Globalisation of financial services regulation

Speech by Commissioner Cathie Armour on Day 2 of the three-day annual #ACCELERATERegTech2022 event, Wednesday 6 April 2022.

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Good morning.

Thank you to the RegTech Association for inviting me to speak.

Today I am going to focus on two new but quite different areas of global regulatory interest where regtech has a role to play. The first is sustainable finance disclosure and the second is retail investor behaviour.

Overarching change agents in our financial system are of course, technology and innovation. They have completely transformed the way financial services are provided, and will continue to do so at an exponential rate. My question for you, is whether the focus of regtech is matching this transformational growth.

One of the areas where regtech products are well-entrenched is in sanctions compliance. As governments introduced new sanctions in response to the Russian invasion of Ukraine, I couldn’t help but think about the job of the sanctions team in a financial firm to ensure all necessary adjustments were made to comply with those sanctions.

It led me to wonder whether we (regulators and industry alike) had really done all we could to get the most from regtech solutions as new and complex legal requirements are introduced. 

A positive example of this is the US SEC’s proposed new cybersecurity rules and climate disclosure rules for public companies. The proposed reporting under these rules must be presented in Inline eXtensible Business Reporting Language (XBRL) which is both human and machine-readable and includes block text tagging as well as detailed tagging of narrative disclosures.

At ASIC, we work with industry to promote opportunities for innovation in regulatory compliance.

Last week, we released the final requirements for the internal dispute resolution data reporting framework. This framework will enable ASIC to publish system-wide data on consumer complaints.

We are also part of an exciting regtech experiment working with a small number of regtech firms on a corporate disclosure-related challenge under the Business Research and Innovation Initiative project conducted in partnership with the Department of Industry, Science, Energy and Resources.

Moving onto my two specific issues…

Sustainable finance and climate change-related disclosure

The first issue is regulation relating to sustainable finance, specifically climate change-related disclosure by listed companies.

ASIC is a member of the IOSCO Task Force on Sustainable Finance, which conducted a review of corporate sustainability disclosure guidance last year and found that investor demand for transparent, comparable sustainability-related information was often not met.[1]

Late last year, the trustees of the International Financial Reporting Standards Foundation announced the establishment of the International Sustainability Standards Board (ISSB).

The ISSB will develop high-quality global baseline climate and sustainability disclosure standards to tackle these challenges. The ISSB’s Exposure Draft standard on climate reporting has just been released.

ASIC supports this exercise – consistent, comparable and relevant information is critical to fully-informed decisions by investors.

What are the opportunities for regtech? Well, climate-related disclosures in the coming years have been mandated in many countries, notably New Zealand and the UK and mandate proposals have just been released by the US SEC – these mandates will apply to the many Australian-listed companies with filing obligations in those places.

A lot of work has been done over the years on developing various climate modelling. But now is the time for regtech firms to engage with emerging global standards and reporting requirements as well as with firms and investors, standard setting boards, regulators and legislators on how these new requirements could be articulated in a way that facilitates technology compliance solutions.

Changing retail investor behaviour

My second issue is not about new regulation but how new technology is transforming retail investor behaviour globally.

The growth of low-cost, easily accessible digital investing and broking products combined with the pandemic-induced market conditions and low interest rates has accelerated the pace of change in markets and propelled the increase in new retail investors.

ASIC co-chaired an IOSCO Retail Market Conduct Task Force which reviewed retail investor trends globally and their implications for market conduct. The Task Force identified emerging issues including the impact of social media on retail trading decisions.

In 2021, ASIC’s Young People and Money survey found that 33% of 18-21-year-olds follow at least one financial influencer (or finfluencer) on social media.[2]  A further 64% of young people reported changing at least one of their financial behaviours as a result of following a finfluencer.

Online discussion about financial products and services can provide helpful insights for investors and it is very positive that investors are taking a proactive interest in their financial futures. But a recognition of the importance of consumer protection in financial services has meant that financial advice is specifically regulated.

So, accepting that the use of technology has the potential to improve financial inclusion and develop people’s financial capabilities, how can we best ensure that these services are effectively provided in compliance with our laws?

To help achieve this, ASIC released Information sheet 269 last month to provide clarity on how the law applies to social media influencers and the licensees who use them.[3] It strikes me that this is an area where regtech has a real place.

Are regtech firms considering how they could adapt their existing financial advice solutions to help social media users discuss financial matters?

Conclusion

To conclude, ASIC’s focus is on a fair, strong and efficient financial system for all Australians. We know that to achieve this we need to facilitate and exploit the opportunities offered by technology.

Regtech is all about using technology to help firms meet their regulatory obligations. As our regtech industry has matured in Australia, is it time to be more ambitious?

I have outlined two scenarios today – one is about a global regulatory change impacting Australian companies that is being well and truly signposted in advance. The other is about a dramatic change in how retail investors globally are trading driven by the efficiencies of online engagement.

Regtech has the promise to solve the problems that the different groups face in each of these situations.

My question is whether regtech is adapting fast enough to provide solutions to these global regulatory trends before they become local problems. Financial technology has typically been developed to solve frictions in the system. 

Is regtech exploiting these opportunities to solve frictions early enough in the regulatory lifecycle?

Thank you.

 

[1] June 2021, IOSCO FR04/2021 Report on Sustainability-related Issuer Disclosures; and 14 December 2021, 21-349MR ASIC welcomes new International Sustainability Standards Board and updated climate-related disclosure guidance.

[2] December 2021, Young people and money - Survey snapshot.

[3] 21 March 2022, INFO 269 Discussing financial products and services online.

Last updated: 06/04/2022 08:45