Professionalism and other things

A speech by Cathie Armour, Commissioner, Australian Securities and Investments Commission at the Stockbrokers and Financial Advisers Conference 2018, (Melbourne, Australia), 24 May 2018

Good morning ladies and gentlemen and thank you for the warm welcome. 

Let me begin by acknowledging the traditional owners and custodians of the lands on which we meet today and to pay my respects to elders past and present.

I have been an ASIC Commissioner focusing on markets for more than 4 years now. Each year I have really looked forward to attending this conference. It is a terrific forum to update us all on key developments in the markets.

It is also a great opportunity for us at ASIC to speak with you all about some of the issues of the day and for us to hear from you. There are many ASIC representatives here today – please don’t be shy about approaching any of us – to let us know what you really think!

Today I will speak about:

  • The importance of Professionalism in Financial Services;
  • Update you on ASIC’s approach to the areas we told you a year ago that we would focus on;
  • Foreshadow some of our future priorities.


As we are meeting today in Melbourne, the Financial Services Royal Commission is holding its third round of public hearings - also here in Melbourne.

The second round of public hearings focused on financial advice. Those hearings centred on particular case studies which highlighted examples of poor conduct. There was much public commentary about these instances; all of which exemplified the questions many Australians have about the trustworthiness of our financial services sector.

This lack of trust is something we must change. We know almost half of adult Australians have indicated they have un-met financial advice needs but only about 20% of Australians have obtained financial advice. [1] [ASIC research has found there are several reasons that Australians do not access financial advice and mistrust is one of them.[2]]

The misconduct that is raising these questions of trustworthiness are issues that ASIC has been responding to for some time. We have had some great outcomes – including $220 million in compensation for customers (with more to come) for ‘fees for no service’ conduct.

So how can we rebuild this trust? Well, ASIC believes that heightening professionalism in the finance sector will go some way to rebuilding trust.

What are the hallmarks of professionalism? Broadly these are competence and conscientiousness, that is caring about other people and acting ethically. If Australians believe that they will obtain financial advice from professionals who put the needs of their clients first then we can expect more people will have the confidence to obtain financial advice.

What I am telling you is nothing new – you already know the purpose of your firms is to promote the financial wellbeing of your clients. But in an environment where the public perception may be different, how can you demonstrate that your firms do indeed work to this purpose?

There is a big opportunity here for those firms who can change these poor perceptions or are able to attract as clients those people who need, but have not had the confidence to seek, financial advice. This opportunity can best be grasped by industry promoting or even requiring professionalism within its sector.

The Stockbroking industry, is well placed to insist on professionalism.  Your industry has, for some time worked hard to develop standards of competence and deliver qualifications like the Professional Diploma in Stockbroking.

I know yesterday there was a discussion about the Professional Standards Reforms and its impact on existing advisers.  I know you are engaging with The Financial Adviser Standards and Ethics Authority (FASEA) about these.

This focus on competence combined with:

  • a focus on customer outcomes evidenced by the low level of client complaints about stockbrokers to the Financial Ombudsman Service; and
  • the Market Integrity Rules and rigorous peer disciplinary process imposed by ASIC’s Markets Disciplinary Panel

provide very real indicators of professionalism in this sector. We look forward to Stockbrokers continuing to press forward with this notion of professionalism.

ASIC is ready to advance this goal and to support your industry as it transitions to this professional environment.


Last year we highlighted our priority areas of work with you.

To remind you, these were:

  • Technology, risk and resilience;
  • Conduct;
  • Effective Capital Markets.

It has been a busy year for us and no doubt for you as well, as we have followed these priority areas. I will touch on some elements of these priorities where we still have work to do or where we have expectations that you are making changes.

Technology, risk and resilience

We continue to monitor and assess the cyber resilience of financial market firms. We reported on this late last year in Report 555. Take a look at this report (it is a quick summary of what we found when we worked with 101 firms across financial markets) – we will be applying the principles we reported on there when we come and visit your firms for one of our regular reviews.

We have a renewed focus on data protection. Data security is a critically important part of investor protection. We expect all participants to have adequate safeguards designed to protect client information. So, you can reasonably expect us to focus on holding firms accountable for this.

Following the outage in the ASX equity markets in late 2016, we reviewed the market’s response to the outage and promised that we would review the ASX’s technology and operational risk management. This review has been conducted by ASIC and the RBA and is now complete. ASIC expects to issue a public report in the coming months.

We are engaged with the ASX and with market participants relating to the ASX’s CHESS replacement strategy.  We expect to be even more heavily involved as the project develops. I know Dom Stevens took you through the program plan when he spoke yesterday.


Last year at this conference we highlighted that we would develop more detailed standards for the provision of sell side research.

These standards are set out in a new Regulatory Guide, RG 264 which was issued in December last year.

At the time we issued the Regulatory Guide we indicated that we expected industry to be compliant by 1 July this year.

Have you tested your arrangements relating to sell side research particularly handling of inside information and the involvement of research in capital raising transactions against our guide?

We expect that you will all have done so and made necessary changes by 1 July. After that date we will be testing compliance with this Regulatory Guide.

We know that the principles set out in the guide will require adjustments in the approach many of you take to sell side research.

You told us this.

We consulted on these changes for almost 6 months. We adjusted our proposal to address much of the feedback from industry. This was a challenge as often the feedback was inconsistent. So, we have made some decisions in the guidelines that will not suit everyone.

But our surveillance and enforcement work over the last couple of years demonstrated there was a clear need for more ASIC guidance on sell side research and that changes need to be made in the practices of many firms.

Our priority is to ensure investors have confidence that sell side research represents the genuine, professional opinion of analysts. We know timely flow of information and objective research is important for fair and efficient markets.

We have tested our guidance against international practices. We are satisfied that it does not cut across existing requirements in those other markets. We are also satisfied it reflects the general approach of other securities regulators through our work on IOSCO committees.

We intend to review our guidance from time to time in the future. If there are specific aspects that may need to change for example, to reflect changes in market practice or the impact of international developments we will of course consider changes.

But our position for the time being is clear, we have provided this new guidance and we expect firms to operate consistently with it.

Effective Capital Markets

As we all know, financial markets play a central role in the growth and prosperity of our economy. Our listed equity markets facilitate capital raising and it is critical that investors have confidence to participate in these markets. Last financial year, $52 billion of new capital was raised by businesses on the ASX market. [3]

Two areas where ASIC will continue to work over the next year are allocations and listing standards in the listed equity markets.

Allocations Project

We are reviewing allocation practices in capital raising transactions.

We have issued notices to market participants requesting them to let us know when their firm is involved in a capital raising whether, an IPO or secondary raising. We may also consider significant sell downs.

Our plan is to visit you shortly after a transaction and to review with you exactly how the allocation process occurred.

We want to see fair allocation processes. We expect firms to be able to demonstrate how the allocation process reflects the interests of their issuer client. We also expect to see how the book was built, what communication was made with investors about the book build as it developed and how the potential conflict of the firm’s equities clients or personal interests are being managed. We are and will be speaking to some investors about their experiences with some of these transactions.

So please keep good records of your discussions with issuers, your bookbuild processes and the messages you provide to investors particularly about the level of demand in your book. We will be keen to see them and to talk with your teams about the process.

We will be particularly interested how you manage allocations to insiders, Chairman’s Lists and where your firm might have a pre- IPO stake.

Listing standards

ASIC has been actively reviewing the listing standards in our listed equities market. Since our review of the ASX listing standards in 2016, ASX adjusted some of its listing requirements.

We also reviewed the listing standards of the smaller exchanges, NSX and SSX. Our reviews uncovered questions about the rationale for some foreign companies listing on our markets (mostly from emerging markets). There was no real connection to Australia – no Australian business or investors and no subsequent on market trading. We are undertaking an extensive surveillance of this activity and trends. We expect market operators and issuers and their advisers to preserve the integrity of our listed markets when bringing new companies to market.

There are two clear trends occurring in Australian IPOs and Dominic Stevens mentioned these in his speech yesterday. There is a shift from domestic to global listings and a shift from old (mining, oil and gas) to new economy (technology listings). Technology listings this financial year have increased by around 50% compared to the preceding year. ASX has attracted over 100 foreign listings in the last 3 years – 39 foreign listings in 2017. These same changes are occurring in other vibrant listing markets overseas. These trends do give rise to new considerations for exchanges and investors.

This month we released our view of what good listing standards look like in our updated Regulatory Guide 172 for domestic and overseas markets.

For firms with equity capital markets businesses, we encourage you to engage with these standards. They will help you understand the principles that a market operator will be applying in considering your client’s application for listing.

We have seen some instances of apparent ‘spread manufacture’ in smaller IPOs. This is an area where you can expect us to take enforcement action.

Future Focus

What can you expect from us over the next year or so?

Market Cleanliness

Do you recall our report on Market Cleanliness in 2016?  This was an important piece of research because we tested the level of information asymmetry in the ASX listed equity markets. We know that if investors perceive they are at an unfair informational disadvantage then they will tend to reduce their exposure to a market or demand a higher return to compensate for this risk. Our research indicated that there had been a general improvement in market cleanliness over the preceding 10 years.  This conclusion was supported by international research which compared market cleanliness in our market to other overseas listed markets. 

We intend to test Market Cleanliness again – we want to see if the improvement has continued or not. If it hasn’t we will need to consider whether any of our regulatory settings need adjustment. We will let you know what we find out.

High Frequency Trading

We have formally reviewed the impact of High Frequency Trading in our markets twice now – the last time in 2015. In that review we found that other market users had become better informed and equipped to operate in an electronic and high-speed environment. We found a small amount of trading that concerned us. A “pinging “strategy that we dealt with and a small amount of latency arbitrage between the lit and dark markets. Our markets team keep a close watch on high frequency traders in our markets.

However, we are now wondering if HFT is having a greater negative impact on our equity markets now than in 2015. It is time to test once again.

Previously we tested the impact of HFT on our Futures Market. Next year we will endeavour to test the impact of HFT on our increasingly technology driven wholesale foreign exchange markets.

We are also closely monitoring the trend in dark liquidity in our equities market. The trend is growing. Smaller dark orders have doubled from around 5% of total turnover in mid 2013 when we introduced our dark liquidity price improvement rule to a level of 10% now. We are nudging closer to the levels seen before that rule was introduced. If it continues we will need to consider what further steps can be taken to ensure robust price formation in our lit market.

Retail OTC Derivative Products

Recent work with providers of Retail FX Products, Contracts for Difference and Binary Options has indicated that this market has a more significant turnover than we had previously believed. We will shortly issue a snapshot about these markets. 

Our work has revealed some poor customer outcomes - very high rates of customers who receive no returns.  We will not hesitate to take appropriate enforcement action to disrupt poor customer outcomes. In February we issued a public warning notice and obtained interim orders for the Federal Court to freeze funds now in excess of $20 million while we investigated potential misconduct in relation to retail CFD products.

ASIC will be conducting very focused reviews of some firms operating in these markets. We will also review implementation of the new client money rules for these products.

FICC Markets

If your firm also has a Fixed Income, Currency and Commodities business, you can expect to see more of us. We are expanding our regular reviews to specifically focus on these businesses.

We are also actively using data on OTC products in our markets surveillance. We can see for example, equity CFD and equity swap positions and analyse these in conjunction with our existing equity surveillance. We are developing our surveillance of other OTC markets – having now piloted new data analytic tools.

New laws governing financial benchmarks came into effect last month. We will shortly begin the process of licensing administrators of significant benchmarks. We will continue our work reviewing trading in the markets that contribute to the significant benchmark like BBSW, to ensure the integrity of the benchmark.

Technology Enabled Offending

Our enforcement efforts have been and will continue to be orientated towards misconduct that has resulted from misuse of technology. A week or so ago we announced criminal charges relating to insider trading and unauthorised access to data from a private computer network.

Finally, the way we interact with you is likely to change over the next year.  We will incorporate more on-site inspections into our work. We are keen to spend more time with you at your offices; seeing how you operate in practice. This will allow a free flow exchange of information – reducing some of the need for formal document production when we are doing regular reviews.


We all have much to do to ensure that Australians have confidence that our financial system is fair, strong and efficient.

It is a goal that ASIC has in common with Stockbrokers.

ASIC believes a focus on professionalism by industry will help garner investor trust.

For ASIC’s part, the anchor for our work is to ensure a regulatory framework that reflects our contemporary markets and meets investor needs.

This work is one best done by us all together.

Thank you.

[1] Investment Trends 2015 Direct Client Report; Productivity Commission Report

[2] ASIC Report 224 Access to financial advice in Australia, December 2010

[3] AFMA 2017 Australian Financial Markets Report

Last updated: 30/03/2021 09:28