ASIC echoes SEC in crackdown on unmonitored business comms

The Australian Securities and Investment Commission (ASIC) has released new guidance urging market intermediaries, including investment banks and securities dealers, to keep a closer eye on the use of unmonitored and unapproved communication channels and encrypted communication applications by the representatives they supervise.

The newly released Information Sheet 283 responds to concerns flagged by the regulator over the increased use of covert communications methods, including encrypted messaging apps or unmonitored personal devices, which it said can conceal regulated business activities and “significantly increase the risk of misconduct going undetected”.

The monitoring obligations refer to any written, voice or electronic communications used by market intermediaries and their representatives to carry on their financial services business – among these include communications reasonably required to meet record-keeping obligations and enable monitoring of compliance with financial services laws.

The Information Sheet offers, according to ASIC, practical guidance to market intermediaries (among which include 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.

Market intermediaries are required to ensure they have appropriate governance frameworks for their businesses to monitor, detect and respond to misconduct and poor behaviour, including through communications mediums, by their representatives.

ASIC Commissioner Simone Constant underscored the critical role that bankers, dealers and market participants play “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.”

She added: “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.”

Constant noted the increasing challenges in monitoring and recordkeeping for licensees posed by rapidly evolving communications technologies and personal devices, many of which are beyond the scope of intermediaries’ surveillance systems, as well as wider adoption of remote or hybrid working arrangements.

“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,” Constant said.

ASIC’s guidance comes following recent actions by the U.S. Securities and Exchange Commission and Commodity Futures Trading Commission, which concluded with record-breaking settlements with dozens of financial institutions, including Wells Fargo and BNP Paribas, for failures to maintain and preserve electronic communications.