Globalization and digital disruption and cyber threats are some of the key risks that the Australian financial markets are facing in the 2017-2020 period, the Australian Securities and Investments Commission (ASIC) said on Wednesday in an annual report.
The regulator has introduced for the first time conduct practices, or ‘what good looks like’ in its viewpoint, for all sectors it regulates. For financial intermediaries, the regulator has prepared several conduct practices that all market participants need to follow. Below is a list of the ASIC’s concepts for market intermediaries:
“Ensuring that Australians can have trust and confidence in the financial system and that markets are fair and efficient is at the heart of everything we do at ASIC,” ASIC Chairman Greg Medcraft said. “Gatekeepers play a crucial role in the overall health of the financial system. Their conduct influences the level of trust and confidence that investors and consumers can have in the financial system,” he added.
In the report, the regulator outlines its objectives, long-term challenges and risks and explains how it intends to address them.
Globalization of financial markets, products and services.
Globalization presents many opportunities, but it also introduces high risks, concerning cross-border businesses, services and transactions. It poses a risk to market integrity and trust and confidence across markets. According to ASIC, there is an increased risk and incidence of misconduct across borders due to increased operational complexity of businesses operating in multiple jurisdictions, holding multiple licences and being subject to different requirements and standards.
To offset globalisation-related risks, the regulator intends to support cross-border activities by reducing regulatory burden. It will continue to work with the international regulatory bodies and counterpart regulators, as well as to implement bilateral and multilateral agreements and supporting initiatives that help the capabilities of regulators in the region.
“We will focus on the increasing volume of cross-border businesses, services and transactions and interconnectedness of markets across jurisdictions. These may compromise market integrity and trust and confidence in the global financial system,” the regulator said in the report.
Cyber threat risk on the rise
As the number of people engaging with digital technology is higher than ever, so is the number of cyber threats. Fintechs are facilitating new business models including digital technology and the use of such technology has the potential to improve the efficiency of the financial system. The total number of cyber security incidents detected in 2015 in Australia increased by 109% over the preceding year, a substantially faster rate than the global average.
“The greater incidence, complexity and reach of cyber-attacks can undermine increasingly digital businesses, destabilise markets, and erode trust and confidence in the financial system“, according to the regulator.
To minimize cyber threats, the regulator plans to implement a number of tactics, including to gather data from entities about their cyber risk management practices, provide feedback on those data, and to develop alerts and metrics to identify cyber threats and technological disruption.
Over the next four years, the ASIC will also focus on the following components:
- monitoring how the Australian financial services industry is using emerging technologies
- monitoring emerging promotional methods, delivery channels and business models
- raising awareness of cyber-attacks and the importance of cyber resilience
- monitoring the developments in the fintech community, both locally and overseas, including through our Digital Finance Advisory Committee
- engaging with other regulators and international bodies to keep abreast of risks and regulatory developments
- ensuring changes by the operators of Australia’s market infrastructure are well managed
“Our challenge is to manage the risks associated with the speed with which new products and services are being developed and adopted. This includes ensuring they are appropriately regulated and do not adversely impact on trust and confidence,“ ASIC’s report read.
ASIC also goes digital
The ASIC will follow the global digitization trend and will digitize its registration services. The regulator will transform its registry business to make it easier to do business in Australia. The change includes streamlining business registration via a single online registration service, including business name and company registration.