Climate change disclosures and cyber risk will be among the most significant governance issues for Australian listed companies the new year, a senior official predicted. Some of the other top-tier risks will include market resilience, the introduction of digital financial reports and ensuring a smooth transition to new financial benchmarks.
The post-COVID period would usher in a new environment for listed companies, said Cathie Armour, commissioner at the Australian Securities and Investments Commission (ASIC). The pandemic had highlighted the need for a continuing focus on business continuity and operational resilience. The rapid evolution of technology and innovation will also present challenges throughout 2022, she told a recent conference in Sydney.
Australian market activity has surged since the pandemic. New retail investors have entered the markets, with retail turnover now making up 16% of all market trading activity. Retail investors are also moving into in over-the-counter derivatives, contracts for difference, margin FX and cryptocurrency products.
The surge in retail investing will prompt ASIC to pay more attention to regulatory compliance in the year ahead. Digital assets will be a particular area of focus. The regulator has issued new guidance for product issuers and market operators on crypto-asset exchange-traded products and other investment products.
The government has indicated that it wants to accelerate the push to foster an ecosystem for digital assets. A Senate Inquiry into Australia’s place as a technology and financial services hub found there was more to be done to improve its regulatory framework for crypto assets.
“There is also more to be done to counter the significant increase in threats and vulnerabilities that sit alongside the opportunities and benefits that new technology can bring,” Armour said.
“New products, services and innovations are emerging to support this growing retail investor base, including trading apps and low-cost broking, making it easier and cheaper to access markets both in Australia and overseas.”
At the same time, ASIC will target the use of social media in market manipulation, including pump-and-dump schemes. Listed companies with a small market cap and low levels of liquidity are most vulnerable to these schemes.
The regulator will boost its surveillance of social media to quickly identify pump-and-dump activity and unlicensed advice. It will also engage more closely with international regulators to develop a co-ordinated approach.
New climate for compliance
Climate change disclosure will be one of the significant changes in Australian markets in the year ahead. There has been a huge increase in demand for environmental, social and governance (or ESG) products and information, particularly those relating to climate change risks and opportunities, Armour said.
Last year the Australian ethical investment market grew by 30% to almost A$1.3 trillion, increasing 30% since 2019. Climate risk has had a significant influence on this investor push.
Climate change was a “systemic risk” for the financial system, Armour said. Investors are demanding that listed companies disclose meaningful and useful information to assist with their decision making.
At COP26 in Glasgow the financial community established an International Sustainability Standards Board, which aims to develop a climate reporting standard in the year ahead.
ASIC will target misleading and deceptive behaviour in “green investments”, Armour said.
Cyber resilience is also set to dominate compliance and governance teams’ attention in 2022. There has been a “small but steady” improvement in cyber security risk management across Australia’s financial services firms, Armour said. The improvement has been far too slow, however, in view of the threats.
“The unrelenting escalation in the cyber-threat environment, coupled with overly ambitious targets, have also contributed to the difference between actual and targeted cyber resilience,” Armour said.
Some larger firms have reported a “decreased confidence” in their cyber resilience.
Supply-chain risk management will also be a top priority for the regulator in future.
ASIC will begin its next cyber resilience review late next year.
This article first appeared on Thomson Reuters Regulatory Intelligence.