Results and primary observations

Results

ASIC's series of regtech initiatives enabled the display of what regtech is capable of achieving (and not yet capable of achieving), in the identification and assessment of potentially poor conduct by financial services firms.

Some specific findings from the regtech initiatives include:

• incidents of potential non-compliance across mandatory disclosure requirements, in both financial promotions and personal financial advice, were identified by regtech demonstrators
• the future promise of voice analytics to locate signal identifiers of poor sales practices in stored, non-compressed, life insurance phone call records was presented by the procured regtech vendors
• a viable proof-of-concept chatbot to provide guidance on whether a business needs a financial services or credit licence was developed for ASIC by procured regtech vendors.

ASIC considers these findings were clear and valid based on the presentations provided by the regtech firms, as well as the trial outputs. ASIC did not undertake a complete verification of the demonstrators’ presentations given the scale of the trials.

ASIC also considers the findings show the potential for regtech to be used by ASIC, and other regulators, in its supervisory work (i.e. as supervisory technology, known as suptech).

Primary observations

Participants and attendees of ASIC’s regtech initiatives made the following primary observations:

• There is an imperative to implement regtech
  Exponential growth in data volume means the financial services industry must implement regtech to undertake its risk management and compliance functions. 
• Regtech enables analysis of large, high data volumes at speed, and in real time
  Related to the challenges of the growing size of data collected, regtech allows for real-time monitoring of vast expanses of information with greater efficiencies in evaluating sales practices, as well as the provision of financial advice and promotions.
• A need for improved standards on data capture and storage
  Data quality is critical and, as the saying goes, ‘garbage in, garbage out’ applied to data quality at each event. Demonstrators and panellists stated a need for improving practices and setting standards around data capture and storage.
• Australian firms are experimenting, but resourcing is a challenge
  There is a great deal of activity within the regtech sector, but due to the experimental nature of new forms of regtech there are limits to how much resourcing flows from firms towards its development. This will need to change. 
• A larger role for regulators
  Beyond being a consumer and user of regtech, ASIC and other regulators have opportunities to work with industry as an observer of regtech trials and projects. ASIC should consider providing further training datasets for future projects, outlining recommendations for industry practices, and updating regulatory guidance to improve current standards.
• Streamlining risk management and compliance
  Adoption of regtech by (but not limited to) the finance, insurance, and credit industries may allow for more targeted and effective implementation of identification, investigation, and problem-solving procedures, all at a reduction in the cost of compliance.
• Regtech poses further cyber security and privacy risks
  Increasing use of regtech brings with it concerns around cyber security and resilience. Use of cloud-based systems for storing, monitoring, tracking and processing data will require financial services firms and regulators to consider the risks involved.
• Regtech implementation is not easy
  It will take dedicated subject-matter and software-development experts to design, implement and refine regtech on an ongoing basis.
• Always a role for humans
  Regtech applications will not replace humans in risk management and compliance roles. However, regtech will augment the role of these professionals so that they can focus on more significant compliance matters identified from a larger, more complete sample size of financial services provided to consumers, rather than file reviews of small sample sizes.

Next steps

ASIC will continue to promote regtech by conducting more regtech initiatives in the remainder of FY2019–20. The focus of these initiatives will include exploring opportunities for machine learning (ML) to monitor compliance with regard to responsible lending; a report on the state of digital record keeping within the financial services industry; and a showcase on the publication of structured financial information in public companies.

 

For more information about ASIC's regtech series, follow the links below:

• ASIC regtech initiative series 2018-19
  • Results and primary observations
  • Monitoring Financial Promotions Demonstration and Symposium
  • Financial Advice Files Demonstration and Symposium
  • Life Insurance Sales Calls Voice Analytics and Voice-to-Text Trial and Symposium
  • Regtech Licensing Technology-Assisted Guidance Tool Trial
  • Regtech approach and next steps