The corporate watchdog has a critical role to play in regulatory technology, writes ASIC Commissioner John Price.
Regtech is not just a fashionable buzzword. This use of new technology to facilitate the delivery of regulatory requirements shows great promise to improve outcomes in the financial sector. ASIC sees the regulatory technology (regtech) sector as one of enormous potential to help organisations build a culture of compliance, identify learning opportunities and save time and money in relation to regulatory matters.
As a consumer of regtech products as well as an advocate for regtech in general, ASIC strongly believes it should be top of mind for both the regulator and the industry. The marriage of regulation and technology is becoming more important as our focus on data and reporting increases.
The rapidly growing regtech universe covers technology that deals with functions such as data distribution and regulatory reporting, risk management, identity management and control, compliance and transaction monitoring. ASIC’s approach to regtech is to:
- Work towards regtech outcomes that align with our strategic objectives
- Undertake a focused number of regtech initiatives that have near-term deliverables
- Have regard for industry input, good international case studies and our own lessons in forming our plans
- Adopt a technology-neutral approach to regulation where possible.
Regtech Liaison Forum
To assist in our work we have established the ASIC Regtech Liaison Forum, which involves the industry, technology firms, academia and consumer bodies. It also incorporates technology trials and problem-solving events.
The forum, which convenes quarterly, promotes information-sharing and discussion, and will offer opportunities for collaboration that should ultimately lead to strong outcomes for consumers and an improved financial services sector. The forum will also identify practical areas of focus for industry and regulators, and help inform how we communicate guidance and make data available in the future.
While the marriage of regulation and technology is not new, it is becoming more important as our focus on data and reporting increases.
Natural language processing trials
In February 2018, ASIC released a set of problem statements with cases to understand and encourage the application of natural language processing (NLP) in addressing regulatory problems. Trials are already being conducted within ASIC in areas such as:
- Advertisement/promotion of credit products
- Product disclosure for managed funds
- Statement of Advice compliance for retail financial advice
- Reporting of company announcements
- Prospectus reviews.
The trials are to explore potential efficiencies in supervision, which include processes of automation and prediction, and are expected to present a genuine learning opportunity for ASIC. For example, the financial advice trial explored using NLP to extract information relating to a range of key risk indicators around problematic financial advice. The extracted information can be used to risk-rate files, leading to a more targeted and efficient use of resources.
In August 2018, ASIC was allocated more than $6 million in government funding (over two financial years) to expand our work in this space. The funding will be used to promote the development and use of regtech solutions by financial services firms, and to accelerate ASIC’s use of regtech to deliver better regulatory compliance and outcomes for consumers, helping to make Australia a world leader in the development and use of regulatory technology.
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