APRA regulated entities to lift Governance, Culture, Remuneration and Accountability | KPMG

Starling Team

The Australian Prudential Regulation Authority (APRA) has set out its policy and supervision priorities for the next 12 to 18 months.  The regulator lists “transforming” governance, culture, remuneration and accountability (GCRA) across all APRA-regulated institutions as a core focus.  

Initiatives that aim to drive improvements in GCRA are listed as “key cross-industry policy priorities for 2020,” and include an updating of its prudential standards on governance and risk management.  APRA also notes that it will be conducting a range of GCRA-related supervisory reviews and “deep dives,” and that it will require supervised entities to conduct “self-assessments” in order to drive greater accountability.

“APRA is reviewing its governance and risk management standards to ensure that these remain fit for purpose,” the APRA report indicates. “Areas for review will include the clarity of board and senior management roles and expectations, the effectiveness of board obligations in relation to risk culture, the relative emphasis on financial and non-financial risks, and the clear need to strengthen the requirements in relation to compliance and audit functions.”

A related report from KMPG in Sydney argues that Australian financial institutions must work to design and conduct effective internal culture assessments, identify appropriate “culture indicators,” and develop reliable metrics through the use of data technologies.

An independent “Capability Review” conducted last summer criticized APRA harshly for a perceive failure to give adequate attention to GCRA matters.  “APRA appears to have developed a culture that is unwilling to challenge itself, slow to respond and tentative in addressing issues that do not entail traditional financial risks,” the review said.  News reports at the time indicted that APRA’s own “culture team” struggled to gain traction internally.  “We are good with the old school stuff, but not good with challenges like culture and governance,” an APRA employee reportedly told the review panel.

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Regtech Market Could Become an Australian ‘High-Tech Fossil’ | Financial Review

Starling Team

As the Australian Senate Select Committee on Financial Technology and Regulatory Technology continues to process comments in response to their paper, there are a number of themes emerging that align very closely with Starling’s own views.  In particular, commenters have observed that regulators themselves may inadvertently be contributing to many of the challenges startups face.  

A recent article in the Australian Financial Review referenced one of these submissions to describe several ways in which the regulatory environment was felt to have delayed adoption of technologies which, ironically, might well provide greater safety for consumers than do current approaches.  Shifting regulatory positions introduce uncertainty, and bank risk managers lack assurance that regulators will not penalize banks that experiment with new technologies.  This discourages trialing of RegTech tools.

In the aftermath of the Hayne Commission, Australian regulators and firms alike face greater scrutiny regarding their practices.  Both also have an opportunity to reframe their role in society and to help promote trust across a greatly tarnished industry.

RegTech firms has emerged specifically to engage in these challenges.  And many RegTech firms have already demonstrated an ability to produce change for the better, to the benefit of customers and other stakeholders, as well as for the boards and C-suite management of the firms we seek to serve.  

But, as we argue in our own submission to the Senate Select Committee, our industry will struggle to deliver on its full potential without collaborative engagement with regulators who actively seek to promote RegTech innovation and who work directly to encourage RegTech trials and adoption among the financial institutions they oversee.

We look forward to continuing to actively engage in this process in the coming months.


Starling Addresses Australian Senate Select Committee on Financial Technology and Regulatory Technology

Starling Team
In late 2019, the Australian Senate formed a Select Committee to explore ways to better support the country’s nascent Fintech and RegTech industry. 

As an initial step, the committee published a discussion paper and solicited comments from bank regulators, and industry participants as to how the government could provide more effective support. 

Starling was one of the 100 organizations to provide responsive remarks.  We focused on regulatory and industry dynamics that hinder adoption of new RegTech technologies.

For instance, as the prudential regulator, APRA’s engagement with the Fintech and RegTech communities has most often emphasized the potential risks that these technologies may represent, and APRA’s role in mitigating those in the course of its mandated prudential duties.

This posture comes through quite clearly in APRA’s submission to the Australian Senate.  It writes, “The introduction of new technology or outsourcing or adoption of services, will change the risks the institution must manage.”  

The regulator’s tendency towards caution may naturally conflict with the priorities of hard-driving Fintech and RegTech innovators, who are unlikely to find APRA willing to engage in innovative undertakings.  Nevertheless, it is in the interest of such innovators to make themselves fully aware of APRA’s legitimate concerns as well as the potential benefits it may bring to the industry. 

We were pleased to see APRA indicate some willingness to support Fintech and RegTech firms through greater investments in data and information exchange — a key development we’ve seen taken by other leading regulators including the UK’s Financial Conduct Authority, the Monetary Authority of Singapore, and the European Central Bank.

A string of highly public banking scandals and a year-long Royal Commission inquiry that uncovered astonishing market abuses has sparked punitive fines and unprecedented turnover among the C-suites and boards of Australia’s major banks.  

It is clear that simply doing more of the same will not lead to better outcomes.  Australian firms would be ill advised to double down on an industry-wide reliance on surveillance & monitoring tools that have proven inadequate, or on HR-driven staff surveys and ethics training measures that are clearly ineffectual in driving behavior change.  Instead, Starling argues that the industry needs new solutions that focus on the cultural drivers of misconduct. 

New developments in RegTech make this possible.  However, as we point out, unless barriers to adoption are addressed, banks have little incentive to make significant investments in these emergent solutions.  What is needed is a coordinated strategy between private firms, regulators, investors, and the banks to encourage Regtech innovations to take hold and flourish.  

Australia has an opportunity to look beyond its current challenges and take advantage of public sentiment to introduce real, substantive reforms to the management of operational risk.  We look forward to supporting the process established by the Australian Select Committe and to engaging with banks and regulators to make these reforms a reality.

Read the full document

HKMA to Improve Efficiencies Through Tech | The Standard

Starling Team

Howard Lee Tak-chi, deputy chief executive of the Hong Kong Monetary Authority (HKMA), expects that a digital transformation will strengthen the HKMA’s supervisory capabilities and improve operations.

In a blog last year, Lee wrote that the HKMA studied the use of advanced technologies for collecting and analyzing data from a variety of sources.  “Through exchanges with a number of central banks and regulators around the world, we all came to the conclusion that data science would be capable of providing analyses that could improve risk assessment and policy-making,” he explained.

To explore this further, the HKMA will now set up a “digitalisation office” to keep up with technological changes.  The office will also promote a culture of technology for the organization and support its long-term digital strategy.

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How the Regtech Landscape Is Evolving to Address FIs’ Ever Growing Compliance Needs | Business Insider

Starling Team
Two years ago, regtech solutions seemed to be the answer to financial institutions’ compliance issues, and regtech solutions providers began gaining support from regulators and investors. Despite the initial hype, however, many companies that offer these solutions haven’t scaled as much as expected. 

This is likely to resolve in the coming months as these companies and their offerings evolve.  Some factors that will drive this change are regulatory support of these solutions, and consultancies offering more help to institutions.

A report from Business Insider states that financial institutions are expected to use RegTech solutions more actively in 2020. Global regulators are expected to adopt RegTech solutions themselves, and to act as advocates for the industry. 

The full report examines what the future of the RegTech industry will look like through 2020.  See the report here.