ASIC wants to see more adoption of regtech by Australia's financial sector

The Australian Securities and Investment Commission (ASIC) has highlighted that there is "enormous potential" for regulatory technology (regtech) to help firms in Australia's financial sector better manage their compliance and improve overall outcome for customers.

In its Regtech Initiatives 2018-19 report [PDF], ASIC said after undertaking four regtech initiatives during the 2019 fiscal year, it has concluded that regtech solutions can be used to help detect potential breaches of mandatory disclosure requirements with high rates of accuracy in near real-time; detect potential conduct breaches in financial advice files, such as statements of advice; identify cases of poor sales practice and tactics in phone calls; and help ASIC provide guidance on licensing using a chatbot.

"Particularly in the financial services and superannuation sectors, regtech has enormous potential to help firms save time and money on regulatory matters," said ASIC commissioner John Price.

ASIC also uncovered that given regtech's inherently experimental nature, there has been limited Australian research and development funding to date.

"ASIC believes that we will soon reach the tipping point where not investing in regtech R&D will cost firms more in the long run," Price said.

Additionally, ASIC's report identified how while there are benefits of adopting regtech, the flipside to it would be the exposure the sector would have to greater cybersecurity and privacy risks, pointing to how cloud-based systems for storing, monitoring, tracking, and processing data will "require financial services firms and regulators to consider the risks involved".

Read also: How AI may help solve banks' customer relationship issues (TechRepublic)  

While there is still room for improvement, ASIC acknowledged however, that the financial sector has been making concerted effort to adopt regtech.

"ASIC recognises that in various use cases regtech has been in deployment for some time (e.g. monitoring of trading and regulatory reporting) and is making an important contribution to promoting regulatory compliance, market integrity, and positive consumer outcomes," it said in the report.

ASIC also noted that there is potential for regtech to be used by the agency itself, as well as other regulators for "supervisory work".

"ASIC should consider providing further training datasets for future projects, outlining recommendations for industry practices, and updating regulatory guidance to improve current standards," it said.

In light of releasing the report, ASIC said it will continue to promote regtech by conducting more regtech initiatives in the remainder of 2019-20 fiscal year. It will focus on exploring opportunities for machine learning to monitor compliance in regards to responsible lending; developing a report on the state of digital record keeping within the financial services industry; and a showcase on the publication of structured financial information in public companies.

In August, Citibank Australia, Westpac, and Commonwealth Bank of Australia announced they were each looking at regtech solutions to help solve compliance-related problems.

Citibank is piloting machine learning in Singapore to track the behaviour and conduct of the company's sales teams to look at "what good will look like and what bad will look like", Citibank Australia head of consumer bank independent compliance risk management director Larissa Shafir said at the time.

Locally, Citibank has partnered with Kaplan-owned regtech firm Red Marker to pilot technology that will remove duplication, which frequently arises when the compliance team is required to approve advertising campaigns developed by the marketing team. 

Meanwhile, Westpac has worked with Red Marker to introduce the bank's marketing and compliance teams to a real-time compliance tool that has been applied to 700 rules for its credit card advertisements. 

The bank recently said it would cough up AU$25 million to improve cross-border and cross-industry data sharing and analysis as one of the "immediate fixes" as part of its response plan, following issues raised by the Australian Transaction Reports and Analysis Centre (Austrac).

The anti-money laundering and terrorism financing regulator applied to the Federal Court of Australia alleging Westpac was involved in "systemic non-compliance" with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) on over 23 million occasions. 

For Commonwealth Bank of Australia, it has invested heavily in internal technology, including for AML/CTF Act compliance.

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