The Australian Securities and Investments Commission (ASIC) has called on market intermediaries to enhance supervisory mechanisms and strengthen oversight of business communications among their authorised representatives.
Financial firms play a significant role in maintaining the health of Australia’s financial markets. As almost all working and retired Australians have a share in Australian markets through Superannuation, private investment, and many other avenues, the security and integrity of these markets are paramount.
It is even more critical for firms to properly monitor and manage the actions of those working within Australia’s financial markets. Whether knowingly or unknowingly, misuse of sensitive information, undue influence over markets, and unethical behaviours can create far-reaching consequences for market integrity.
ASIC is now demonstrating a strong focus on business communications to ensure that firms properly manage conduct risk and uphold compliance with the Corporations Act 2001 and ASIC market integrity rules.
Here’s what your firm needs to know about the new guidance in ASIC’s Information Sheet 283 and how to reduce the risk of misconduct.
“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.”
- Simone Constant, ASIC Commissioner
Why Enhanced Supervision of Communications Is Needed
Communication methods have rapidly evolved over the last decade. As revealed in the 2024 Surveillance Benchmarking Report by 1LoD, co-sponsored by MyComplianceOffice (MCO), 68% of respondents are actively monitoring between 10 and 50 electronic communications (eCommunications) channels.
Technologies such as email, video conferencing, voice over internet protocol (VoIP), and a plethora of social and messaging apps, including Facebook Messenger, WhatsApp, and WeChat have created a complex network of channels. Bring Your Own Device (BYOD) and work-from-home policies add yet another layer of complexity.
“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.”
- Simone Constant, ASIC Commissioner
ASIC’s Guidance on Reducing the Risk of Misconduct
ASIC has released Information Sheet 283 to provide firms with guidance on how to reduce the risk of misconduct occurring through unmonitored and encrypted communication channels. The document is intended to help entities such as investment banks, securities dealers, and corporate advisers understand their obligations and actively address these risks.
The regulator notes, “Use of unmonitored communication channels and encrypted communication applications in business communications can significantly increase the risk of misconduct going undetected.”
ASIC has also taken this opportunity to remind intermediaries operating under an Australia Financial Services (AFS) licence that they must take reasonable steps to ensure representatives comply with the financial services laws and have adequate risk management systems, as defined under the Corporations Act 2001.
The information sheet also details the necessity of embedding robust supervisory arrangements for business communications and regularly reviewing their effectiveness in line with obligations under the Corporations Act 2001 and ASIC market integrity rules.
The Next Steps for Market Intermediaries
Since 2016, ASIC has monitored the performance of substantial remediation programs that several market intermediaries were required to undertake to strengthen systems, controls, training, guidance and frameworks for the monitoring and supervision of their representatives.
The regulator now expects all AFS-licenced intermediaries to “take reasonable steps (in line with the potential harms from misconduct) to actively monitor and store business communications, in keeping with their obligations”, as well as having the appropriate frameworks in place to detect and respond to misconduct.
Many firms are already using regulatory technology (RegTech) systems to do the heavy lifting of monitoring communications and actively reduce their risk of misconduct.
“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.”
- Simone Constant, ASIC Commissioner
How Can MCO Help?
MyComplianceOffice (MCO) is a global RegTech leader with a strong presence in Australia and the Asia-Pacific region. MCO’s eComms Review and eComms Keep “Archive” products within its compliance management suite are designed to manage and mitigate precisely the same risk that ASIC is urging financial firms to address through stronger communication supervision.
eComms Review enables firms to detect, prevent, and measure potentially harmful, unethical, or unlawful messages sent by their employees. It uses advanced AI risk-scoring and classification to alert compliance teams to risky communications while also identifying patterns across multiple channels that may warrant investigation, employee training, or policy adjustment.
eComms Keep helps firms prove the maintenance and preservation of communications records to regulatory bodies. Data from various sources, including email, SMS, Skype, WhatsApp, Signal, Bloomberg, Reuters, ICE Chat, Microsoft Teams, and more is securely preserved while producing easily viewable audit trails.
Technology is here to do the heavy lifting. As revealed in the 2024 Surveillance Benchmarking Report by 1LoD, co-sponsored by MCO, 91% of firms anticipate using AI-driven risk identification in their communications surveillance function.
Learn more about how AI-enabled eComms surveillance technology can help your firm’s compliance team save tremendous time, more effectively identify red flags and bad actors, and actively reduce the risk of misconduct.
