ASIC Annual Forum 2022: Chair’s keynote
Opening statement by ASIC Chair Joe Longo at the ASIC Annual Forum, Hilton Hotel, Sydney on 3 November 2022.
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Thank you, Brendan, for the warm welcome to country.
Before I begin, I would like to acknowledge the traditional owners and custodians of the land on which we meet today, and to pay my respects to their elders past, present and emerging. I extend that respect to Aboriginal and Torres Strait Islander people present today.
I would like to welcome you to the 2022 ASIC Annual Forum.
The last time we could meet like this was before the pandemic. It is with great pleasure that we can host the Forum again, in person, over these two days.
It is also my first Annual Forum as Chair.
While the worst of the pandemic is largely behind us, we confront a whole new set of threats.
Threats that are destabilising global economies and markets.
Threats that are challenging regulators everywhere.
ASIC’s role now, as much as at any time in our 32-year history, is vital to ensuring the integrity of the financial system and the protection of Australian investors and consumers.
The economic and societal fallout from the pandemic, the transition of the economy to confront climate change, our engagement with new technologies and cyber risks, and the ongoing war in the Ukraine, have combined to create a near perfect storm of geo-political and economic complexity.
ASIC cannot address these challenges alone.
All of us must confront these threats together.
In my opening remarks today, I want to speak to four areas:
- First, the impacts of complexity and volatility
- Second, key issues globally that are challenging businesses and regulators, with a focus on climate change and digitisation
- Third, consumer protection in these tumultuous times, and
- Fourth, ASIC’s enforcement mandate and an outline of our enforcement priorities now and through 2023.
The complex, volatile environment
First to complexity and volatility.
I am reaching close to 18 months as Chair of ASIC. And if I were to identify the single biggest challenge I see now in the regulatory landscape – it is complexity.
The complexity I am referring to is two-fold.
First, how to operate under, and administer, complex obligations.
And second, how to do so within a constantly changing environment.
There is a great tension here.
In an increasingly complex world, there is greater demand for simplicity. And yet a narrow focus on reducing complexity could see all of us run headlong into greater entanglement.
ASIC’s ability to navigate through complexity and uncertainty – with clarity of thinking and purpose – will define our success in responding to some of the key issues we are faced with.
I have recently returned from a series of international regulatory meetings, finishing in London. The consistent theme arising from these meetings is that the world’s regulators are grappling with similar issues.
Every country and every jurisdiction is endeavouring to address the technical complexity of setting global standards. These settings must also work at the domestic level.
In addition, our collective risk environment is marked by accelerating change. Forecasting, planning and decision-making in this environment is extremely difficult.
This is as true for regulators, as it is for every Australian business and every consumer of financial services.
We need to see complexity not as something which can be overcome, but as a catalyst for smarter, more outward-looking, and collaborative problem-solving.
So, how does ASIC address complexity?
By remaining clear about our purpose.
We’re here to enforce the law, to promote consumer protection in the financial system, to support well-functioning markets, to promote business growth and innovation, and to guide and educate.
We choose the right problems to solve.
We ask the right questions to prioritise issues within our extensive remit.
We form deep collaborations with all of our stakeholders to get the best solutions.
Climate and sustainability
Let me now turn to climate change and sustainability-related finance.
This is a rapidly evolving trend in capital markets, here in Australia and globally.
Climate-related disclosure now plays an important role in ensuring fair and efficient markets, and confident and informed investors.
There is strong investor demand for climate-related disclosure to help investors make capital allocation decisions.
Approximately 80% of global GDP is now covered by a net zero target. The Australian Parliament legislated a target of a 43% reduction in emissions by 2030.
Meeting these targets will demand enormous investment, which will be channelled through the markets and entities regulated by ASIC.
The physical impacts of climate change are expected to continue to accelerate.
Analysis by global insurance underwriters indicates that the world may lose up to 18% of GDP by 2050 through physical damage alone if emissions are not curtailed.
Central bankers now suggest that climate policy sits alongside fiscal and monetary policy, as the third pillar of macro-economic policy.
ASIC’s task is to ensure that there is integrity, trust and confidence in sustainable finance-related products, services, and disclosure practices.
There are three key features of our strategy:
- First, enforcing existing laws, including identifying greenwashing targets for enforcement action.
Only last week we issued our first greenwashing penalty, and we’re currently investigating a number of listed entities, super funds, and managed funds in relation to their claimed green credentials.
- Second, contributing to proposed domestic law reform and guidance, informed by our engagement with international and domestic stakeholders, and
- Third, planning for the future, by further developing ASIC’s medium to long-term strategic approach in this space, and by strengthening our own capabilities.
The way companies, consumers and regulators around the world respond to these issues will continue to evolve over time.
We too must remain ready to respond and adapt.
It is encouraging to see many Australian firms taking concrete steps to align – voluntarily – with international climate disclosure standards.
ASIC is actively contributing to this work. Good progress is being made, but there is more work to do.
Investment in this sector can only be supported where there is confidence an offering is ‘true to label’, and corporates have a reasonable basis for making public statements on this topic.
These issues will be with us for generations to come.
Digitisation and innovation
Moving now to digitisation and innovation.
My discussions with fellow regulators inevitably involve similar conversations to those I am having in Australia.
These conversations go to the rapidly shifting landscape in new technologies and access to vast – and growing – amounts of data.
These developments are changing investment products and markets.
There are significant questions about how to effectively regulate crypto, encourage new technologies such as blockchain, and address cyber risks, all while allowing innovation to occur.
First to crypto. The inherent risks associated with investing in cryptocurrencies are often opaque, and the risk equation is never static. They are highly volatile, inherently risky, and complex.
Crypto and the crypto eco-system continue to pose challenges and opportunities for regulators and policymakers alike. You will be aware that work continues at the domestic level to formulate a regulatory response.
In the meantime, ASIC continues to utilise the current laws and its expanded regulatory toolkit – including the design and distribution obligations regime, or DDO – to protect investors from harms arising from risky, volatile, and complex products.
Second, to blockchain technologies and the tokenisation of assets. These technologies are driving innovative business models and products. They have the potential to provide new solutions to longstanding problems and greater efficiencies for the benefit of all. Many of these technologies have the potential to revolutionise the way we do commerce.
ASIC is also working closely with the RBA and the Digital Finance Cooperative Research Centre to support the pilot of a Central Bank Digital Currency.
ASIC is observing and monitoring these developments while considering our own long-term strategic approach. We need to have the right capabilities to respond and adapt.
While encouraging digital innovation, ASIC will act to disrupt and deter conduct that harms people. Harmful conduct that falls within our jurisdiction, including unlicensed conduct and misleading promotion of crypto-asset financial products, is within our sights.
Third, to broader cyber resilience risks which are becoming more prevalent. One pillar of our work is focused on collaboration with other agencies to tackle what are complex issues.
ASIC engages with the Department of Home Affairs to support the Australian Government’s cyber security response.
As part of the Council of Financial Regulators, we’re working to drive better information sharing and greater collaboration to enhance the cyber and operational resilience of the financial system and markets.
Meeting the challenges posed in the ever-evolving digital and cyber space is a cross-border effort. While domestic policy settings are a matter for Government – and are currently being considered – ASIC remains focused on market integrity, innovation, and consumer protection.
Consumer protection in volatile times
Turning now to consumer protection during these volatile times.
In the current investment environment and throughout the financial services sector, consumer protection must remain in sharp focus.
Against an aging population, volatility, complexity, and uncertainty make it a challenging time for investors, whether through superannuation or otherwise.
That makes it more important than ever that products are appropriately designed, and that their marketing is targeted at the consumers they are appropriate for. These are the fundamental requirements of DDO, and ASIC is actively monitoring and enforcing these obligations.
We have a range of targeted surveillance projects on foot. We’re focused on sectors where we see consumer harms from poor design or distribution practices.
We have recently issued 10 stop orders to prevent consumers being targeted by products that are not appropriate to their objectives, financial situation and needs.
Too often, issuers are seeking to market high risk and niche investment products, including in some cases crypto-based products, to a very wide range of consumers. We’re seeing issuers promoting high risk products as appropriate investments that will make up a significant portion of an individual consumer’s investment portfolio.
This will not be tolerated and action will be taken.
Rising interest rates and inflation are also putting increasing pressure on consumers of credit. For mortgage holders, that is exacerbated by uncertainty in property prices. Some consumers are facing hardship and arrears.
Accessing mainstream credit and refinancing will be very challenging for this group. Some people are turning to fringe sources of credit that may cause harm.
A key priority must be to protect consumers, especially the most vulnerable.
Harmful and predatory credit products and fringe lending practices is a particular area of focus for ASIC. Our targeted credit DDO surveillance work is focused on credit cards, buy now pay later products and small amount credit contracts.
Now to a fundamental part of our mandate – enforcement.
Enforcement has been, and always will be, at the heart of ASIC’s work.
A key task for ASIC is to communicate our priorities more clearly and more often.
In August, I made clear ASIC’s top eight strategic priorities for 2022–23.
And today, we are making clear our enforcement priorities now and through 2023.
These priorities are closely aligned.
ASIC’s enforcement priorities for 2023 are grouped into three categories:
- protecting consumers
- responding to emerging issues, and
- maintaining market integrity.
Ahead of Deputy Chair Sarah Court’s enforcement session this afternoon, I will speak briefly to these priorities.
We recognise there are some themes that will always be an enforcement priority for ASIC.
We are focused on conduct that targets vulnerable consumers including First Nations people, and serious misconduct that is damaging to market integrity.
We are looking at systemic compliance failures by large institutions that result in widespread consumer harm, and on emerging conduct risks.
Through our enforcement work, we hold to account those who contravene the law.
We use a broad regulatory toolkit. In addition to enforcement, it includes supervision and surveillance, financial capability work, guidance, industry engagement, and input into law reform.
Following the Financial Services Royal Commission reforms, we have significant powers that allow us to take stronger action against misleading conduct and to reduce the risk of harm to consumers.
The DDO regime – alongside the reportable situations regime, and ASIC’s product intervention powers – are part of the important and ongoing legacy of the Royal Commission.
We do not shy away from seeking significant penalties and undertaking important litigation.
One of the challenges for a regulator is to strike the right balance.
Clearly, it’s necessary to take decisive action against those who cause harm to consumers and investors.
But there is also a need to focus on deterrence, education, and prevention to reduce harms arising in the first place.
We don’t take either of these responsibilities lightly.
The bar is set high for the financial services sector. The legacy of the Royal Commission, and the lessons we learned from it, are relevant for all sectors and all companies.
Given the complexity and volatility we face, there is no room for complacency.
Complacency breeds failure.
For our part, ASIC remains committed to being a strong and active litigator against misconduct.
We need to be strategic. We make choices to direct our resources to ensure maximum public benefit.
In the last financial year alone, ASIC completed more than 1,000 surveillances and commenced more than 100 investigations.
We completed 61 civil litigation matters and secured over $229 million in civil penalties and commenced another 75 actions.
ASIC also secured criminal convictions against 33 individuals and commenced another 50 criminal actions.
ASIC also takes protective action, including disqualifying and banning people from directing companies and helping to protect small businesses. We took corrective action and addressed more than 60 instances of potentially misleading or deceptive conduct.
We continue to actively target cases of high deterrent value and those involving egregious harm or misconduct.
In conclusion, the challenge of making considered choices is a shared one: between government, regulators, business and indeed all sectors of society.
This Forum is a valuable opportunity to hear from, and be challenged by, key leaders and thinkers across the economic and business landscape.
I would encourage you to participate and engage on the topics covered by our diverse program.
For those of you attending tonight’s dinner – you can look forward to hearing from The Honourable Ben Wyatt, another great Western Australian. He will share his reflections from public and corporate life, on how evolving standards and community expectations have shaped his views on corporate governance.
I am looking forward to contributing to the plenary session on crypto and taking your questions alongside my peers on the ‘meet the regulators’ panel.
Most importantly, I welcome the opportunity to engage with all of you over the next two days.