Financial Services expert warns global providers of Australian regulatory minefield

Hong Kong, 12 January 2005: A leading financial services lawyer has warned the multinational financial services providers operating in Australia that the introduction of a more stringent regulatory rule this year means their requirement to manage 'conflict' situations between their various business operations has been considerably heightened.

Speaking yesterday in Hong Kong at the "Mutual Funds & Investment Management 2005" conference, the head of the Financial Services practice at Australian law firm Clayton Utz John Moutsopoulos addressed a global funds management audience about the impact that changes to ASIC (Australian Securities & Investments Commission) regulation from 1 January will have on financial services operations in Australia.

"ASIC policy PS181 introduced a new compliance regime for financial services providers," Mr Moutsopoulos contends. "For the first time, Australia has imposed a direct and specific obligation on financial services licensees to manage these conflicts and ASIC has published comprehensive expectations about how to fulfil that obligation. A lot of work is required to really comply with ASIC's policy.

"There are already similar conflicts management rules in place internationally but foreign mutual funds need to take notice that the goal posts have now moved in Australia as well," Mr Moutsopoulos advised., saying that there will be ways that businesses will be able to dovetail their international and their Australian compliance.

"Those financial services providers most impacted by the new regime are the conglomerates or 'one-stop shops', where related party transactions and acting in multiple capacities is common practice. Following this regulation they need to identify any potential conflicts between the individual operations and work out how to manage and be seen to manage conflicts between them.

"While the industry has done a lot of work in order to comply I suspect there is still a lot of work they will need to do to fill in the gaps because some time soon I suggest that ASIC will be rigorously scrutinising their operations, using this policy as a surveillance tool. In instituting the policy ASIC has been clearly influenced by international developments where similar rules apply including the US reaction to the US market scandals. "

Mr Moutsopoulos said that financial services providers that are trustees or advisers have always needed to be vigilant about conflicts in the area that the law characterises as fiduciary duties.

"The new regulatory rule presents an opportunity for providers in Australia for fresh thinking and reassessment of pre-existing compliance practices the conflicts area. Reputation and good will is everything in financial services. The message for providers in Australia is that the conflicts crisis in the US would have been avoided if US providers had not forgotten the importance of having a culture of fiduciary responsibility.

Mr Moutsopoulos explained that there was a potential vulnerability for companies arising from the new regulation as providers in Australia have been focused on the raft of regulatory reform introduced over the past couple of years and they may not, without warnings such as these, fully appreciate the vulnerability that the new rule was exposing them to.

Mr Moutsopoulos was the only Australian lawyer invited to speak to a conference attended by many of the world's leading policy makers in the field.