ASIC to target offshore listings
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 issues such as bribery, fraud and mismanagement, due to the complexity of their ownership structures, contractual arrangements and poor access to reliable information, the report 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," he told BusinessDay.
Companies with exposure to emerging markets now account for a third of the total companies 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 in 2012, 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 probed a number of companies for suspected breaches of the Corporations Act after its review and alerted the Australian Securities Exchange to some instances of 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.
"While risk and corporate governance risks are clearly identified, I think the OECD would have expected strong statements from the regulator to the effect that while misconduct may occur beyond Australia's jurisdiction ... the issuer may still have liability under Australian legislation."
ASIC's report noted a recent survey by KPMG of small and mid-tier miners that found smaller companies were more likely to lack formal controls over bribery or corruption, regardless of where they operate.
Frequently Asked Questions about this Article…
ASIC is scrutinising Australian-listed companies with operations in emerging markets to lift governance and disclosure standards. The regulator is looking at board independence, transparency of disclosures to the Australian sharemarket, and whether firms are equipped to manage risks like bribery, fraud and mismanagement.
ASIC was prompted to investigate after several high‑profile overseas issuer collapses, notably the 2012 Sino‑Forest case. That and other failures highlighted gaps in governance and disclosure for issuers with emerging‑market operations.
ASIC’s report found many of these companies lacked enough independent directors, did not make meaningful regular disclosures to the Australian market, had complex ownership and contractual structures, and faced poor access to reliable information — all of which increase risks of bribery, fraud and mismanagement.
Companies with exposure to emerging markets make up about one‑third of those listed on the ASX. ASIC found 56% of them are miners, and 58% have a market capitalisation under $50 million.
ASIC has probed a number of companies for suspected breaches of the Corporations Act and has alerted the Australian Securities Exchange to some instances of disclosure breaches. The regulator says it wants to ‘shine a light’ on governance and disclosure to improve sector transparency.
Investors should check for a strong, independent board, clear and regular disclosures to the Australian market, transparent ownership and contracts, and evidence of formal controls against bribery and corruption. The report highlights that lack of these features raises governance and information‑risk concerns.
Yes. Commentators cited in the report say that even if misconduct occurs beyond Australia’s jurisdiction, the issuer may still have liability under Australian legislation. ASIC expects companies to meet mandatory legal requirements regardless of where they operate.
According to a KPMG survey referenced by ASIC, smaller and mid‑tier miners are more likely to lack formal controls over bribery and corruption, regardless of where they operate — a risk factor everyday investors should be aware of.
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