Check against delivery

In my remarks today, I’m going to do four things. First, I want to talk about the objectives for the session today. Second, I want to talk about why financial market innovation presents a very practical challenge, not just for regulators, but for all market participants. Third, I want to talk about how innovation is already showing up in the market and how our current regulatory framework is responding to that. And then finally, I want to talk a little bit about what ASIC is doing in this area.

So first, we are here today obviously to address a core challenge: which is 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. This is why ASIC is committed to promoting innovation in our financial markets. As you heard from Simone, and as evidenced by our report today, our interest in the topic remains steadfast.

The discussion today is going to be informed by this new report we have just released on international financial market innovation. This is the second report from Talis [Putnins] and his comrades at the Digital Finance Cooperative Research Centre (DFCRC). And that report highlights emerging opportunities and risks from financial innovation, and it’s only one in a series of actions we have committed to and are carrying out at ASIC.

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.

And that brings me to my second point, which is about the challenges for regulators in this environment.

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.

So, we see technologies like crypto assets that have no identifiable issuer or backing. Or integrated “everything exchanges”, where trading, custody, settlement, and payments are all rolled into one across a range of asset classes and risks. Or decentralised exchanges and automated market makers where the market is the software.

These technologies don’t fit neatly within our existing regulatory frameworks because of course those frameworks were built on particular assumptions about how markets operate - that there is an issuer or operator that we can hold to account; that functions like trading and settlement are separate; that products fit within defined categories; and that decisions are made by identifiable actors. But all of those assumptions are increasingly being challenged. And functions are converging and product categories are merging.

So what does that mean for all of you and for us? Well, it can lead to regulatory uncertainty. Uncertainty means risk and uncertainty also delays or can delay investment and deter innovation.

Which brings me to the third point about our current regulatory framework. There are some certain advantages to the existing regulatory framework. We had a matter in the High Court just last week that confirmed that the current regulatory framework is broad enough to capture a full spectrum of new products coming onto market.^[1]

So we have the advantage already of broad definitions and broad licencing 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.

But the challenge for ASIC is to understand how we can best and most responsibly support financial market innovation, and how do we make sure we don’t stand in the way of new products and businesses that come to the market. That’s what we want to hear from you about today.

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.

You’re probably well aware that we’ve been doing a lot of work on this front. Last year, we released a roadmap to promote strong, efficient and globally competitive public and private markets. We have re-launched our Innovation Hub. And the Government has recently reviewed our regulatory sandbox, and the report to come supports further improvements in how that will operate.

We are also working with other regulators and agencies to support financial market innovation. And there are a number of our Project Acacia collaborators in the room, so thank you for that work. And of course, we are leading industry engagements such as today.

Finally, before I hand back to Simone [Constant], 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.

Having said that, we also 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.

So with that, the Government has laid down the gauntlet for us to help to improve Australia's productivity. We stand ready to do our part.

Thank you again for coming. I’m very much looking forward to the conversation. I’ll hand you back to Commissioner Constant.

^[1] 26-124MR ASIC successful in High Court Block Earner appeal | ASIC