Key current issues in financial services regulation

Vince Battaglia

[Transcript]

I think that ASIC’s enforcement priorities over the next year will relate to significant law reform developments last year. In relation to law reform developments over the past year there have been two. One has been in relation to the new breach reporting regime. ASIC said it is going to collect data in relation to reportable situations and determine what sort of new market information might be there which it will use to undertake targeted enforcement activity. In relation to the other key regulatory development, it relates to the design and distribution obligations regime, and ASIC has said that it will undertake targeted surveillance in relation to the implementation of that regime. That includes seeing whether responsible entities have issued target market determinations and have taken reasonable steps to ensure that investors who buy the product are within the target market as set out in the target market determination.

In relation to managed investment schemes there has been a movement to promote managed investment schemes as being ESG compliant and ASIC has said it’s going to take a surveillance of product disclosures to see whether the funds actually take into account these ESG considerations or not.

The biggest regulatory development is the new corporate collective investment vehicle regime or CCIV. A CCIV is a new investment vehicle that will come into operation on 1 July 2022. It is essentially a corporate fund as opposed to a fund that is a trust based managed investment scheme. It is a body corporate that issues shares and it’s going to be a game changer in the Australian landscape. However, in the market we think that there isn’t much interest for fund managers to adopt this new regime and adopt CCIV for their funds because they don’t think there’s a real need for it.

Also, there are set up costs in trying to establish a new vehicle that complies with the new regime nevertheless there will be lots of regulatory developments from ASIC in order to accommodate the new regime and that’s to be welcomed.

Another interesting development that I’ve discovered is the so-called interest in gamification in financial products. ASIC as well as IOSCO have recently described how they are seeing trends in the issue of financial products where game theory has been introduced in relation to the distribution of financial products. This is especially relevant for digital financial products. So, much like an online betting platform there are financial product providers out there that are providing digital platforms where you can invest on a range of financial products on a platform and where distributions are parked aside from their investments and investors are reinvesting in a whole range of other financial products on that platform. I suppose the key policy issue there is that investors aren’t really thinking about the tax consequences of having a distribution and other consequences of not taking their money out for their other purposes and are simply reinvesting much like you would reinvest in an online betting platform. ASIC and the foreign regulators are looking at that and I think that’s really interesting because it shows how general game theory which is applied in different forums are used also in the context of the provision of financial products and services.