ASIC asks research houses to manage conflicts

The Australian Securities and Investments Commission (ASIC) has released a research paper proposing research report providers, including research houses, separate their business units in order to manage conflicts of interest and improve confidence in the independence and quality of research reports.

This would involve strict physical and electronic separation between units such as the consulting and funds management services and the research business, ASIC stated.

ASIC is seeking feedback on whether conflicts of interest such as report providers accepting payments from product issuers can be effectively managed, or whether they should be avoided altogether.

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ASIC is also proposing research houses lodge a biennial report addressing research methodology and processes, internal conflicts management procedures, conflicts disclosure to users, and managing research quality and transparency.

Consultation Paper 171, Strengthening the regulation of research report providers (including research houses) (CP 171), follows conversations ASIC had with financial planning industry associations and their members. 

These conversations addressed the issues of real or perceived conflicts of interest arising from research houses' revenue models, the adequacy of skills and experience of research analysts in producing quality research, and the lack of transparency and comparability for research methodology.

There was also a disparity in the expected role of research houses between the financial advice firms and researchers themselves. Financial advisers thought research houses should cover less products in more depth, while some research houses saw it as their role to provide coverage for a range of products in each market segment, ASIC stated.

ASIC chairman Greg Medcraft said research report providers are a significant gatekeeper and can influence which products financial advisers recommend, and it is expected they adhere to high standards of conduct.




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