- Regulation and enforcement are the key to navigating disruption.
- With heightened geopolitical uncertainty, market volatility and unpredictability in the global economy, effective regulatory responses are required.
- ASIC takes a strategic approach to respond to emerging risks and harms and will continue to act to deter bad behaviour where necessary.
Check against delivery
Society never progresses smoothly or in a straight line. Disruption is not just a feature of progress and advancement – it’s a necessary element. Disruptive changes can bring society forward – but they can also enable bad actors and misconduct. By its very nature, disruption can have – will have – unexpected effects and consequences. And, since neither the economy nor society is ever stagnant, navigating disruption is one of life’s constants.
Which is why the challenges of disruptions are always front of mind. And just like navigating a ship, navigating disruption comes down to two things:
- A clear direction, an idea of where we want to go; and
- A map to get us there.
If any of you has ever done any orienteering, you’ll know that if you don’t have both of those, you are lost.
This framework provides a useful context.
Without direction, the financial services and corporate sector can’t be strong and innovative.
Without a map, we – both regulators and the regulated – can’t be effective. Because the reality is, even if we have an idea of where we want to go, none of us knows for sure what the journey itself will be like.
Now more than ever, we’re all navigating complex, even uncharted, waters. We are dealing with new risks and new issues – and so we need a framework, and tools, that help us make the right decisions, to get us to our destination.
And a fundamental plank of that framework is effective regulation and strong enforcement. That’s what I’d like to talk about today.
Where we’re going
But first, the destination. We must be – we are – more interested in where we’re going than where we’ve been. We’re focused on the future.
What is our future destination? To put it simply, my and ASIC’s interest is – and will always be – two things:
- The safety and integrity of the financial system and our capital markets; and
- Good outcomes for consumers, investors, and business.
Since I became Chair, my goal has been to ensure ASIC is ambitious and confident in discharging its regulatory and enforcement responsibilities, to serve and to advance the public interest. These are, of course, two sides of the same coin. We serve the public interest and promote the safety and integrity of the system by having a consumer – and investor-focused approach.
Why we need regulation and enforcement to get there
But identifying the destination is the easy part. Getting there is much more complex. As a community, we value regulation as a necessary part of our lives – to advance and protect the interests of everyone, particularly the vulnerable, to promote trust and confidence in our markets, and to deal with misconduct and market failures. And we want our regulators to be informed, independent, and strategic in their actions and responses.
But the question of where to dedicate resources, when and where to enforce and to litigate, and when and where to educate, or perhaps just nudge, is always going to be a balancing act. To ensure we strike the right balance, ASIC, and indeed all of us here in the room, need to be aware of emerging trends and issues.
Last week brought a stark reminder of just how important this is, with the cyber-attack on DP World. As I’ve said before, cyber resilience has got to be a top priority, not just for ASIC, but for every company and every board. If things go wrong, ASIC will be looking for whether company directors and boards took reasonable steps, and made reasonable investments proportionate to the risks that their business poses, to be prepared for this kind of attack. And if we have reason to believe those steps were not taken, and directors did not act with reasonable care and diligence, we will act.
Looking around us today we see heightened geopolitical uncertainty, market volatility, and unpredictability in the global economy – and a financial ecosystem that is transforming rapidly and in new directions. And, as history shows, times of instability like these are often when we see the worst conduct. We know bad actors will always appear, and that navigating disruption has to take that into account, and so we must be prepared for that.
Now, I’m sure it feels to many of you here that we’ve only just finished introducing a wide range of regulatory reforms coming out of the Royal Commission’s recommendations. Indeed, many of these important reforms are still in their implementation stages. Think of the design and distribution obligations, the Financial Accountability Regime and the reportable situations regime, to name but a few. All introduced to respond to concerns about systemic misconduct impacting consumers and investors.
But while the dust has barely settled on these new regulatory obligations, new risks and issues have driven consideration of a number of further potential reforms.
There’s been an intense focus on the proposed climate disclosure reporting obligations and the challenges that will need to be addressed to implement them. These respond to one of the most significant disruptions of our times – the existential threat of climate change.
To these reforms can be added the proposed changes to bring crypto regulation within ASIC’s regulatory remit, and the government’s commitment to new laws regulating scams. And next year, ASIC will exercise new powers to make critical rules to promote competition in clearing and settlement.
This is why ASIC is so conscious of the need for effective regulatory responses to the changing world around us. Especially since the reality is, while ASIC has a clear direction, experience tells us that the need for change is constant. And so too with regulation, it too needs to evolve alongside change, adapting, and responding to the environment.
Now, regulation is only half the story. Without strong enforcement, it’s incomplete. If misconduct isn’t deterred or identified and punished, then we resign ourselves to never reaching our destination.
There’s a view, often referred to as the policy trilemma, that regulation can at best achieve only two of the following three objectives: one, provide clear rules; two, maintain market integrity; and three, encourage financial innovation.
This trilemma is particularly important in times of significant disruption – times like ours. Effective regulation and strong enforcement help us manage the trade-offs that the trilemma highlights, and they connect the three objectives. Effective enforcement means that when clear rules are broken there are consequences. This inevitably promotes trust and market integrity.
Market participants invest and act with greater confidence when they know that innovation, and any disruption that follows, will be considered and managed effectively by the relevant regulator.
This is why ASIC will continue to act, and act early, to deter bad behaviour whenever appropriate.
ASIC’s focus areas for action
Ultimately, regulation and enforcement are about making choices and setting priorities. Resources must be deployed carefully and to maximum effect.
Decisions about what action to take are made by focusing on economic conditions, emerging threats and harms, and their impact on Australian consumers and business, as well as the operation of our financial and capital markets.
Later this morning, Deputy Chair Sarah Court will open her plenary session outlining ASIC’s 2024 enforcement priorities. For now, and before turning to three key focus areas for enforcement action in the coming year, I want to say this.
ASIC has long been and remains one of Australia’s most active law enforcement agencies.
ASIC’s track record, in the last several years in particular, is one of constant, targeted and ambitious litigation. And we plan to do more.
We stand by our record.
Despite assertions flying in the face of the evidence, ASIC is very much committed to law enforcement.
Our record demonstrates this.
I’d now like to speak to three of our key focus areas for action, where we’ve identified potential harm:
- Sustainable financial reporting and disclosure
- Better consumer outcomes and addressing misconduct in the superannuation sector, and
- Ensuring fair and orderly financial markets.
I’ll take each in turn.
First, ASIC has identified poor sustainable finance governance and related misleading disclosure as an area of serious potential harm to consumers. Sustainable finance is a transformational issue for global markets. As I’ve said before, it’s driving the biggest changes to financial reporting and disclosure standards in a generation, and we need to be ready to meet those changes.
Poor governance and misleading disclosure result in direct harm to consumers in several ways.
They can lead to misinformed investment decisions and capital allocation. When consumers are unaware or misinformed about the true environmental impact of products and services, they make choices that are harmful to the environment – and at direct odds with their intention in making what they thought was an informed decision. In addition, of course, inefficient capital market allocation may also result in higher long-term costs.
Second, consumers may end up paying a ‘green’ premium for investing in funds that don’t even meet ESG standards. This, coupled with consumers’ inability to make informed decisions due to poor governance and disclosure may erode confidence in the financial system as a whole. Not only is this going in the opposite direction from our destination, it also ends up undermining the sector’s objectives.
Which leads me to greenwashing. This remains a serious threat to the integrity of the Australian financial system and investor confidence. Put simply, it erodes trust, which is essential for the operation of fair and efficient markets. It’s also imperative that we maintain market integrity to attract the capital required to make the transition to net zero and ensure that climate risk is adequately priced into the market.
With demand for sustainable products growing, it’s essential that entities avoid misrepresenting the extent to which their products or investment strategies are environmentally friendly, sustainable, or ethical. Greenwashing directly undermines credible efforts to reduce emissions and address the climate crisis. ASIC is acting, and will continue to act, to prevent investor harm from greenwashing, and to support effective climate-related governance and disclosure.
Our second area of focus is on retirement outcomes and taking enforcement action for misconduct in the superannuation sector. Poor marketing, distribution and advice practices leave consumers in sub-optimal investment choices, resulting in poor investment returns. Members suffer financially and emotionally as a result of superannuation fund governance and administration falling short of what Australians should expect from a mature superannuation system.
Just over three-and-a-half million Australians are expected to retire during the next decade, with at least $750 billion of funds shifting from the accumulation phase to the retirement phase. Trustees should put – must put – members at the heart of decision-making in relation to how superannuation products are developed, governed, and marketed. Members must be at the heart of how funds operate day to day. But our review showed that trustees aren’t doing enough to enhance their members’ retirement outcomes. We will take strong action to protect consumers against conduct that is not efficient, honest and fair in this sector.
Our third area of focus is ensuring fair and orderly financial markets, which is critical to market integrity.
We’ll do this in two key ways.
First, by focusing our attention on the technological and operational resilience of both market operators and market participants.
As financial markets continue to become increasingly fragmented and digitised, the risks faced by our financial markets increase too. We’ve observed that where failures in implementation of automated systems aren’t identified in initial testing, they tend to persist. In some cases, for many years. The automated nature of these systems means market harm can far exceed that caused by errors stemming from manual processes, hence its strategic importance. For this reason, technological and operational resilience remains integral to ASICs mandate to supervise financial markets.
Enforcement action for these types of serious and long-standing failures will reinforce the importance of getting the changes right before they are rolled out.
Our second approach to ensuring fair and orderly financial markets is focussing on the gatekeeper role that market participants play in ensuring market integrity. Market participants need to be vigilant in ensuring that the trades and orders they facilitate for their clients are neither suspicious nor potentially manipulative. In fact, the market integrity rules oblige market participants to devote appropriate organisational and technical resources to this task. They’re also obliged to take action in relation to suspicious trading and to stop harm before it occurs.
While there are clearly fewer market participants than individuals and firms who trade on our markets, by focussing our enforcement action at the gatekeeper level, we send a strong message to those with the greatest potential to have a meaningful impact on market integrity. But let me be very clear: we won’t focus on gatekeepers to the exclusion of those who engage in market manipulation. This will always remain an ASIC enduring priority.
Conclusion: The unexplored seas
In conclusion. Effective regulation and strong enforcement are fundamental to navigating disruption. And to remain effective, regulators must be open to change themselves. As we move through whatever challenges and surprises lie ahead, ASIC remains committed to working with you to address those challenges.
But if the last few years have taught us anything, it’s this: we may see where we’re headed, but we can’t always know what lies ahead. That’s why ASIC takes a strategic approach that guides our journey and ensures we can adjust to whatever’s in front of us.
Our regulatory approach and the tools we use must continue to evolve and adapt, to respond to and address new risks and new opportunities. To take just one example – we now have product intervention powers, and we readily use them.
None of us here knows with any certainty what the journey will look like. None of has all the answers. We need a community – to help develop a shared understanding of the problems we face, and foster ongoing dialogue about how to address them.
This forum is a tremendous opportunity to develop a shared understanding of the problems we face and how we address them; and we have a diverse and absorbing set of topics to cover over the next day and a half. I’m confident we’ll all come away much better prepared for whatever the future holds. We’re going to explore a wide range of issues – the state of the economy, climate disruption, AI, social media, digital innovation, cyber – just to name a few.
A forum is defined as a place to exchange ideas about important public issues. That’s what I’d like this forum to be – a genuine exchange of ideas. I encourage you to actively participate.
And finally, the word ‘opportunity’ itself derives from the Latin, meaning ‘at or before the port’. It’s a reminder that progress is rarely – if ever – made in a safe harbour. It’s also a reminder that no matter what seas we sail – no matter what lies ahead – they contain the possibility of a better future.
ASIC is Australia’s corporate, markets and financial services regulator.
 Chris Brummer and Yesha Yadav, “Fintech and the Innovation Trilemma.” Georgetown Law Journal, vol. 107, 235: “If regulators prioritise market safety and clear rulemaking, they do so through broad prohibitions, invariably inhibiting financial innovation. Alternatively, if regulators wish to encourage innovation and provide rules clarity, they must do so in ways that ultimately result in simple, low-intensity regulatory frameworks, increasing risks to market integrity and consumers. Finally, if regulators look to enable innovation and promote market integrity, they must do so through a complex matrix of rules and exemptions, raising compliance costs and disproportionately impacting smaller firms and upstarts’.