IOSCO consultation on conflicts of interest and associated conduct risks during the equity capital raising process

Published: 26 February 2018

In February 2018, The Board of the International Organization of Securities Commissions (IOSCO) published CR02/2018, Consultation Report on ‘Conflicts of interest and associated conduct risks during the equity capital raising process.’ The consultation report acknowledges that, in the capital raising process, intermediaries may encounter conflicts of interests which, if not appropriately managed, can compromise the integrity and efficiency of the process, and can ultimately make capital markets a less effective route for issuers to raise finance. As a first step, IOSCO is considering the specific conflicts of interest and conduct risks in the equity capital raising process, looking next at the debt capital raising process.

IOSCO has already conducted a survey into the specific conflicts of interest and key risks in the equity capital raising process, and this Consultation Report proposes Guidance to IOSCO members to address the identified risks. The Guidance is presented with a package of non-binding measures that IOSCO members would be encouraged to consider in the context of their specific legal and regulatory frameworks. These measures include suggesting that regulators consider requiring firms to:

  • Take reasonable steps to prevent their analysts from coming under pressure to take a favourable view on the offering from the issuer’s representative (Measure 1).
  • Take reasonable steps, once an underwriting or placing mandate has been awarded, to prevent a connected analyst’s views and research on the equities securities offering from being improperly influence and to ensure that the analyst remains objective (Measure 2).
  • Once an underwriting or placing mandate has been awarded, have appropriate controls to manage potential conflicts of interest and associated risks arising from connected analysts performing an internal advisory role within the firm in the context of an equity securities offering (Measure 3).
  • Support the provision of a wide range of independent information to investors in a timely manner, where distribution of such information is permitted under local law (Measure 4).
  • Maintain an allocation policy that sets out the firm’s approach for determining allocations and that provides the issuer with an opportunity to express their preferences during the process (Measure 5).
  • Maintain records of the allocation decisions to demonstrate that any conflicts of interest are appropriately managed (Measure 6).
  • Manage any conflicts of interest that arise in relation to pricing an equity securities offering, keep the issuer informed of key decisions or actions which can influence pricing outcome, and give the issuer an opportunity to express preference regarding the pricing of an issue during the pricing process (Measure 7).
  • In the context of a securities offering, prevent any employees who have access to confidential information on the issuer from entering into or causing any personal transactions in situations where it involves misuse or improper disclosure of the confidential information, and otherwise prevent employees from entering into personal transactions where it otherwise gives rise to any conflicts of interest (Measure 8).

Responses are due by 4 April 2018. Please contact Adele Rentsch or Adam Jacobs-Dean if you are interested in contributing to an AIMA response to the consultation.