Heard at the Refinitiv Australian Regulatory Summit

With over 700 senior risk, compliance and investment attendees, the Refinitiv Australian Regulatory Summit is a major event in the Asia-Pacific Governance, Risk and Compliance Calendar.  The agenda covered the latest FinTech and RegTech innovations, the rise of alternative data and the fight against financial crime.

Castle Hall was pleased to be invited and speak at the event. Our head of diligence in Australia, Alex Wise, joined a panel on Alternative Data and Due Diligence as a Data Source.

With senior speakers from ASIC and AUSTRAC, the summit also heard directly from leading government experts as well as industry and academic professionals discussing the latest regulatory and market developments impacting the financial sector in 2019 and beyond. In particular the conference covered:

• Regulatory & Market Outlook
• The Hayne Royal Commission
• Current FinTech and RegTech Landscape
• The Fight Against Financial Crime
• Harnessing, Protecting and Evaluating Data

Some interesting observations:

• Panellists agreed that the Royal Commission unveiled significant failings in the financial services sector. Key gaps discussed included (i) conduct and reward structures; (ii) an asymmetry of power between banks and customers; (iii) the use of conflicted intermediaries who only appear to be “independent”; and (iv) financial services firms not having been previously held to account.
• Post Royal Commission, all compliance professionals are monitoring the regulators and what they intend to do next. A live survey of attendees reported that 66% of the audience were “slightly confident” that the Royal Commission would have a meaningful effect on financial services culture. While not a ringing endorsement of the opportunity for rapid change, industry compliance and risk professionals do appear to be cautiously optimistic!
• Expert panelists suggested that it would take considerable time to facilitate meaningful cultural change in the financial services sector post the Royal Commission.  
• To that end, ASIC Commissioner Cathie Armour announced ASIC’s new approach to litigation under the mantra “why not litigate?” – which seemed to strike fear into some of the banking compliance folks in the room! However, Ms. Armour stated it didn’t mean “litigate first ask questions later” or “litigate everything”.
• ASIC restated its robust stance regarding the ongoing surveillance of the “Big 5” in Australian banking and finance with over 250 on-site interviews conducted so far in 2019. Additionally, APRA’s more robust stance on enforcement was also discussed.
• In the second half of the year we can expect to see increased regulatory focus on “Crypto-currency scams”- ASIC stated they had become aware of multiple areas of deceptive and unlawful conduct in crypto schemes and they were coming after it! (In Canada, Castle Hall has been monitoring the Quadriga crypto fiasco, where a $200 million crypto exchange is now under administration – watch for our upcoming commentary on lessons to be learned!)
• Alternative Data: panelists noted the exponential growth of data sets and the challenges for regulators and investors to ensure good governance and adequate legal and compliance review. The complex issue of material non-public information (“MNPI”) being transmitted via data was discussed, as was the risk of purchasing data that may be subject to privacy protections. 
• Panelists, including Castle Hall’s Alex Wise, discussed the increased use of data analytics in conducting monitoring and due diligence. Panellists agreed that due diligence of fund managers had to evolve to analyse data sets over time: the days of due diligence being limited to a single “report” are now firmly over.
• Faethm AI, CEO Michael Priddis, spoke about the rapid pace of change in terms of data and AI and how difficult it is to take a long-term view given the current pace of change and disruption.
• After Commonwealth Bank was fined an eye watering sum for AML violations in 2018, AUSTRAC discussed their willingness to work with law enforcement to bring down criminal money laundering syndicates and the financial services businesses that support them. In particular, the importance of Suspicious Transaction notices and training for frontline banking staff was referred to.
• In terms of market regulation, the use of material non-public information remains rife on exchanges according to ASIC. ASIC referred to M&A transactions representing significant number of suspicious investigations. In many cases, ASIC highlighted that 5% of all pre-deal trade flow was suspicious.  Additionally, ASIC noted material issues in small cap companies ahead of announcements.  We think there is more to come on this one!
• In terms of ESG, it was noted on the ESG panel that investors focus most closely on the E (environment). However, while climate change is a key issue, investors should also review the S (social) factor, in detail – “S” includes diversity, #metoo, and income equality (super participants continue to pay very large fees to Wall Street asset managers….while hedge funds and private equity managers generate performance, should retirees pay fees that allow some investment managers to become billionaires?)
• Additionally, investment managers in the ESG sector are using sites such as Glassdoor as an information source for shorting companies with poor cultural practices.

Many thanks to Refinitiv for supporting an engaging and content rich event!