Curated Content: ASIC, reg-tech and advisers' needs

firms have to deal with greater reporting requirements and meet higher regulatory standards. In order to enable effective competition and promote innovation, it is important that technologies that help firms better manage regulatory requirements and reduce compliance costs are supported.
— Financial Conduct Authority, Call for Input: Supporting the development and adoption of RegTech November 2015

Considering that we've been promoting and advocating for reg-tech since 2012, it may seem curious that we'd draw your attention to a now dated FCA publication. In fact, we're drawing your attention to it because it's finally gaining momentum and visibility in Australia.

You may recall that in 2016, Treasurer Scott Morrison declared that reg-tech may provide Australia with "a regulatory system which is technologically advanced". It was a somewhat vague and aspirational pronouncement that elicited little interest outside the quoted consultants and identified service providers. In reality, there's been insignificant progress since that time, but little more could have been expected given that he simply rephrased the IIF's observation that:

By making compliance less complex and capacity-demanding, regtech solutions could free capital to put to more productive uses, increase competition by removing a barrier to entry, improve the quality and efficiency of supervision, and reduce risk in the system

While interest has been slow to build, we're now seeing significant interest in compliance technology in the wake of the Royal Commission. Perhaps the glaring deficiencies of some licensees' compliance arrangements have alerted others of the need for preventative investments in compliance. We don't want to trivialise some Institutions' significant contributions to highlighting the value of compliance, but I suspect Louise Macauley's witness statement may have helped as much as CBA, ANZ and AMP did.

In her statement to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, the joint-Leader of ASIC's Financial Advisers Team

  • explained in what circumstances ASIC ban a financial adviser,
  • outlined ASIC's alternatives to banning orders and
  • provided summaries of 33 Enforceable Undertakings offered to ASIC since 2008.

All that information was interesting, but we think what's driving this burgeoning interest in reg-tech is anticipation of an increasingly active regulator, a heightened fear of consequences and consideration of the table presented on page 15. 



It's entirely reasonable for Licensees, horrified by the 'compliance cultures' exposed before Commissioner Hayne, to expect ASIC (derided for being MIA) to enthusiastically enforce the law. It's entirely prudent for Licensees, struggling to manage regulatory complexity, to look to regulatory technology, like the openAFSL platform, to help them manage their risks and obligations.

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Advisers, on the other hand, think reg-tech will be generally less impactful than skype or Zoom.

Considering that they didn't even recognise reg-tech as an issue in 2017, the fact that it registers at all is impressive. In reality, reg-tech is a licensee solution and not an issue with which most advisers should be concerned. 

In any event, we think that both Licensees and advisers should read Netwealth's "AdviceTech Research Report 2018 edition". 

Focusing on both the customer experience and the technological future of Australia's emerging advice profession, Netwealth's research report provides a forward looking perspective on a generally conservative industry. 

Despite its limitations, we recommend it (and not simply because Netwealth presents reg-tech as a 'breakthrough and radical idea"). 

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Of course, reg-tech's break-through and radical nature may (partially) explain why only five firms are using the ASIC regulatory sandbox

If you need another reason to embrace reg-tech, consider that ASIC (and APRA) believe that financial institutions' "poor risk cultures" compromise their corporate social licences and have the potential to hurt investors, consumers and the entire financial system. 

An investment in reg-tech is therefore, for most licensees, an investment in their own sustainability.