ASIC is calling on market intermediaries to strengthen their supervisory arrangements for recording and monitoring representatives’ business communications to prevent, detect and promptly address misconduct and contraventions of financial services laws.
ASIC’s Supervising your representatives’ business communications (INFO 283) responds to concerns that the use of unmonitored communication channels and encrypted communication applications in business communications can significantly increase the risk of misconduct going undetected.
The Information Sheet gives practical guidance to market intermediaries (investment banks, participants of exchange and over-the-counter markets, securities dealers and corporate advisers) about managing these risks, embedding supervisory arrangements for business communications and reviewing their effectiveness in compliance with their obligations under the Corporations Act 2001 and ASIC market integrity rules.
ASIC Commissioner Simone Constant said, ‘Bankers, dealers and market participants have important roles as gatekeepers to Australia’s financial markets and stewards of market integrity.
‘We expect them to maintain strong and effective supervisory arrangements to manage the risk of harm to clients and to market integrity. Misconduct, such as the misuse of confidential or inside information, market abuse, insider trading, market manipulation, bribery and fraud, hurt Australian investors by damaging their confidence and wiping value from their investments.
‘Rapidly evolving technologies, use of personal devices and wider adoption of remote or hybrid working arrangements present challenges for monitoring and recordkeeping for licensees. We expect market intermediaries to periodically review their arrangements for supervision of business communications so they are working effectively, and are appropriate for the nature, scale, and complexity of their business. With almost every working or retired Australian having a share in Australian markets, market integrity is a duty owed to every Australian,’ Ms Constant said.
The Information Sheet deals with common challenges and pitfalls for market intermediaries in effectively supervising their representatives’ business communications, including:
- the emergence of new and popular communication channels that are outside the scope of their surveillance systems;
- weak or no controls to identify where data used in surveillance systems is incomplete or erroneous; and
- reliance on ‘out of the box’ settings of vendor-provided communication surveillance systems and a failure to routinely calibrate alert parameters.
The risks arising from the widespread use of personal devices and unapproved communication channels were also highlighted by the recent actions taken by the U.S. Securities and Exchange Commission and Commodity Futures Trading Commission. These regulators reached record-breaking settlements with dozens of financial institutions for failures to maintain and preserve electronic communications.
Background
Market intermediaries that are Australian financial services licensees are required to take reasonable steps to ensure their representatives comply with the financial services laws. This includes having adequate arrangements to monitor and supervise representatives’ communications as they relate to the business of the licensee.
Since 2016, ASIC continues to monitor the performance of substantial remediation programs required under court enforceable undertakings (CEUs) with several market intermediaries to (among other changes) strengthen systems, controls, training, guidance and frameworks for the monitoring and supervision of representatives in relation to spot foreign exchange contracts and BBSW-referenced products. Insights from this work are incorporated in INFO 283.
