Understanding ASIC

ASIC’s corporate plan communicates the regulator’s thinking on how its long-term strategic priorities and challenges are shaping its strategy and responses, writes John Price.

Last month, the Australian Investments and Securities Commission (ASIC) published its Corporate Plan 2015-16 to 2018-19 and its focuses for 2015-16.

The plan communicates ASIC’s thinking on how its long-term strategic priorities and challenges are shaping our strategy and responses over this period. The Corporate Plan is relevant for all the gatekeepers that ASIC regulates, including Australia’s company directors.

More generally, the plan lays out ASIC’s broad strategic thinking and philosophical position on many issues. ASIC sees the long-term challenges in the financial system as digital disruption, structural change in our markets, innovation-driven complexity, globalisation and balancing a free market-based system with investor and financial consumer protection.

Markets cannot achieve their fundamental purpose in funding the real economy without trust and confidence. Ensuring Australians have trust and confidence in the financial system remains at the heart of everything ASIC does.
 
It is why ASIC’s strategic priorities are to:

• Promote investor and financial consumer trust and confidence.
• Ensure fair, orderly, transparent and efficient markets.
• Provide efficient and accessible registration.

ASIC’s strategic priorities are critical to the way our free-market system operates, which is based on the principles of investor responsibility, gatekeeper responsibility and the rule of law. Gatekeepers play a crucial role in ensuring the financial system’s overall health is sound, so people can have trust and confidence in the system.

Understanding the behaviour of investors, consumers and gatekeepers, and using the right “nudges”, is central to achieving ASIC’s objectives. We are embedding behavioural insights in the way we do our regulatory work to ensure we regulate for real people. Financial decisions are often influenced by people’s financial literacy and their behavioural biases.

The behaviour of people in our markets is influenced by culture, incentives and deterrence. Culture is a significant driver of the behaviour of firms. Where we find a firm’s culture is lacking, it is a red flag that there may be broader regulatory problems.
 
Deterrence involves the fear and the consequences of getting caught. It includes the internal structures that are in place to deter employee misconduct. Operating in this environment, ASIC acts through its “detect, understand and respond” approach.

We detect wrongdoing through surveillance, breach reports, reports from the public and whistleblowers. We continually scan our environment to identify, assess and manage risks. Our emerging risk committee identifies issues that are on, or over, the horizon or on the edges of our regulatory responsibilities. And we analyse intelligence to assess risks early, including through data matching and analytics.

ASIC responds to wrongdoing or the risk of wrongdoing using a number of tools, including education, guidance, surveillance, enforcement and policy advice to government.

We want to achieve the best risk resilience in the financial system that we can with the resources we have. Our Corporate Plan covers the period from 2015-16 to 2018-19 and covers how we will evaluate our performance over time as an integrated corporate, markets, financial services, and consumer credit regulator, as well as our capabilities to meet future regulatory challenges.

To further strengthen our capabilities, we look forward to the Government’s response to the Financial System Inquiry and support the Government’s focus on markets, including possible reform to the client money and financial market licensing regimes. We also welcome the Government’s capability review of ASIC.

Those we regulate should focus on creating a customer-centric culture to prioritise the long-term best interests of investors and financial consumers. This, in turn, will ensure all Australians can have trust and confidence in our financial system over the long term.

ASIC’s Corporate Plan is a crucial document that gives directors a clear view on our strategic priorities going forward. I urge all directors to read the plan on ASIC’s website.