On 20 October 2014 ASIC published its Strategic Outlook for 2014-15 (Outlook). The Outlook describes the trends shaping ASIC’s regulatory focus over the next 12 months, provides examples of its intended responses to key risks and outlines its regulatory objectives for financial services and markets in Australia.
The Outlook is a new initiative by ASIC. It identifies the key risks in the immediate future for the markets it regulates and sets out how it intends to respond to those risks, prioritising tools of surveillance and enforcement.
Key risks and challenges
The key challenges ASIC has identified for 2014-2015 which will drive its activities over the next 12 months are:
- striking the balance between a free market-based system and investor and financial consumer protection, with a particular focus on ensuring that market participants have a culture and systems that emphasise the best interests of their customers
- assessing digital disruption in Australian financial services and markets
- responding to structural change in the Australian financial system through growth of market-based financing, which is largely driven by growth in superannuation
- addressing complexity caused by innovations in financial products, markets and technology
- monitoring the impact of globalisation on Australian financial markets.
The Outlook provides information on some of those risks:
- ASIC is concerned that globalisation and cross-border businesses, services and transactions may lead to compromised market outcomes.
- For example, the direct listing of the same or equivalent over-the-counter derivative contracts by overseas licensees, operating across different systems giving rise to inconsistent or lower prudential or consumer protection standards.
- ASIC’s challenge in this area is to keep pace with relevant international regulatory standards while ensuring local participants have access to international markets.
Digital disruption and innovation-driven complexity
- ASIC notes that innovation and complexity in product distribution and financial markets through new technology can deliver mixed outcomes for retail investors, financial consumers and issuers.
- ASIC identifies digital currencies and crowd funding as being areas of focus. It will continue to monitor technological innovations, educate investors and set compliance standards and provide guidance.
- ASIC remains concerned about the culture of financial services businesses, and the incentive structures they use. It urges financial services businesses to have policies and procedures in place to comply with their legal obligations.
- To address these concerns, ASIC will target the six largest financial institutions to test how they comply with high-risk areas of the law relating to advice and dealing activities, and will also target responsible entities operating managed investment schemes.
- ASIC will continue to monitor and identify where inappropriate products are being sold to investors and financial consumers. In particular, it will target advice about self-managed superannuation funds, with a particular emphasis on unlicensed advisers and misleading advertising.
- ASIC notes there can be different expectations and uncertainty about outcomes in the regulatory settings which can undermine confidence and behaviour: presumably ASIC is referring here to the expectations of the public, parliamentarians, financial services organisations and regulators.
- ASIC considers that there can be an expectations gaps where its role or powers to address wrongdoing are limited, such as when an appropriate remedy is not available to it.
ASIC’s Strategic Priorities
Pursuant to the Outlook, ASIC’s strategic priorities are to ensure:
- investors and financial consumers are confident and informed, concentrating on:
- investor responsibility for investment decisions
- understanding risk, reward and diversification
- holding gatekeepers to account
- recognising how investors and consumers make decisions
- fair and efficient financial markets achieved through ASIC’s role in market supervision, competition and corporate governance
- efficient registration and licensing with a focus on small business.