Invest in Regtech or face the consequences?

In his opening statement to the Australian Securities and Investments Commission (ASIC) Regtech Financial Advice Symposium, ASIC Deputy Chair Daniel Crennan called on the industry to prioritize investment in regtech in order to meet regulatory, compliance and professional obligations. 'The status quo is no longer an option. ASIC expects more. Consumers expect more' Mr. Crennan said.
Mr. Crennan said that as the financial services system becomes larger, more complex, digitized and globalized, regulators' expectations with respect to compliance and risk remain high. He added that consumers' expectations are also rising.
ASIC's expectation, Mr. Crennan said, is that 'organisations keep up'.
The price of failing to keep up?
Citing the $119.7 million in compensation (as at 30 June 2019) paid to customers who suffered loss or detriment because of non-compliant advice by financial advisers; and the uptick in ASIC's enforcement actions in the financial services sector over the past six months (as highlighted in the regulator's most recent Enforcement Report (for a summary see: Governance News 21/08/2019) Mr Crennan observed that 'we're all aware of the consequences of not keeping up, particularly relating to the provision of financial advice'.
What's required?
Mr. Crennan told the conference that there is no doubt that technology is 'front and center of financial services provision' and that in order to improve risk management and minimize compliance risks, industry 'must include the capacity to explore, test, and implement "compliance-by-design" regtech solutions'. 'It would be ideal to witness a decrease in the number of ASIC’s compliance-related enforcement actions as a direct result of the industry’s uptake of regtech' Mr. Crennan observed.
From ASIC's perspective, he said that expediting supervisory tech 'for itself, as much as everyone else' is 'critically important. 'If we can lessen our own operational and delivery burdens, we can speed up our own processes and improve our own effectiveness' Mr. Crennan said. In particular, ASIC is looking to build capability in behavioral sciences, data analytics and artificial intelligence as well as increased coordination and exchange of information about regtech initiatives with other regulators. This is in line with ASIC's Four-Year Strategic Change Program, which began in 2018.
Still a 'learning exercise'
Mr. Crennan said that regtech is an evolving area and that the event should be treated as a 'learning exercise'. He called on 'industry government and regulators' to 'keep an open mind and maintain an active stance on everything we come across during this Regtech Initiative series'.
What does this mean for the sector?
MinterEllison Partner Anthony Borgese applauded Mr. Crennan's call for business to build 'compliance by design' regtech solutions into their business models, adding that 'developments such as afterpay and zippay, are turning credit systems on their head, and creating issues for regulators on how they should best be controlled and regulated. The next wave of cryptocurrency has the real potential to bypass the regulated financial systems. So Crennan is correct when he says that our financial systems are becoming larger, more complex, digitized and globalized. And so the status quo is no longer an option. In fact, keeping the status quo will mean that the regulatory systems will go backward fast'.
Mr Borgese went on to observe that failure to have appropriate systems in place was highlighted in the Financial Services Royal Commission's Final report as a contributing factor in a number of issues identified over the course of the hearings (eg in relation to the widespread fee for no service issue) and that Mr. Crennan's speech further underlines the imperative for industry to take steps to address these issues.