Regulator’s fintech commissioner reveals how forward looking authority deals with rapid technological change.
Not all regulators are moving at the same pace to keep up with changes in financial markets. Surprisingly, some are even privately sceptical about financial technology. Yet, besides coming to grip with emerging financial technologies, today’s regulators also have to consider advanced means of monitoring market participants.
Regulation Asia spoke with John Price, commissioner for fintech at ASIC (the Australia Securities and Investments Commission) about how it is meeting regulatory and technological challenges on multiple fronts at the same time as its overarching goals.
Price explains: “ASIC is unique as regulator. It has a statutory obligation to help develop the Australian financial industry. The regulatory framework has a dual purpose to enforce and facilitate the financial industry. So that’s why we have a strong interest in cultivating fintech.”
Although regulators are facing similar issues around the world, ASIC takes a pro-active position, he adds:
“A key challenge is how to encourage and regulate digital disruption at the same time. We try to optimize its benefits and mitigate the risks of digital disruption. So we set up a fintech innovation hub to navigate the issues and allow communication with [the UK Financial Conduct Authority, Monetary Authority of Singapore, European Central Bank] and US authorities.”
“We are committed to innovation. But, we don’t want to compromise consumer protection. And we also ask where are benefits to consumers and where are new jobs coming from?”
Price explains: “So far we have managed 109 requests in our innovation hub and 20 in peer-to-peer lending. Encouraging improvements and growth in the financial industry is an important priority. Providing more financial services to the public is a key priority. For example, only one in five Australians uses a financial advisor. We hope to improve that at a realistic cost point.”
ASIC is also taking specific steps to cultivate the fintech industry and giving participants regulatory guidance, as Price notes: “Providing fintech people with access to senior ASIC staff helps them navigate regulatory framework and deal with regulations as early as possible. They don’t have the time, resources and connections to understand the entire system.”
He describes some specific areas where ASIC can support technology: “We’ve set up guidance sites and task forces. We understand we might need to alter the regulatory framework and situations where exemptions are required. The ability to respond early to trends without parliamentary approval is important.”
Furthermore, Price notes, ASIC has set up a committee to examine business plans for digital advisory, one of the most popular business models alongside peer-to-peer lending, payments and remittance services.
“I wouldn’t rule out a breakthrough or the re-imagination of a service or product,” says Price. “Blockchain is probably an area where strong institutional interest lies. It may provide more opportunities in the OTC market, but perhaps not in stock exchange applications. And peer-to-peer lending will one day be big enough to raise governance and financial stability issues.”
On the other side of the market, ASIC is particularly interested in how cloud technology and advanced analytics, or ‘regtech’, can sharply improve market supervision. “Algorithms that can spot market misconduct can help regulators improve their analysis and take more accurate actions. It is important to understand how risks are interrelated. This determines what level of supervision is needed over algorithms and how should we intervene.”
Price concludes: “Regtech data analytics can help determine where there is a concentration of credit and risk. The future lies in advanced data management ensuring our staff have proper skills and tools. Of the AUD120 million (USD91.58 million) budgeted from the government to ASIC, AUD60 million is dedicated to data analytics.”
The result of ASIC’s pro-active support services is that Australia is ranked by the consulting firm EY as having the third most user friendly regulatory framework. In areas like financial regulatory policy and regulations, funding capabilities, skills and consumer demand, Australia’s ranking remains high.