ASIC to look at standards in emerging markets
A report by the Australian Securities and Investments Commission found the majority of Australian-listed companies with entities in emerging markets did not have enough independent directors on their boards and most did not make meaningful regular disclosures to the Australian sharemarket.
The companies - more than half of which were miners - were also more poorly equipped to deal with bribery, fraud and mismanagement due to the complexity of their ownership structures, contractual arrangements and poor access to reliable information, it said.
"ASIC is shining a light on emerging market issuers and their governance and disclosure because we want to lift the sector's transparency," ASIC commissioner John Price said.
"Just because you operate in a variety of geographic locations, and maybe you don't have a big market capitalisation, doesn't mean you can forget about mandatory legal requirements."
Companies with exposure to emerging markets now account for a third of those listed on the Australian stock exchange. ASIC says the majority - 56 per cent - are miners, and 58 per cent have a market cap under $50 million.
The regulator said it was prompted to investigate the sector after the collapse of Toronto-listed Chinese company Sino-Forest last year, which fell over after accusations of fraud revealed it had failed to account for 800,000 hectares of forest plantations in rural China.
It said it had further investigated several companies for suspected breaches of the Corporations Act following its review, and alerted the Australian Securities Exchange to some disclosure breaches.
Steven Fleming, a partner at law firm Jones Day who advises boards on governance issues in emerging markets, said the risks in those countries was vast and qualified for a much broader investigation by the regulator.
Frequently Asked Questions about this Article…
ASIC is scrutinising Australian-listed companies that operate in emerging markets to lift the sector’s transparency. The regulator is reviewing governance and disclosure practices and shining a light on issuers it sees as higher risk, according to ASIC commissioner John Price.
ASIC’s review was prompted by several high‑profile overseas collapses, most notably the fall of Toronto‑listed Chinese company Sino‑Forest. Those events raised concerns about fraud, poor disclosure and weak governance among issuers with emerging market exposure.
ASIC found the majority of Australian‑listed companies with entities in emerging markets did not have enough independent directors on their boards and most did not make meaningful regular disclosures to the Australian sharemarket.
Companies with exposure to emerging markets now account for about one‑third of those listed on the ASX. ASIC says 56% of those issuers are miners, and 58% have a market capitalisation under $50 million.
ASIC highlighted heightened risks of bribery, fraud and mismanagement. It pointed to complex ownership structures, complicated contractual arrangements and poor access to reliable information as factors that make these risks more likely.
Yes. ASIC investigated several companies for suspected breaches of the Corporations Act following its review and alerted the Australian Securities Exchange (ASX) to some disclosure breaches.
The collapse of Sino‑Forest, after accusations it failed to account for 800,000 hectares of forest plantations in China, prompted ASIC to investigate the broader sector and examine governance and disclosure practices among issuers with emerging market exposure.
Steven Fleming, a partner at law firm Jones Day who advises boards on governance in emerging markets, said the risks in those countries are vast and that the scale of the issues qualified for a much broader investigation by the regulator.
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