Managing conflicts of interest: stockbrokers

ASIC has announced that it will impose a special condition on the Australian financial services licence of stockbroking firm BBY Ltd (BBY) after finding
that BBY did not have in place adequate arrangements for the management
of conflicts of interest.

BBY gave advice to a corporate client fighting a takeover bid. At the same time, BBY published positive research about that client.

ASIC found that:

  • BBY did not follow its own procedures for the
    approval of research reports, nor was it able to demonstrate that it
    had monitored compliance with those procedures.
  • BBY did not maintain a robust Chinese wall
    arrangement, nor was it able to demonstrate that it had monitored the
    effectiveness of the Chinese wall arrangement.

The licence condition to be imposed by ASIC requires
BBY to engage a consultant to review its compliance arrangements and to
ensure that any necessary corrective steps are taken to improve those

BBY must report to ASIC for the next 18 months on
the consultant’s findings and what corrective steps, if any, it is
taking to improve its management of its conflicts of interest.

Since 1 January 2005, all Australian financial
services licence holders must have adequate arrangements in place to
manage any conflicts of interest that arise during the provision of
financial services. Read PS 181 and ASIC Guide on research reports.

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