The Australian Securities and Investments Commission (ASIC) has required research provider Far East Capital Limited (FEC) to include specific, prominent and meaningful conflicts of interest disclosure in its research reports.

ASIC found that FEC, a Sydney based boutique research provider specialising in the resources sector, published research reports on its website about specific companies but did not sufficiently disclose that it received capital raising and corporate advisory fees from some of the companies. FEC's disclosure of associations, shares and roles held within the companies was also not sufficiently specific, prominent or meaningful.

FEC has cooperated with ASIC and has made changes to its disclosures on conflicts in its research publications and on its website.

Management of conflicts of interests is a strong focus in ASIC's work, because failure to manage and declare conflicts of interests can lead to poor consumer outcomes and breaches of financial services laws.

As part of the requirement to improve disclosure, FEC also removed the words 'independent' and 'objective' from its website.

ASIC has recently clarified acceptable uses of the word independent, and reminds financial services providers that they have a responsibility to accurately describe the services they offer (17-383MR).

Background

In 2016 an ASIC taskforce looked into the management of conflicts of interests and the handling of confidential information and Report 486 Sell-side research and corporate advisory: Confidential information and conflicts of interest details the review's findings and highlights areas of concern requiring a greater focus and care (16-250MR).

In December 2017, ASIC also released Regulatory Guide 264: Sell-side research (RG 264), which provides specific guidelines on how an Australian Financial Services (AFS) licensee should appropriately manage conflicts of interest during capital raising transaction. RG 264 also provides general guidance for AFS licensees on the identification and handling of inside information by research analysts, and about the structure and funding of sell-side research teams. 

In June 2017 ASIC updated its guidance on Regulatory Guide 175 Licensing: Financial product advisers – conduct and disclosure (RG 175), to provided further guidance on the use of terminology that implies independence. Financial services providers can only use these terms if they meet the requirements set out in s923A of the Act, including that they do not receive commissions, volume-based payments, or other gifts or benefits, and operate without any conflicts of interest (17-383MR).