The increasing complexity of the financial system and the growing regulatory perimeter are the two biggest challenges facing the Australian Securities and Investments Commission over the next decade.

This is the view of ASIC chairman Greg Medcraft, who believes more products, more investors and greater investment funds will inevitably pose an increased risk to the Australian financial system.

Speaking at an American Chamber of Commerce in Australia Business Leaders’ Lunch in Sydney, he said the single biggest challenge would be leveraging ASIC’s resources to be a proactive regulator.

“Benjamin Franklin said an ounce of prevention is worth a pound of cure,” he quipped. “Stakeholder engagement, surveillance, education and guidance are all part of ASIC’s proactive approach in order to maintain confidence in Australia’s financial system.”

Ever-expanding remit

Front and centre for the regulator is superannuation, which is expected to grow to $3 trillion over the next decade and to $5 trillion the following decade.

“It will grow at twice the rate of the economy. This will increase ASIC’s regulatory perimeter as more investors come into the system and invest more money,” said Medcraft.

“This is a shift of savings out of the banking sector into the superannuation/funds management sector.

“The typical superannuation fund invests in equities, fixed income, property and cash. These are all products that that are regulated by ASIC.”

This growth in super will also have a significant impact on financial advisers, superannuation trustees, investment managers, custodians, research houses, credit rating agencies, auditors and accountants – all play a role in supporting investors in superannuation funds and all are regulated by ASIC.

“There will also be a greater need for consumer education and financial advice due to changing demographics as baby boomers move to the retirement phase and switch to more conservative assets,” predicts Medcraft.

Sophisticated scams, proactive policemen

“Also, a larger financial system will invariably generate more complaints and breaches. With more stakeholders and investment products, ASIC’s workload will increase. It will be a key challenge to ensure our regulation is sufficient and remains effective so that overall risk in the system is contained.”

However, increasing complexity in the financial system is occurring at a time when the level of financial literacy in Australia is fairly low.