ASIC has released a consultation paper outlining proposed updates to its conflicts management guidance for financial services businesses.
The proposed changes are intended to align the guidance with developments in law and policy and have been informed by ASIC’s markets surveillance work.
In its consultation paper, Proposed update to RG 181 Licensing: Managing conflicts of interest, ASIC warned that conflicts of interest were “a key risk in private markets”.
It outlined examples where risk arises from related party transactions and fee and distribution arrangements.
“They are a significant driver of potential misconduct and often have adverse outcomes for market efficiency and investor fairness,” it said.
“For this reason, our update to RG 181 is a key deliverable of ASIC’s work on public and private markets and aligns with our strategic priority to improve transparency and consistency across products and markets.”
As part of the process of updating RG 181, ASIC said it was considering feedback gathered through its public and private markets work and the insights it had received from its surveillance activities.
“Specifically, in updating RG 181, we have considered conflict-related themes raised in those submissions to ASIC’s discussion paper and we have added new examples relating to public and private markets, such as private equity deals, fund governance, asset valuation and equity allocation,” it said.
“The final version of updated RG 181 will be informed by findings from our surveillance work as well as insights provided by experts we have engaged to examine private credit markets.”
The draft RG 181 sets out general principles that support the application of the conflicts management obligation.
These include setting out the intended scope and application of the law, identifying a range of conflicts Australian Financial Services (AFS) licensees may need to consider and establishing what “adequate arrangements” to manage conflicts should involve.
It also includes providing more holistic and nuanced guidance on effective conflicts management and providing an inventory outlining key legal obligations and information related to the conflicts management obligation.
The corporate regulator said it welcomes feedback on the draft and intends to release the final guidance later this year.
ASIC commissioner Kate O’Rourke said conflicts management was a core obligation for financial services businesses and helps promote consumer protection and market credibility.
“Conflicts of interest are more than mere moral dilemmas. They can undermine trust, integrity and performance, causing serious harm to consumers, investors and overall market confidence,” O’Rourke said.
The updated guidance includes a roadmap that signposts other related conflicts management obligations that AFS licensees need to be aware of, she said.
“These updates support ASIC’s strategic priority to improve transparency and consistency across products and markets and aim to ensure financial markets operate efficiently and fairly,” O’Rourke said.
