Market supervision priorities for the year ahead
Published by the Stockbrockers and Financial Advisers Association of Australia in the Stockbrokers and Financial Advisers Monthly, September 2017.
To keep you informed of the emerging issues in Australia’s markets, our Market Supervision team has identified three strategic priorities for 2017–18. We encourage you to plan for the year ahead by assessing your risk management framework against these priorities.
Strategic Priority 1: Technology, risk and resilience
- Consider the systems and controls that apply to your operational and technology infrastructure, including proprietary systems and third-party providers.
- Cyber threats are a risk to businesses and the stability of the financial markets. You should consider your cyber resilience profile relative to your risk appetite.
- We will continue to provide cyber self-assessment questionnaires to market intermediaries to understand market practice and provide feedback.
Technology and operational risk is a significant concern for financial markets. To prevent and address critical issues, you should review and refine your technology and operational systems and processes.
Cyber resilience practices can also be improved by considering the cyber risks to your business and taking appropriate action. You can do this by establishing robust collaboration and information-sharing networks to access the best defensive intelligence and technology.
For our part, we will continue to provide cyber self-assessment questionnaires to select market participants and check in with top tier investment banks to understand changes since our last survey. Our goal is to conduct a cyber resilience health check of our regulated population and identify common areas for improvement.
Strategic Priority 2: Conduct
- Review the culture in your organisation to ensure it drives good conduct.
- Ensure your firm is adequately managing confidential information and conflicts of interest. Review your firm’s controls (including policies, procedures, training and monitoring) to make sure you are appropriately managing risks identified by ASIC in Report 486.
- Contribute to the consultation on the proposed guidance for sell-side research.
We are continuing our focus on conduct that enhances market integrity across all market-based activities. In particular, we are asking firms to consider whether their controls are appropriate.
The handling of confidential information is an ongoing concern for us. Leaks of material, non-public information can threaten market integrity. This damages investor confidence and increase the risk of insider trading. When assessing your conduct risk, you should consider the risks identified in Report 486.
It is also important to ensure that conflicts between your firm and its clients – and between the competing interests of different clients – are properly managed. We have recently published Consultation Paper 290 which sets out proposed guidelines to manage conflicts at each stage of a capital raising transaction. It also sets out general guidelines for the structure and funding of research teams and for the identification and handling of material, non-public information.
Strategic Priority 3: Effective capital markets
- Review your systems and controls for managing conduct risk in fixed income, commodities and currencies (FICC), and equity derivatives.
- Review your capital arrangements and the capital calculations used to assess financial strength.
- Make sure you are prepared for the new client money reporting rules.
We are conducting a review of market activity in the over-the-counter (OTC) sector of the market, primarily FICC and equity derivatives. This multi-year project will be undertaken while the market considers how to implement the Global FX Code and ASIC Report 525. We will use Report 525 as a reference point for our surveillance of the FX market and, where appropriate, broader wholesale OTC markets.
Our broader OTC review will consider whether you have appropriate systems and controls in place to prevent, detect and address inappropriate conduct within your organisation (including governance, supervision, monitoring and compliance measures).
We are also conducting a high-level review of the capital framework in the ASIC market integrity rules that applies to market participants (that are not also clearing participants). We intend to consult on proposed changes.
Reforms to strengthen the protection of client money provided by retail derivative clients will commence on 4 April 2018. As part of the reforms, we have been given the power to make new client money reporting rules. Our proposals to make new rules can be found in Consultation Paper 291.
For more details about the focus areas for each of these priorities, head to our website.