ASIC has today released two reports on better and poorer practices in wholesale financial markets and encourages participants in these markets to benchmark themselves against the practices.
Report 741 Conduct risk in wholesale fixed income markets (REP 741) and Report 742 Managing conflicts of interest in wholesale financial markets (REP 742) summarise ASIC’s surveillance activities and complement existing ASIC regulatory guidance by providing practical examples of practices observed.
ASIC Commissioner Danielle Press said, ‘Wholesale financial markets, including fixed income, currencies, and commodities markets, are global, complex, and rapidly evolving. Because these markets underpin growth in Australia’s real economy by providing financing to governments, financial institutions and corporates, misconduct can have wide-reaching impacts. As such, we have increased our focus on the conduct of participants in this sector.
'Participants in wholesale financial markets should consider how they compare with these better and poorer practices. High standards of conduct and oversight, such as the better practices in the reports, strengthen market integrity and confidence in Australia's wholesale financial markets,’ said Ms Press.
REP 741 outlines key conduct risks in fixed income markets, including misleading or deceptive conduct, insider trading and market manipulation. It also summarises ASIC’s observations of differences in the maturity of participants’ management of these risks. Some participants had comprehensive monitoring and surveillance functions, which contrasted with others where there were gaps for some trading activity and communication channels.
In REP 742, ASIC reports on differing levels of sophistication in the management of conflicts of interest. Better practices involved proactive and systematic identification, mitigation, and management of conflicts of interest. Poorer practices were ad hoc, manual, and reflected a lack of prioritisation by participants.
Reporting on surveillance activities and better and poorer practices is part of ASIC’s role as a regulator and promotes high standards of conduct, market integrity and investor confidence in Australian financial markets.
Between 2019 and 2022, ASIC undertook surveillances of Australian financial services licensees as part of conflicts of interest and fixed income thematic reviews. The licensees ASIC reviewed represent a significant market share of the industry. Where ASIC identified weaknesses or areas for improvement, the findings were raised with each licensee. ASIC has been overseeing remedial actions undertaken by these licensees to address the findings.