First, the conduct of gatekeepers in the financial services market will be a key priority for ASIC in the coming year.
Conflicts of interest within companies, principals, intermediaries and gatekeepers can lead to “significant investor losses” if they are not managed adequately, ASIC warned.
“Weak compliance systems, poor cultures, unsustainable business models and conflicted distribution may result in poor advice, mis-selling and investor loss, especially in managed investments,” the regulator said.
Structural changes in the financial system through the increase in assets held in superannuation (including SMSFs) are magnifying the risk of poor advice, said ASIC.
Second, ‘innovation-driven complexity’ will be a focus for ASIC in the coming year.
“Poor retail product design and disclosure and misleading marketing may disadvantage consumers, particularly at retirement,” said the regulator.
Innovations in the way products are distributed (eg, electronic payments, bitcoins and ‘crowdfunding’) can also deliver “mixed outcomes” for retail investors, warned ASIC.
‘Digital disruption’ is also creating challenges for market operators, said the regulator, which could lead to “potentially larger, more widespread trading disruptions because of trading system failures”; an increase in market fragmentation due to an increase in ‘dark liquidity’; and “considerable growth in cybercrime”.
Finally, globalisation will be on ASIC’s radar throughout 2014/2015.
“Globalisation and cross-border businesses, services and transactions may lead to compromised market outcomes,” said the regulator.
Market participants will need to keep pace with international regulatory standards; be aware that the direct listing of over-the-counter derivative contracts by overseas licensees could give rise to inconsistent or lower standards; and monitor the risk to Australian investors from emerging market issuers, said ASIC.
