ASIC chair Sarah Court has told a financial markets innovation roundtable in Sydney that innovation in Australia’s financial markets is reshaping how assets are issued, how markets are structured and how transactions are settled, while noting regulators are confronting emerging technologies operating beyond existing regulatory boundaries.
Speaking at the event on 30 June, Court said innovation was increasingly occurring at speed and often outside existing regulatory boundaries, with new technologies including issuer-less crypto assets, integrated ‘everything exchanges’, and decentralised markets run by software already appearing in the market.
In opening the session, Court posed the question: how do we ensure that our capital markets continue to evolve to meet the needs of modern Australia?
“This is not an abstract question of course. It directly impacts productivity and dynamism in the economy. Many of you will know that the Treasurer has tasked regulators with a mandate to improve both productivity and dynamism, because as we know productivity lifts living standards, dynamism creates opportunity, and together, they improve everyday life.
“We recognise that Australia’s capital markets must evolve to meet the needs of today’s economy – and innovation is going to be how we get there. The Government has laid down the gauntlet for us to help to improve Australia’s productivity. We stand ready to do our part,” Court said.
The discussion was informed by a new report from the Digital Finance Cooperative Research Centre (DFCRC), which highlights emerging opportunities and risks from financial innovation.
“Innovation has always been a feature of Australian financial markets. And we are, I think it’s fair to say, deep in another wave of innovation at the present. One that is reshaping how assets are issued, how markets are structured, and how transactions are settled,” Court said.
“What the DFCRC research has found is that increasingly, innovation is happening extremely quickly, it is not occurring neatly, it doesn’t sit neatly within our current regulatory boundaries, and it is already showing up in new technologies.”
ASIC said there are challenges for regulators in this environment, with technologies like crypto assets that have no identifiable issuer or backing; integrated ‘everything exchanges’, where trading, custody, settlement, and payments are all rolled into one across a range of asset classes and risks; and decentralised exchanges and automated market makers where the market is the software.
Existing regulatory settings were described as being based on assumptions that markets involve identifiable issuers or operators, that core functions such as trading and settlement are separated, that products fit within defined categories and that decision-making actors can be clearly identified, although these assumptions were increasingly being challenged.
The ASIC chair said regulatory uncertainty could arise where these assumptions no longer held, potentially delaying investment and slowing innovation.
Court said the existing framework retained strong foundations, including broad definitions and licensing powers, with a recent High Court matter confirming it was capable of capturing a wide range of new products entering the market.
“We have the advantage already of broad definitions and broad licensing powers, and that means we shouldn’t need to be rewriting the laws every few years when someone wants to bring a new product or service to market, or indeed to create a new market or a new trading system. We think that we have enough flexibility now in the existing framework to allow for innovation.”
The challenge for ASIC is juggling responsibly supporting financial market innovation, while not stifling innovation.
“We think we can do this by providing clearer pathways, so that firms know upfront whether they need a licence and if so, what type. We can provide stronger coordination, so firms don’t have to engage with multiple regulators with multiple expectations. And we can provide a more predictable regulatory environment, so that firms can commit capital with confidence,” Court said.
Court also highlighted collaboration with other agencies, including through Project Acacia, as well as broader industry engagement initiatives aimed at supporting responsible market development.
“I do want to observe that we also need to be cautious about innovation for innovation’s sake. Innovation is not an end in and of itself. It does need to have a clear purpose and it needs to have a public benefit. So, regulators have an important role in encouraging and facilitating responsible innovation, while protecting Australians from harmful innovation.”
Work already underway includes a roadmap for more efficient and globally competitive markets, the relaunch of ASIC’s Innovation Hub, and ongoing refinement of the regulatory sandbox following a recent government review.
