Culture regulation a beast for ASIC
The Australian Securities and Investments Commission (ASIC) will continue to focus on ‘good culture' in financial institutions in 2016 but will find it a "difficult beast to regulate" given its ambiguity, a law firm warns.
Herbert Smith Freehills' Financial Services Regulation 2016 Outlook for Australia predicted ASIC would continue to focus on culture in financial institutions, along with robo-advice regulation, and behavioural economics.
Partner, Fiona Smedley, asked how ASIC defined "good culture", and how it planned to regulate it.
"Despite many ASIC speeches on the topic, it remains a vague concept involving ‘putting customers first'," Smedley said.
ASIC wanted to combine culture into its risk-based surveillance review, with a focus on remediation, incentives, whistleblowing, conflicts, and corporate governance, use the surveillance to find out how culture was shaping conduct, and communicate to firms where their cultural gaps were.
HSF also said ASIC would continue to monitor robo-advice businesses, pointing out that the corporate regulator had already recognised their potential due to their ability to remove conflicts of interest and reduce investment costs.
But partner, Michael Vrisakis, warned there would be regulatory challenges.
"The challenges lie in determining how these new businesses will comply with best interests duties, what control environment will be in place to ensure robust development and testing of algorithms and how staff will be appropriately trained and remunerated," he said.
The law firm also predicted ASIC would expect Australian financial institutions to be abreast of developments in behavioural economics and how biases affect consumer decisions when investing in hybrid securities.
"Consistent with the focus on culture, regulators will expect financial institutions to be drawing upon insights from the field of behavioural economics to assist in achieving better outcomes for consumers," it said.
AUTHOR
Malavika Santhebennur
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