ASIC Vows to Bring OTC Markets Supervision in Line with Listed

In its latest five-year Corporate Plan, the Australian Securities and Investment Commission (ASIC) has confirmed previous hints that the regulator’s wholesale OTC market oversight will be brought into line with those in listed markets

In the report, ASIC states, “We are enhancing our oversight of market infrastructure providers and intermediaries in wholesale over-the-counter (OTC) markets to complement our approach to supervision of securities and futures markets. In particular, we have enhanced our supervision of the largest and most complex market intermediaries including Macquarie Group, UBS and Pershing. This includes more proactive engagement to facilitate early detection of actual and potential harms, and to foster constructive and timely behavioural change.

“Among other things, we are developing a deeper understanding of the governance arrangements and internal systems and controls that can help prevent poor conduct,” the regulator continues. “Our targeted engagements include onsite reviews and meetings with staff and key decision makers. This more intensive supervision allows ASIC to efficiently and effectively identify harms, provide faster feedback and guidance to market intermediaries and industry, and take further regulatory action when needed.”

Themes covered by ASIC’s onsite reviews include culture and conduct risk programmes and training, corporate governance, compliance arrangements, pre-trade and post-trade controls, and client disclosure arrangements.

The moves were noted by ASIC’s Commissioner Cathie Armour recently in a speech to an ACI Australia seminar in Sydney, during which she also outlined ASIC’s new product intervention powers. In the Corporate Plan, ASIC says that it is developing regulatory guidance the new product intervention powers, including how it uses them and how it makes a product intervention order. “We are examining our proposed use of the power in the short term credit industry, where significant consumer harm may arise from a particular business model designed to provide short term credit at high cost to vulnerable consumers,” it states. “We are further consulting on the use of the power to ban the issue and distribution of OTC binary options to retail clients, and impose conditions on the issue and distribution of OTC contracts for difference to retail clients.”

Linked to the product intervention power are the new design and distribution obligations, requiring issuers and distributors to design, market and distribute financial and credit products that meet consumer needs. Issuers must identify, in advance, the consumers for whom their products are appropriate and direct distribution to that target market

Colin Lambert

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