investments Commission (ASIC) today published guidance to help research report providers, including research analysts, manage conflicts of interest. This is set out in Managing conflicts of interest: An ASIC guide for research report providers (the Guide).

‘Research report providers will have, for the first time, specific guidance on the issues they should take into account when designing, implementing and maintaining conflicts management arrangements’, ASIC’s Deputy Executive Director of Financial Services Regulation, Ms Pamela McAlister said.

The Guide supplements Policy Statement 181 Licensing: Managing conflicts of interest [PS181], and is directed at traditional providers of investment product research, often known as research analysts, securities analysts or research houses.

‘Research report providers play a fundamental role in getting timely and accurate information to the market’, Ms McAlister said.

‘Domestic and overseas experience has confirmed the importance of research report providers managing conflicts of interest to promote integrity in research’, Ms McAlister said.

The Guide takes into account other international regulatory developments including the Statement of Principles for Addressing Sell-side Securities Analyst Conflicts of Interest published by the International Organization of Securities Commission (IOSCO).

Copies of the Guide and PS 181 are available from the ASIC website at www.asic.gov.au or by calling the ASIC Infoline on 1300 300 630.

The attachment provides more detail regarding the Guide.

End of release

Download a copy of:

• Managing conflicts of interest: An ASIC guide for research report providers
• Policy Statement 181 Licensing: Managing conflicts of interest

Attachment to IR04-56: ASIC issues guidance on managing conflicts for research analysts

From 1 January 2005, the Corporations Act 2001 will impose a specific obligation on Australian financial services licensees (AFS licensees) to have adequate arrangements to manage conflicts of interest.

ASIC has already published the policy statement, Licensing: Managing conflicts of interest (PS 181) which focuses on broad principles and guidance for licensees generally in managing conflicts of interest. The Guide issued today is designed to provide more specific guidance for licensees who provide research reports. Key definitions, including ‘research report’ and ‘research report provider’ can be found in Section 1 of the Guide.

ASIC intends to take this Guide, together with PS 181, into account in administering the law, including when considering whether to take regulatory action against any particular research report provider. In our view, licensees whose conflicts management arrangements are not consistent with the Guide are less likely to be complying with their obligations and will be exposed to a greater risk of regulatory action.

The Guide deals with how research report providers can control, avoid and disclose conflicts of interest. The following is a brief summary of the Guide.

Controlling and avoiding conflicts of interest

When controlling and avoiding conflicts, research report providers should consider, among other things:

1. information barriers: if possible, research staff should be structurally and physically separated from staff performing investment banking, corporate advisory or dealing functions;
2. the provision of non-research services: research report providers should consider not providing research on a product issuer while non-research services are also being provided to the issuer (‘quiet period’);
3. benefit and remuneration arrangements: remuneration of research staff should not be contingent on the introduction or retention of clients for non-research areas, and should not relate to any particular investment banking, corporate advisory or dealing transaction; and
4. trading restrictions: research report providers need to ensure they do not unfairly trade ahead of the distribution of a research report, and that they have formal approval and review policies for trading by research staff.

For more information on controlling and avoiding conflicts refer to Section 2 of the Guide.

Disclosing conflicts of interest

Research report providers should disclose conflicts of interest to all clients. Such disclosure should generally include:

1. any material interests in the subject of the report;
2. any benefits likely to be received from the report;
3. any relationship with the product issuer;
4. any help given by the product issuers;
5. the date and party responsible for the report; and
6. the reasons behind the report’s recommendations.

Research report providers should also take reasonable steps to ensure the end-users of research have access to conflicts disclosures.

For more information on disclosing conflicts, see Section 3 of the Guide.