Regtech and supertech – ASIC releases new report

On 20 January 2021 ASIC released Report 685 - ASIC’s regtech initiatives 2019–20.  The report summarises ASIC’s regulatory technology (regtech) and supervisory technology (supertech) initiatives during the 2019–20 financial year. Click here to read a full copy of the report.

Background

In August 2018 the Australian Government provided ASIC with funding to help promote Australia as a leader in the development and adoption of regtech.  Further to this, ASIC developed a number of regtech initiatives that commenced in the 2018–19 financial year.   ASIC is of the view that regtech has significant potential to help businesses enhance their risk management and compliance activities. In turn, regtech will help deliver ‘compliance by design’ business models, and better outcomes for both Australian consumers and the integrity of the Australian market.

Initiatives

ASIC’s 2019-20 initiatives took a different turn than originally planned – with the onset of the COVID-19 pandemic ASIC suspended its public initiatives in favour of internal regtech, known as supertech (supertech).  This decision was made in light of the competing demands businesses were facing.  In simple terms, these initiatives were:

• Financial promotions tool trial – COVID-19 response; this trial used machine-learning capabilities to identify potential misconduct in financial services promotions that targeted vulnerable consumers. Red Marker was engaged by ASIC:
  • in the first six weeks its suptech tool scanned almost 1.7 million webpages and identified 1,950 potential risk cases;
  • subsequent to this, over two weeks, the tool scanned 1,000 Google ads and identified over 100 potential examples of advertising that ASIC considered concerning.
• Voice analytics framework – operational framework to guide investigative projects relating to audio files;
• Data automation and process workflow trial - automating data flows and reporting of matters of interest for the Licencing, Misconduct and Breach Reporting Teams;
• Natural language processing prospectus project - extracting core prospectus information for supervisory analysis via the first-phase application of natural language processing;
• Enhanced evidence document score project – this involved taking Ringtail (ASIC’s evidence document system) and engaging consultants to develop an enhanced evidence score capability. This was then trialled on live investigations.

ASIC’s findings

Businesses need to plan for a distributed workforce - businesses need to make a long term plan to review, test and upgrade the business by implementing:

• governance plans;
• risk-management monitoring and assessment plans; and
• business continuity plans.

Good data management is fundamental – through enhanced data analytics, regtech can strengthen supervision. As a corollary to this, good data governance, data strategies and data-literate staff are integral.

There are opportunities to use alternative datasets – e.g. the responsible lending demo found that alternative datasets in credit underwriting.

Subject matter experts need to be involved - machine learning experts and subject matter experts must collaborate to effectively deliver regtech. E.g. a subjective legal test should be split down into a series of more specific rules.

There are opportunities to check and digitise information.

Suptech has the potential to improve supervision and investigations – through e.g. automation, text analytics, voice analytics and enhanced data search capabilities.

Lavan comment

With increased WFH and increasing reliance on technology, regtech and supertech present opportunities for organisations to mitigate their risk of falling foul of ASIC’s regulatory and enforcement activities.  If you have any questions in relation to this article or require additional advice from a legal perspective on how your organisation should manage the update of regtech and supertech, please do not hesitate to contact Cinzia Donald, Iain Freeman or Lorraine Madden.