The Banking Royal Commission has brought the issue of regulation, and consumer protection, top of mind, but it will be important that any increased regulation that occurs as a result is not out of step with the regulatory developments in the rest of the world, says Mr Chris Donohoe, CEO of APIR Systems.
Maintaining investor protection in light of changing global regulations, along with the move to cross border investing, has increased the pressure on financial regulators to implement common standards internationally, he says.
“Any regulatory changes that are implemented as a result of the royal commission should be seen as an opportunity to harmonise with other similar jurisdictions where possible.
“The level of trust in financial institutions is at a low level and ensuring global regulatory harmonisation would help build consumer confidence.
“This is becoming particularly urgent as regulatory developments in one country’s jurisdiction can impact operators in other countries, even when the overseas development is not a local regulatory requirement.
“A good example of problems that can occur in a global financial market place, is the recent experience of a number of Australian banks, funds, brokers, traders, and trustees of self-managed superannuation funds, that faced being unable to transact with European counterparties if they didn’t have a Legal Entity Identifier (LEI).
“The LEI is a mandatory requirement of the new Markets in Financial Instruments Directive (MiFID II) reporting regime that was introduced in Europe in the wake of the global financial crisis. It has the aim of providing greater transparency and strengthening investor protection.
“Although it is a European regulatory requirement, it nevertheless impacted any Australian entities wanting to transact with certain European counterparties.”
Mr Donohoe says that it is inevitable there will be more instances of offshore regulation affecting local operations in the future.
“While this global harmonisation of financial services regulations – whether intended or otherwise - is seen by many in the industry as an increased, and unwanted, compliance burden, it has also facilitated cross border investment, while helping ensure that the regulatory framework is robust.”
Mr Donohoe says there has been an evolution in the way product coding systems are used in the financial services industry.
“Once seen simply as a useful way to categorise and monitor financial products, they are now an integral part of the compliance and risk management framework.
“A good example is the Super Product Identifier Number (SPIN) code. Once seen simply as a product identifier, it is now used as the Unique Superannuation Identifier (USI) in SuperStream to uniquely identify an APRA fund and/or its superannuation product which an employee (member) is contributing to.”
“Like LEI and MiFIID, this is another example of identifiers becoming critical part of Government reporting and processing systems.”
He says initiatives such as the ASEAN CIS fund passport and the Asian Region Funds Passport (ARFP) scheme can only increase the demand for financial products across the region.
“To succeed however, the financial services framework needs a robust ecosystem. Crucial to that is the way financial products are categorised in each region. This only increases in importance when the prospect of global regulatory harmonisation comes into play.
“In Australia, APIR and SPIN codes – which provide the identification standard for our managed funds and our superannuation funds – together with global identifiers such as International Securities Identification Numbers (ISINs) and LEIs – all have a vital role to play in facilitating the continued growth of the Australian wealth management industry and its integration into the global industry and regulatory framework.”
Mr Donohoe says accepted and best practice coding standards offer a number of benefits to financial services industry participants and the investors who invest, including:
- Improving the efficiency of the financial system
- Enabling improved risk management tools
- Providing the industry with a corporate memory
- Helping the industry comply with the latest financial sector regulations
- Making the industry more transparent
- Increasing investor knowledge and confidence
“Harmonised global regulations have the potential to result in greater opportunities for Australian wealth managers and, quite possibly, in better outcomes for ‘mum and dad’ investors as well.
“Essentially, they will result in a financial system that is transparent, functional and easily understood, and investors that are confident and engaged.
“These standards bring transparency to a complex financial ecosystem. In short, it supports the creation and operation of a competitive and resilient financial market,” he says.
For more information contact:
Phone: +61 2 6181 0590
APIR provides the industry codes and reference data services used to identify participants and unlisted investment products across the financial services sector.