Australia: Does sell-side research have a future in-house?

In brief - ASIC's Regulatory Guide 264 addresses conflicts concerns and tightens compliance obligations

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is focussing intently upon disclosure and conflicts in the sector generally. Real questions are being asked as to whether Australian financial services licensees complying with the current regulatory framework can provide services that meet the market's needs and expectations without conflict.

It would not be surprising if the Commissioner were to recommend sweeping prescriptive rules requiring compartmentalisation rather than merely tightening the current disclosure regime.

In response to concerns relating to sell-side research in the context of investment firms that also provide other services where conflicts can arise, ASIC has issued Regulatory Guide 264.

The guide discusses three main issues: inside information, capital raising, and the structure and funding of research. While some aspects of this area may be relevant to sophisticated and wholesale clients, other aspects, in particular relevant to IPOs, will have a much wider impact.

The guide is important as it signals how ASIC will approach this issue, and also points out potentially significant structural issues in the industry in the future.

In this article we take a closer look at ASIC's guidance on these three issues, and the possible compliance consequences for financial services licensees.

Control and management of inside information

Research analysts regularly receive information from a range of sources, including companies, third parties and other areas of the licensee. The guide reiterates research analysts' obligation to assess whether this information is inside information and suggests various steps be taken, including:

  • Permanent information barriers, for example where research analysts working on reports which could materially affect prices of bonds or other financial products (RG 264.47).
  • Wall-crossing procedures be managed by compliance or another control function which should be notified whenever a research analyst obtains or is provided inside information (RG.264.49).
  • Wall-crossed research staff be subject to the same trading restrictions imposed on staff on the private side of the licensee's business for the relevant financial products (RG 264.46).
  • Written acknowledgement by wall-crossed research analysts that they have read, understood and will comply with any restrictions imposed on them (RG.264.48).

When research is initiated or there is a change in recommendation, opinion or a material change to a price target in research, licensees should have an appropriate review process in place. The review ought to be undertaken by a supervisory analyst, a senior research team member or by compliance or another control function with appropriate knowledge and experience (RG 264.52).

Information that has not yet been disclosed to the market, unpublished research data, research analyst models and draft research should not be made available or provided to any person who is not part of the research team other than under certain conditions:

  • managing requests by compliance or another control function
  • asking for models in relation to a number of companies to minimise the risk of the research analyst becoming aware of the purpose for the request
  • ensuring the research analyst has not been made aware of the identity of the person or entity that has made a request
  • ensuring analyst models provided are consistent with the valuation, price target and recommendation in published research
  • redacting any valuation information in research analyst models that is inconsistent with the licensee's published research or generally available to the public (eg, comments or notes)

Types of monitoring to be undertaken by compliance and control functions:

  • attend meetings where both research analysts and corporate advisory are present on a periodic basis, such as internal meetings, to discuss companies or industry sectors and company briefings
  • undertake regular reviews of communications between research analysts and other parts of the licensee and companies

Managing research conflicts during the capital raising process


ASIC provides pre-solicitation guidelines for research analyst interactions with corporate advisory:

  • For listed companies, discussions between corporate advisory and the research analyst about any potential capital raising transaction or valuation information should only occur if the research analyst has been wall-crossed.
  • Corporate advisory should not place pressure on the research analyst or otherwise seek to influence the research.
  • If the research analyst obtains inside information during the pre-solicitation period, they should following the licensee's internal protocols for the management of inside information.
  • Compliance or another control function should be aware of and monitor, or undertake periodic reviews to determine, the effectiveness of the licensee's arrangements.
  • Research analysts and the issuing company may interact if a research analyst is aware of a potential capital raising transaction, provided the licensee has not made a decision to pitch for the capital raising transaction; or seven days before a pitch presentation to the issuing company, whichever is the earlier.
  • Internal protocols for the management of inside information are to be followed if a research analyst obtains inside information during the pre-solicitation process.
  • Research analysts should not volunteer valuation information to the issuing company.
  • Compliance or another control function should be aware of and monitor, or undertake periodic reviews to determine the effectiveness of the licensee's arrangement.

Pitching and post-pitch stage

There is a risk to the objectivity and independence of research. ASIC considers that:

  • Research analysts should not communicate with or discuss the issuing company or the potential transaction with the licensee's corporate advisory team during the pitching stage unless the research analyst has been wall-crossed and does not produce research in relation to the issuing company or transaction until the transaction has been completed. The same is advised with dealings with the issuing company or its advisers.
  • Corporate advisory and research analysts should not be made aware of each other's opinions on valuation information or research analyst models once the pitching phase begins.
  • Corporate advisory should not place pressure on research analysts or seek to influence research analysts to initiate research coverage or to amend their valuation or price target assessments on issuing companies.
  • Corporate advisory should not represent to issuing companies or their advisers that their research team or research analysts were involved in the preparation of or endorse the pitch valuation.
  • Corporate advisory staff should not represent to issuing companies that favourable research coverage will be provided on the issuing company in an attempt to secure a mandate.
  • Corporate advisory mandates should not include any commitment or inducement to provide research.
  • If research analysts obtain inside information during the pitching process, they should follow their licensee's internal protocols for the management of inside information. The same is advised with dealings with the issuing company or its advisors.
  • Compliance or another control function should be aware of and monitor, or undertake periodic reviews to determine, the effectiveness of the licensee's arrangements.

Investor Education Reports (IERs)

An IER should not be released outside the research team (unless required by law) or circulated for fact checking until the licensee has appointed corporate advisory services on the transaction. Once an advisory team is in place, robust controls are needed to ensure the independence of the research, given that the corporate advisory teams will seek to produce a positive view of the company.

Licensees must also take care to ensure that any discretionary fees available to licensees as managers do not place pressure on their research analysts to produce an IER that is consistent with the issuing company's expectation.

ASIC's guidelines are aimed at the separation of research and advisory teams when preparing IERs so that they are unbiased and reflective of research analysts' professional judgment and expertise. Among these recommendations are:

  • Research analysts may attend briefings with the issuing company after the licensee has been appointed to the transaction for the purposes of discussing information about the issuing company's business and operations.
  • Requests for additional information should be monitored by compliance or another control function.
  • Licensees should advise the issuing company that they may not ask research analysts questions or seek information or comments from the research analyst about valuation information or express or pass on any views on valuation information to research analysts.
  • Research analysts should not communicate their views on the issuing company, the transaction or any valuation information before it is widely distributed to investors outside the research team except to compliance or another control function and legal counsel which must keep it confidential.
  • A licensee's corporate advisory staff should not participate in or see any communication between research analysts, the issuing company or its other advisers.
  • A licensee should maintain a record of any meetings between its research analysts, the issuing company or its advisers.
  • Research analysts working for different Joint Lead Managers on the same transaction should not interact (directly or indirectly) on the merits of the issuing company or on valuation information relating to the issuing company or the transaction; nor should they discuss or provide access to each other's opinions, models or draft research on the issuing company.
  • The integrity of the IER is to be maintained throughout the review process of the IER, with permissible feedback to the research team being confined to factual or legal observations.

Structure and funding of research


ASIC is concerned that the structure and funding of research teams may result in a lack of research independence, as research may be compromised where research funding is linked to corporate advisory revenues or where a research analyst's remuneration is linked to contribution to corporate advisory revenue. They advise that:

  • licensees should segregate research teams from corporate advisory and sales
  • compliance arrangements should be documented and communicated to staff and reiterated through training on research and independence policies
  • decisions about research coverage be made by the research team and not be subject to input or influence by other parts of the licensee. It should be clear to users (and prospective users) how a research report provider makes decisions whether to cover or not
  • corporate advisory mandate agreements should not include an obligation or inducement to the licensee to initiate research coverage following completion
  • "prominent, specific and meaningful information about a licensee's (and its associates') conflicts" must be addressed


The quality and independence of research may be compromised where research funding is linked to corporate advisory revenues or where individual research analysts bonuses are linked to the success of the capital raising process.

ASIC considers that research budgets and analyst remuneration should not be determined with input from corporate advisory, nor from revenue or results generated by corporate advisory.

Summary of financial services licensees' obligations and potential consequences for compliance

A licensee must:

  • control and manage inside information
  • manage conflicts during the capital raising process, including avoiding, controlling and disclosing these conflicts
  • manage research teams, including budgeting, research analyst remuneration and coverage details

As a matter of theory, nothing in the guide should surprise. However, the guide highlights that ASIC will focus on this issue and in a current environment where internal management conduct is being scrutinised further, against a background of tightening returns and concern at the dual role played by licensees, compliance staff will need to review both written procedures and real-life behavioural culture to ensure compliance.

Compliance may involve significant reorganisation and expenditure. The breadth and detail of the suggested steps, in this context, may see some licensed entities start to reconsider whether sell-side research best belongs within an institution, or whether efficiencies suggest that the function be outsourced.

Toby Blyth
Regulatory and financial services
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions