TM

PERSPECTIVES ON PROSPERITY

The Regulator of 2030:

REGULATING OUR DIGITAL FUTURE

charteredaccountantsanz.com/futureinc
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PERSPECTIVES ON PROSPERITY
Foreword
In his book The Fourth Industrial
Revolution, Professor Klaus Schwab,
the founder and executive chairman of
the World Economic Forum, observed
that the digital age has undermined
many of the barriers that protected
public authority1. Schwab claims that as
the public has become better informed
and expects more, governments have
become less efficient or effective.
Schwab maintains that if governments
– at the regional, national and local
levels – want to be good at their job, they
must reinvent themselves and find new
ways to collaborate with their citizens
and the private sector. He predicts that
governments will have to adapt as their
central role of creating and controlling
policy diminishes due to growing levels
of competition and the redistribution
and decentralisation of power that new
technologies make possible.
Due to the rapid rate of change brought
about by the current technological
revolution, governments are being
forced to rethink their approach to the
creation and enforcement of regulatory
frameworks – time is a luxury they can
no longer afford.
As Chartered Accountants, we,
alongside the wider business community,
acknowledge the critical role regulators
play in society, and welcome their
ongoing transformation to agile,
collaborative and innovative regulators
of the future.
Read on as we examine the readiness of
regulators for the world they will face in
2030, and beyond.
Lee White FCA
CEO, Chartered Accountants Australia
and New Zealand
Contents
Executive Summary 2
A rapidly changing
landscape 4
01 Keeping pace with digital disruption 6
Peer-to-peer economy 6
Financial technology (fintech) 8
Emerging technologies 10
A question of funding? 12
02 The regulator response 14
The race for fintech 16
Fintech-friendly regulatory regimes 16
PERSPECTIVES ON PROSPERITY
03
The regulator of 2030 18
Embrace innovation 20
Operate in a flexible and
adaptive culture 21
Connect and be proactive
Digitally transform
21
22
Recruit creatively and
across a wider skillset 23
Use behavioural insights to
create better policies 24
04 Pulling it all together 26
References 27
 While many regulators have recognised
the need to change, this comes at a
cost. With competing demands on the
stretched public dollar, government
funding of regulatory agencies often
falls short. In light of this, regulators have
been forced to reconsider their funding
models, their management styles and the
possibility of achieving efficiencies through
technology.
the question of funding – which is crucial,
given that regulators can only respond
within the limits of the resources available
to them.
We consider how regulators are
responding to the challenges and
opportunities posed by these
dynamic forces. We then highlight the
characteristics that will be critical for a
regulator in 2030 and beyond.
The regulator of 2030 will no longer be

Executive Summary While many regulators have playing catch up as markets continue
recognised the need to change, to be disrupted by innovation. They will
this comes at a cost. With have heeded the advice of the World
competing demands on the Economic Forum founder and futurist
stretched public dollar. Klaus Schwab, who warned that their
survival would depend on behaving more
Share data Megatrends are transforming the way like entrepreneurs than bureaucrats.
Embrace between regulators Digitally we do business at an extraordinary In this paper, we examine the megatrends
innovation transform We see the regulator of 2030 moving
speed. To be able to effectively regulate driving business and those most likely
as fast as – or faster than – those they
society and the economy, it is essential to force a response from regulators as
regulate.
that regulators have a firm grasp on we move toward 2030. We also explore
Recruit both the new and emerging business
Operate in a creatively
flexible and models they are tasked with regulating,
TO MAINTAIN AN and across
adaptive ESSENTIAL FUNCTION a wider and the technologies which underlie
culture IN OUR MARKETS skillset them. While they strive to strike the
REGULATORS right balance between consumer
OF 2030 protection, the promotion of fair
WILL: Use and efficient markets, and fostering
behavioural innovation, regulators must be at least
Connect insights to
and be create better as innovative as those they monitor.
proactive policies.

2 The Regulator of 2030: Regulating our digital future future[inc]

3
 01
A rapidly changing
landscape
The exponential pace of
technological change is causing
regulators to reconsider their
oversight approach to avoid
being left behind by those
they oversee.

4 The Regulator of 2030 future[inc]

5
 Keeping pace with
digital disruption
New technologies have disrupted
society, business models and the
manner in which many of us live our
lives. A key feature of this disruption is
interconnectedness, with the number
of connected devices in households
in OECD countries predicted to be 14
billion by 2022 – up from around 1.4
billion in 2012.2 Billions of people are
now connected by these mobile devices
and have access to unprecedented
processing power, storage facilities and
information. This has fundamentally
changed the ways in which individuals
and businesses interact.
Clayton Christensen coined the term “disruptive
technologies” in his 1995 article Disruptive
Technologies: Catching the Wave. Later he replaced
the term “disruptive technology” with “disruptive
innovation”. His rationale was that it is the business
model which the technology enables that creates
the disruptive impact, rather than a technology
being intrinsically disruptive. For example,
automobiles were around in the 1880s, but it wasn’t
until mass production of the Ford Model T in 1908
that the car seriously disrupted the transport
industry.3
The number of connected
devices in households in OECD
countries predicted to be 14
billion by 2022 – up from
around 1.4 billion in 2012
6 The Regulator of 2030: Regulating our digital future
The exponential pace of this change
presents regulators with many challenges,
often forcing them to reconsider their
approach to regulatory oversight in order
to avoid being left behind by those they
oversee. In this section, we examine this
notion in more detail, with a particular
focus on the rise of the peer-to-peer
economy, and rapid advances in financial
technology (fintech) and other emerging
technologies.
Peer-to-peer economy
The peer-to peer-economy (P2P), also
known as the sharing economy, facilitates
the digitally enabled, person-to-person
transfer of underutilised goods and
services. These exchanges are facilitated
by digital platforms across a wide range of
industries. Trust is built into the platforms
via an internal peer review system. Well-
known examples include private home
sharing (Airbnb, BookaBach), transport
sharing (Uber) small jobs (TaskRabbit,
PocketJobs) and lending (RateSetter,
Harmoney).
Regulation can be a significant
determining factor in the success or
failure of these emerging businesses in
the P2P economy. Uber and Airbnb’s
highly publicised ongoing battles with
various regulators around the globe are
testament to this. Both companies have
grown exponentially since their inception
(August 2008 for Airbnb and March
2009 for Uber) and both have met with
mixed regulatory responses.4, 5 In some
territories, little or no regulation has been
imposed; in others, such as in parts of
France and Germany for Uber and in
New York and Berlin for Airbnb, the
companies have faced both limitations
and outright bans.6, 7, 8
CASE STUDY: THE SHARING ECONOMY
– AIRBNB IN THE NETHERLANDS
Dutch regulators 9 have approached the sharing economy by permitting the
residents of Amsterdam to rent out their own homes for up to 60 days per
year. Regulators sought to provide certainty and to strike the correct balance
between supporting innovation and protecting consumers, by allowing locals
to occasionally rent out their homes while guarding against the operation of
unregulated hotels. Without this regulation they risked negative consequences
for local residents, such as higher rents due to decreased rental stock and
nuisance from the transient Airbnb guests, and an unfair disadvantage to
more highly regulated hoteliers.
The proliferation and global nature platform experienced exponential growth,
of these digital platforms presents securing 900,000 investors by the end
regulators with new challenges as they of 2016, when its website was shut
grapple to strike the right balance down. Reports suggest that as a result
between protecting consumers, promoting of fraudulent activity, investors in this
competitive markets and encouraging unregulated platform lost US$7.6 billion.11
innovation. These digital platforms are
There is also a risk that outdated
central to ongoing economic prosperity, regulatory structures, designed with
and are a key driver of the digital economy bricks-and-mortar firms in mind, favour
–estimated to be worth $139 billion by
incumbents by creating barriers to entry
2020 in Australia alone.10
and innovation. Furthermore, technology-
To impose onerous regulatory and based firms that are operating under an
compliance obligations on this and similar outdated regulatory framework run the
emerging industries too early in their risk of being caught, often unintentionally,
lifecycle risks stifling the innovation that is on the wrong side of the existing laws.
needed to drive growth, but regulating too These issues are challenging for
late exposes consumers to unacceptable regulators to resolve. Traditionally, legal
levels of risk. frameworks have been inflexible and
slow to reform; alongside the rapid pace
New businesses and business models
of technological change, any regulatory
are emerging so often and growing so
rapidly that in some cases they reach response can quickly become outdated.
an economically significant size before What’s clear is that the old regulatory
regulators are even aware they exist. models cannot offer solutions to many
The large P2P online financing platform of the challenges presented by the
Ezubao in China provides a good example. P2P economy.
After it was launched in July 2014, the
future[inc]
7
 REGULATORY CHALLENGE: NEW ENTRANTS + SPEED OF
CASE STUDY: CROWD-SOURCED EQUITY FUNDING
DEVELOPMENT
– REGULATIONS HAMPERING MARKET GROWTH?
Professor Douglas W Arner, of the University of Hong Kong’s Asian Institute of
Crowd-sourced equity funding (CSEF) is a form of crowdfunding that enables
International Financial Law, gave a seminar on fintech evolution and regulation in
companies to raise funds through an online platform. In exchange for their
June 2016 at the University of Melbourne Law School. 12
investment, investors receive a share of the company. Recent regulatory responses
Arner identified the combination of new entrants, new business models and the to this relatively new form of raising capital illustrate the tangible impact
sheer speed of development as one of the most significant challenges facing regulation can have on the success of new business models in the financial services
regulators in the digital age – the speed with which new start-ups can go from “too and other industries.
small to care” to “too big to fail”. He cited Kenya’s MPesa as an example.
In March 2017, the Australian Senate passed a Bill allowing Australian companies
MPesa is a Kenyan mobile phone-based payments system that enables individuals to access CSEF, but the Act excludes companies and their subsidiaries seeking
to transfer cash via their mobile phones. When it was launched in 2007 by investment, all foreign and proprietary companies and many public companies, and
Safaricom, the country’s largest mobile network operator, MPesa experienced therefore the majority of Australian companies are ineligible.16
explosive growth. The company now deals with around 60% of all Kenya’s
The Act forms part of the National Innovation and Science Agenda, and seeks to
payments, and at the end of 2015 it had 23.65 million registered users – at that
rectify the shortage of finance available to small companies. However, in light of
time half of the entire Kenyan population. MPesa has become a core part of the
the onerous restrictions placed on access to the regime, critics question how well
infrastructure of Kenya’s economy.
the Act will achieve its objective.
At first, Italy operated a similarly restrictive CSEF regime17 and the market failed
to thrive as a result. Regulators there have recently responded by adjusting their
Financial technology (fintech) The past decade has seen unprecedented
regime to make it more inclusive. In New Zealand, all companies can access CSEF,
investment into fintech as innovators
A surge of fintech start-ups continue but some argue that the annual $2 million investment cap placed on retail investors
redefine the way in which people store,
to disrupt the financial services sector is stifling market growth, and are pushing for its review. 18
save, borrow, invest, move, spend and
with their innovative use of new and
protect money. An estimated US$50
existing technologies. These range
billion was invested in almost 2,500
from marketplace lenders and robo-
fintech companies between 2010 and
advisers to the use of drones for property Many of the same regulatory challenges It is challenging for financial services
2015, 13 and an additional US$17.4 billion
assessment in the insurance industry. faced by the P2P market also apply to regulators to keep pace with the
in 2016.14
fintech. These are often compounded development of new technologies, but
Australia and New Zealand are well by the heavily regulated nature of it is vital that they understand them
2010 - 2015 2016 represented in the fintech sector. Local the financial services industry. This before they intervene. Only with proper
$50b invested in $17.4b invested in companies Xero (online accounting regulation has been put in place to protect knowledge of the market participants
fintech companies fintech companies software), Societyone (a marketplace consumers’ privacy and security and under their remit, will they be able
lender), Tyro (integrated eftpos solutions) uphold market integrity, but in doing so to design an appropriate regulatory
and Prospa (an online small business regulators must take care not to create an response without hampering innovation.
lender) were all ranked in the top 50 environment that favours incumbents and
fintech innovators worldwide by global stifles both competition and innovation.
10 billion
on average $17.4 billion
consulting firm KPMG in a 2016 report.15
per year

8 The Regulator of 2030: Regulating our digital future future[inc]

9
 standardised and automated nature
of the advice. EVERYONE IS TALKING ABOUT
CASE STUDY: THE EUROPEAN PAYMENTS
Regulators in Australia and New Zealand BLOCKCHAIN TECHNOLOGY
SERVICES DIRECTIVE (PSD2)
recognise that robo-advice can benefit The Economist called it “the next big thing”; the IMF
Intended to increase competition, innovation and transparency across the European payments
consumers. In response, New Zealand described it as the “internet of trust”; and in their
market,19 the revised European Union directive on payment services will compel banks to provide
recently released for consultation a draft report Top 10 Emerging Technologies of 2016, the
customer data to third parties, including fintech and other non-traditional financial services
bill which proposed, amongst other things, World Economic Forum labelled it a “revolutionary
companies. Once it becomes effective in early 2018, customers will also be able to authorise
enabling robo-advice in New Zealand. decentralised trust system”. Interest in blockchain
these companies to make payments from their bank accounts, and to bypass traditional banks
The Australian Securities and Investment is growing across many sectors, and investment
for other services such as checking account balances and monitoring transactions.20
Commission (ASIC) issued guidance on is following suit: US$1.4 billion was invested in
European policymakers have concluded that compelling banks to share data at the consumers’ the matter in August 2016.24 blockchain start-ups globally in the first nine months
request will benefit the banking public and the economy as a whole. HM Treasury in the United of 2016.27
Another emerging technology, blockchain,
Kingdom convened the Open Banking Working Group in 2015 to develop a standard that will see
is best known as the technology underlying It is still early days, but potential uses of this exciting
the United Kingdom lead the world in this area.21
the digital currency Bitcoin. Blockchain’s technology range from voting to smart contracts,
No equivalent regulation or standard currently exists in Australia or New Zealand. A draft report complexity makes it challenging for industry from securities settlements to international
on data availability and use, resulting from an inquiry carried out by the Australian Productivity outsiders, including regulators, to understand. payments, and from identity verification to airline
Commission, indicated no immediate plans to legislate third-party open access to banks’ data, However, enthusiasts say it has the potential ticketing and loyalty schemes. Other possible uses,
but a subsequent report from a Parliamentary enquiry into banks recommended that bank data to revolutionise a range of industries, most such as supply chain management, are emerging
should be made available to third parties in application programming interface (API) format. At notably the heavily regulated financial daily: the world’s largest shipping company recently
the time of writing, no further action had been taken on this initiative. services industry. According to Santander trialled blockchain technology to track cargo
InnoVentures, a fund that invests in fintech shipments.28
In a submission to the Australian Productivity Commission, fintech payments provider Tyro
start-ups, blockchain technology could cut
Payments warned that governments and regulators around the world are competing to react
annual costs for banks by up to US$20
appropriately to market crises and digital disruption, and that if Australia was late in delivering
billion by 2022.25
open data and open API reforms, the fintech revolution would take place elsewhere.
As blockchain technology is still in the
Tyro co-founder Andrew Rothwell said: “By refusing to allow customers to make their data and very early stages of development, the
accounts available to regulated third parties, banks will continue to control the snail’s pace of A blockchain is a type of distributed
consensus is that it is too soon for it to be
innovation in Australia – to the detriment of the Australian consumer.” 22 ledger, which enables records to
subject to regulation. The benefits of this
be stored and sorted into blocks.
Would disrupting the status quo by introducing an Australasian PSD2-type initiative foster nascent technology are well documented,
This might be as simple as using
innovation in financial services and support a more competitive, inclusive, transparent and but many of the risks are still emerging:
the same open source code as
resilient industry? they could include data security, privacy,
Bitcoin to create a new ledger, or
lack of standardisation and jurisdictional
more complex, such as swapping
risk. Therefore regulators acknowledge
alternative implementations or
the need to work closely with blockchain
algorithms. Blockchain can create
Emerging technologies The technology enables the development users and developers to better understand
trust, which may remove the need
of “intelligent” computer programs that the technology as it moves towards
Emerging technologies such as blockchain, for third parties, consequently
adapt or “learn” when exposed to new data.23 large-scale use in the financial
artificial intelligence (AI), advanced reducing costs and friction in
services and other industries.
analytics and machine learning represent An example is robo-advice, which is the processes.26 Trust is created when
a wave of innovation that is causing provision of automated financial advice “blocks” of these transactions are
regulators to reconsider many of their using AI and machine learning functions. verified by a consensus of users and
previously held views and assumptions. added to the blockchain.
The benefits of robo-advice are said to
Machine learning is a form of AI that include non-biased, highly consistent
provides computers with the ability to output at a lower cost, and a streamlined
learn without being explicitly programmed. audit and verification process due to the

10 The Regulator of 2030: Regulating our digital future future[inc]

11
 In fact, blockchain has the potential to
assist regulators. The decentralised
nature of the technology could enable a
transparent and real-time view of what is
happening in financial markets, allowing
areas of risk to be identified and mitigated
as they occur, as opposed to after the
fact. This would be a breakthrough for
regulators, who perform their oversight
for the most part with historical financial
information.
Addressing attendees at the 2017 APAC
blockchain conference,29 Joseph Lubin,
co-founder of blockchain platform
Ethereum, commented that in developing
Ethereum, his company was working with
regulators to enable them to understand
the implications of what is coming, and
to provide them with visibility into the
new systems. Lubin said that regulators
are extremely excited about blockchain
technology.
A question of funding?
The new technologies and business
models described above, coupled with
constantly changing market conditions,
require regulators to continuously adapt.
This places further pressure on their
already stretched budgets. Ensuring
adequate funding is an ongoing concern
for regulators worldwide, as without it
their ability to attract and retain top talent
and effectively oversee the dynamic
markets is severely compromised. We
briefly explore regulator funding below
in terms of where it comes from, and the
level of funding received. Could regulators
embrace technology and different
regulatory models to enhance their own
efficiency?
12 The Regulator of 2030: Regulating our digital future
The source of funding
According to the OECD, the most popular
of the range of regulatory funding
models is industry funding sourced from
regulated entities. Of regulators in 41
OECD, G20 and Financial Stability Board
member nations, roughly half were
funded via industry funding models, 27%
were funded publicly from the national
budget and 12% were funded by a
combination of the two.30
Could regulators embrace
technology and different
regulatory models to enhance
their own efficiency?
The economic basis for industry funding
is that the cost of regulation should be
borne by the users of regulatory services,
namely the consumers of the regulated
product. Competing demands on
governments’ limited resources have also
contributed to the increasing emergence
of various models of industry funding.
ASIC recently announced its intention to
implement an industry funding model
from mid-2017. In an associated media
release, ASIC said the move to industry
funding would improve their transparency
and accountability, enabling businesses
to better understand the job they do by
having greater insight into the associated
costs.31 The New Zealand Financial
Markets Authority is funded via a mixed
model, which was reviewed in late 2016.32
Future governments will continue genuine
and robust consultation when setting
industry funding models to ensure that
such models levy stakeholders equitably.
In 2030, regulatory funding and its
associated costs may be recorded using
blockchain and available for all to view.
This level of transparency is necessary to
protect regulators’ independence
and objectivity.
The economic basis for industry
funding is that the cost of
regulation should be borne by
the users of regulatory services
The level of funding
Regulators can only carry out their roles if
they are adequately resourced, especially
now that new technologies and their
associated risks are placing increased
demands on already limited budgets.
Speaking at an industry conference in
2014, the Chair of the US Commodity
Futures Trading Commission (a United
States financial regulatory agency)
noted that some of the major financial
institutions overseen by his agency spent
more on cybersecurity each year than his
agency’s entire budget. As a result, the
Commission was unable to conduct as
many cyber examinations as it should.33
He is not alone, as global regulators
struggle to make static or declining
budgets cover growing and increasingly
complex mandates.
Many regulators may feel,
understandably, that no amount of
funding will ever be enough given the
size, complexity and number of entities
they oversee. Some regulators have
acknowledged the need to harness
new and emerging technologies to gain
efficiencies and reduce costs. They are
using and sharing datasets, and exploring
the benefits (and risks) of emerging
technologies, such as blockchain, AI and
machine learning.
As questions of funding invariably focus
on doing more with less, regulators
worldwide are recognising the need to
change their cultures, processes and
structures.
In a world where megatrends are forcing
businesses to reinvent themselves to
ensure survival, regulators must do the
same. In the following section we look
at initial steps taken by innovative local
regulators to compete for the
fintech dollar.
Other 4%
Public funded,
national
budget 27%
Self
funded
How is the fees 42%
Mixed self regulator
& public funded?
funded 15%
Self funded
fees & fines 12%
future[inc]
13
 02
The regulator
response
Due to the rapid rate of change
brought about by the current
technological revolution,
governments are being forced
to rethink their approach to the
creation and enforcement of
regulatory frameworks.

14 The Regulator of 2030 future[inc]

15
 1. The race for fintech
United Global investment in fintech exceeded
Kingdom US$17 billion last year, and governments
worldwide are, naturally, keen to attract
fintech start-ups to their markets. A
thriving fintech industry brings with it new
investment, jobs and innovation – all of
2. which are catalysts for economic growth.
At a glance it seems that jurisdictions
California
with supportive and flexible regulatory
regimes have relatively successful
fintech industries.
One example is the United Kingdom’s
growing fintech sector, which generated
3.
£6.6 billion in revenue and employed
New York 61,000 people in 2015.34 Last year an
evaluation of the international fintech
sector by professional services firm EY
(commissioned by the United Kingdom’s
HM Treasury) ranked the United Kingdom
4. as the world’s most fintech-friendly
Singapore jurisdiction.35 The report stated that
the United Kingdom had the strongest
fintech policy environment and the
most supportive regulatory regime. This
included a best-in-class programme
(Project Innovate) and a regulatory
5.
sandbox which enables businesses to
Germany test out new products and services in
an environment that is exempt from
standard regulations.
The report ranked Asia Pacific territories
Singapore, Australia and Hong Kong
fourth, sixth and seventh respectively, with
6. Australia being described as an “up and
Australia
coming” fintech nation. It comes as no
surprise, then, that the Asia Pacific region
has already attracted significant levels of
fintech investment. In 2015, Asia’s fintech
start-ups attracted US$4.5 billion in
venture capital funding through 130 deals.
7. This made the region a significant global
Hong Kong
player in terms of venture capital, second
only to North America, which attracted
US$7.7 billion in investments through
378 deals.36
16 The Regulator of 2030: Regulating our digital future
There are several obvious financial centres
in the Asia Pacific region, and some
notably progressive regulatory regimes:
competition for fintech investment is
fierce. If Australia and New Zealand are to
continue to attract investment, and move
from “up-and-coming” fintech centres
to “established respected”, we must
ensure that our regulatory regimes
protect investors while remaining at
least as progressive as those of our
neighbouring countries.
Fintech-friendly regulatory regimes
Singapore, Malaysia and Hong Kong
Notable for being fintech-friendly is
the Monetary Authority of Singapore
(MAS), the country’s financial regulator
and central bank, which has launched
a number of proposals to encourage
development and expand the domestic
start-up ecosystem.37
These are some of the new initiatives:
• The Financial Sector Technology and
Innovation scheme to support projects
and ideas, was recently launched with a
US$225 million fund.
• Singapore’s National Research
Foundation and regulator MAS
launched the Fintech Office in May
2016, a collaboration between
government agencies in Singapore.
Fintech businesses looking to set up in
Singapore can visit the portal for advice
and information on various government
grants and schemes.
• MAS has set up a regulatory sandbox
for financial institutions and non-
financial players. Looking Glass @ MAS
is a purpose-built facility located in the
MAS building. It will allow the central
bank to test fintech solutions with
financial institutions, start-ups and
technology vendors, as well as facilitate
consultations with industry experts on
areas such as legal, regulatory and
business-related matters.38
• Relaxed requirements now allow start-
ups and small-to-medium enterprises
to raise funds on securities-based
crowdfunding platforms.
• The inaugural Singapore Fintech
Festival was launched in Singapore in
November 2016 by MAS; it is aimed
at start-ups, technology companies,
investors, financial institutions, research
institutes and innovation professionals.
Malaysia is also encouraging fintech
development. In line with the government’s
goal to further develop its financial
services sector. Last year the financial
regulator, Securities Commission Malaysia,
enacted equity crowdfunding regulations,
making Malaysia one of the first countries
in the region to do so.
Other initiatives include the following:
• Malaysia’s Securities Commission
released guidelines for appropriate
industry regulations in February 2016.
• Bank Negara Malaysia, the country’s
central bank, issued a regulatory
sandbox framework in November
2016.39
Other jurisdictions in the region have
made similar moves. In March 2016
the Hong Kong Monetary Authority
established the Fintech Facilitation Office
to facilitate the development of the fintech
ecosystem in Hong Kong and promote
the country as a fintech hub in Asia. Their
regulatory sandbox was launched soon
afterwards, in November.
New Zealand and Australia
The New Zealand markets regulator, the
Financial Markets Authority, enacted new
financial markets legislation in 2013. The
Financial Markets Conduct Act (the Act)
has been described as the regulator’s
innovation hub. The Act was designed
to promote innovation and flexibility in
financial markets, and to be particularly
flexible – especially in relation to the start-
WHAT IS A REGULATORY SANDBOX?
A regulatory sandbox allows businesses to test
innovative products, services, business models and
delivery mechanisms in a live environment.
The purpose of this initiative is to encourage innovation
in financial services by allowing both regulated
financial institutions and start-ups to experiment with
fintech solutions, subject to appropriate safeguards
and regulatory requirements. The specifics of each
sandbox differ between countries. They often have
limits on client numbers and exposure, but can waive
the requirement for formal licences – allowing the
fintechs to be more agile. Sandboxes also benefit
regulators, providing them with the opportunity to
understand and develop the appropriate regulatory
response for these new businesses and innovations.
up sector. New Zealand has since commenced
the process of amending related legislation to
permit the use of robo-advice, and introduced
what commentators describe as a “relatively
liberal” crowdfunding regime in 2014.40
Australia has yet to overtake the Asian leaders
that are creating fintech hubs. Treasurer
Scott Morrison has said that a competitive
regulatory environment is an important
weapon in the global fintech market. He wants
the corporate regulator to be at least as
innovative as the companies it monitors.41
In April 2015, ASIC established an innovation
hub to help businesses with innovative ideas
to navigate financial regulation, support them
through the authorisation process and engage
with the regulator. Since then ASIC has dealt
with over 125 innovative start-ups and granted
33 licences. According to ASIC, the Australian
fintech industry has estimated revenues of
about AU$1.3 billion per year and is growing
rapidly.42 A regulatory sandbox was launched
late last year.43
In the following section we discuss how the
regulator of today will build on these initiatives
to become the innovative and agile regulator
of the future. 
future[inc]
17
 03
The regulator
of 2030
Looking forward, the regulator
of 2030 will no longer be playing
catch up as markets continue to
be disrupted by innovation.
Rather they will be agile,
innovative, collaborative and
digitally transformed.

18 The Regulator of 2030 future[inc]

19
 In our highly digitised world, astute global regulators must continue to adapt. In this
section, we identify and discuss seven essential characteristics of any future regulator
wishing to retain consumer confidence and remain effective as we approach 2030.
Recruit creatively and downplayed by leaders, include being
Connect
Embrace across a wider skillset and be
overly careful and predictable, and
innovation proactive avoiding conflict.
Innovative regulators will also be open to
learning from others, including those they
Operate in a
oversee, while taking care to maintain
their independence. They will do this by
flexible and
collaborating with industry and other
adaptive THE Digitally
culture REGULATOR transform stakeholders to reach optimal regulatory
ESSENTIAL outcomes, as opposed to acting like the
CHARACTERISTICS corporate cop of the past.
FOR 2030
Use
behavioural
Share data insights to
While regulators currently
between createbetter
regulators policies recognise a need to foster
innovation within the economy,
Embrace innovation
it is the mindset within the
Following the advice of Klaus Schwab, regulatory agency itself that is
regulators in 2030 will act more like
important.
entrepreneurs than bureaucrats.
Entrepreneurship goes hand-in-hand with
innovation, and the successful regulators
Embracing technology, employing a
of the future will need to be as innovative
diverse workforce, and collaborating
as those they oversee.
between agencies and across jurisdictions
Common characteristics of innovative will all contribute to a culture of innovation.
organisations are autonomy, risk-taking, The appointment of a chief innovation
personal initiative and a willingness to officer to the strategic leadership team
and the creation of a dedicated innovation
experiment. For these characteristics to
function could signal, both internally and
become ingrained, they must be actively
externally, that innovation is part of an
encouraged and rewarded. They must
organisation’s culture. Finally, regulators
also be modelled by those in positions might consider emulating the Financial
of leadership. The “tone from the top” is Conduct Authority (FCA), the financial
central to setting organisational culture markets regulator in the United Kingdom.
– innovative or otherwise. Less-desirable The FCA built a mandate into their
behaviours, which should therefore be governance to promote innovation and
competition, which sits alongside the
traditional mandates of financial stability Connect and be proactive
and consumer protection. New Zealand’s
Regulators that don’t respond quickly
Financial Markets Conduct Act includes
risk losing investments to other capital
a similar mandate, being to promote
markets. In 2030, regulators will need to
innovation and flexibility in the financial
collaborate with market participants to
markets.
avoid producing legislation that stifles
new initiatives. The regulatory sandbox
concept is an example of this approach
“It has to become the DNA working well in countries such as the
United Kingdom, Singapore and Australia.
in the regulator’s mind that
Rather than imposing laws on regulated
new technology and new
entities irrespective of their fit, the
ways of thinking actually focus will increasingly be on developing
regulatory solutions via partnership.
de-risk the system.”
Regulators will actively seek to meet
with those they oversee, listening and
Jost Stollmann, CEO,
learning from them. Regulation in the
Tyro Payments 44
traditional sense will remain in place,
but regulators, industry and consumers
will work together to develop additional
Operate in a flexible and
adaptive culture
The ‘traditional’ regulator The regulator of 2030
The emergence of new technologies
Retrospective review Real-time regulation
and business models, and changing
social norms and market conditions, Process based Digital
mean that regulators rarely operate in a
Solitary Collaborative
static environment. These developments
can alter both the profile of risks to be Corporate cop Facilitator
managed, and the suitable regulatory
Job for life Seeking diverse talent
approach. A flexible and adaptive
Slow to react Agile
regulatory culture increases the likelihood
of a timely, appropriate and proportionate Risk averse Innovative
response to such developments.
Rigid cultures that resist change miss Outreach: formal submission Nimble, flexible outreach
opportunities for improvement, and
Waits to be approached Engages early
create an organisation that is fragmented
by “old” and “new” ways of thinking.45 Manual Tech savvy
Neither are conducive to effective Regulations Standards and
regulation. guidelines
Future regulators will shun the culture Standalone Cross-agency and
of bureaucracy typically associated with jurisdiction
their industry in favour of flexible policies
and procedures. Reactive Horizon scanning

20 The Regulator of 2030: Regulating our digital future future[inc]

21
 guidelines and mutually agreed standards
of best practice. This “crowdsourcing” of
solutions to complex regulatory issues will
share risks among the regulator, industry
and consumers, creating safe, inclusive
regulation.
Guidelines and standards are an
appropriate alternative to regulation in a
rapidly changing environment: they form a
flexible framework that provides certainty
and clarity for market participants and
consumers. When an industry matures to
the level where regulation is considered
necessary, the guidelines could be
used as a starting point for regulation
development.
Proactive collaboration on the part
of a regulator could take many forms.
Participation at industry conferences or
meetups (and the associated networking)
is one example of outreach that would
enable regulators to both connect and
learn.
As the pace of technological change
accelerates, nimble outreach and
consultation will supplement and
sometimes replace the more traditional
and often lengthy consultation process
used by regulators today. The new
process will be enabled by digital
technology and will allow regulators to
respond to concerns as they arise. More
flexible and timely outreach will no doubt
include an approachable online presence
with the use of online forums and
platforms, virtual industry roundtables
and online feedback mechanisms.
Regulators can also foster collaboration
between the larger, more entrenched
financial providers and fintechs, many
of which are small businesses that
may struggle on their own. Promoting
“fintegration” between fintech and
22 The Regulator of 2030: Regulating our digital future
traditional financial service providers,
as well as educating potential start ups
on the regulatory framework (including
how to operate while remaining outside
the prudential and conduct regulatory
perimeter), are valuable contributions
regulators can make to foster innovative
growth in the financial sector.46
“It’s more of a mindset
change of being able to
try new things, which I
think is hard when you’re a
regulator or government.
The ability to test out new
ideas and change them as
you go, is going to be really
important.”
Anna Gunther,
co-founder of PledgeMe
Digitally transform
Future regulators will be digitally
transformed. As the companies they
oversee embrace technology solutions
(known as “regtech”) to meet regulatory
requirements, regulators themselves will
gain real-time insights into the markets by
applying analytics, machine learning and
AI filters to the vast pools of data at their
disposal. They will be able to look forward
to identify emerging trends and areas
of systemic risk and non-compliance.
Potential issues will be identified and
resolved in their infancy rather than
necessitating enforcement once they
have become more serious. Blockchain
technology will be useful in this regard,
providing an immutable audit trail of
transactions in real time.
As the regulator of the future navigates
increasingly tight budgets and limited
funding, regtech will enable them to do
more with less.
Digital transformation requires significant
planning and financial investment, but
failure to invest now will leave the regulator
of the future unable to effectively analyse
the growing volumes of data they are
collecting. They will be unable to fulfil their
core mandate of protecting the public and
the markets – they will be left behind.
Forward-looking governments
will ensure regulators receive
adequate funding today to
enable the digital transformation
necessary for them to be
successful in 2030.
Recruit creatively and across a
wider skillset
Deepen talent base
Traditionally, regulators have recruited
largely from pools of lawyers and
accountants. Future regulators will seek
out a range of skillsets, mirroring those of
the organisations they regulate. Lawyers
and accountants will continue to play an
important role in 2030, but the digitally
transformed and innovative regulator will
also seek out specialists with computer
science and engineering backgrounds,
skilled analysts and technologists who
speak the same language as those they
oversee. The future breed of regulator will
mingle with ease at technology-oriented
conferences.
The future breed of regulator
will mingle with ease at
technology-oriented
conferences.
In 2030, as is the case now, these skills
will be in short supply and will therefore
demand premium compensation. It is
widely acknowledged that regulatory
agencies are unable to match the often
significant remuneration offered by many
of the private sector companies they
oversee, making it difficult for them to
recruit and retain top talent using money
alone as a motivator. This has significant
implications for regulatory agencies,
as without sufficient talent, their ability
to protect consumers and uphold the
market is compromised. With this in mind,
regulators of the future will think outside
the box when it comes to sourcing and
retaining talent.
future[inc]
23
 Present a value proposition
A study on workplace trends found that
workplace environment was the top factor
influencing the respondents’ decisions to
accept their current roles.47 The second
most influential factor was salary, with
location and advancement opportunities
also ranked as important. The mission of
the organisation was also in the top five.
A range of studies have supported the
finding that social purpose or corporate
social responsibility is an important factor
in attracting top talent.48 The individuals
surveyed wanted a sense of pride and
fulfilment from their work, a purpose and
an employer whose values matched
their own.
Factors influencing decisions to accept
current roles
1 Workplace environment
2 Salary
3 Location
4 Advancement options
5 Organisational mission
24 The Regulator of 2030: Regulating our digital future
Most regulatory agencies fulfil a greater
social purpose. The clear articulation
of this social purpose will help them to
attract and retain top talent. So too
will the provision of opportunities for
advancement, exposure to complex and
challenging work and a flexible work-life
balance. Not everyone is motivated by
money, and these differentiating factors
give regulators a real value proposition as
potential employers.
Create a talent pipeline
Regulators of the future will also seek
out and foster close relationships with
universities and other educational
institutions, providing them with potential
talent pipelines. They will actively
encourage movement between the
private and public sectors during different
career stages, such as by establishing
fellowships or secondments.
Use behavioural insights to create
better policies
As regulators have developed insights
into how people make decisions, it has
helped them to identify problems and
tailor solutions that are potentially
less interventionist, but that have a
greater impact. Future regulators will
design regulatory structures differently
to oversee a world of extraordinary
complexity. In order to do so effectively,
they will incorporate behavioural research
into their work.
WHAT IS BEHAVIOURAL ECONOMICS?
Behavioural economics is the study of economic decision making and activity. Why
do people act a certain way and how do they act in certain situations? This area of
research might look at decisions ranging from the selection of product brands, to
choices relating to health insurance and pensions.
In recent times, behavioural economics has moved from the margins of economic
policy analysis towards the policy mainstream. Its increased application is helping
countries across the world to regulate better based on actual, and not assumed,
behaviour.
The use of behavioural economics by governments and regulators is a growing
trend globally, most notably in the United Kingdom and United States but more
recently in Australia, Canada, Columbia, Denmark, Germany, Israel, Netherlands,
New Zealand, Norway, Singapore, South Africa, Turkey and the European Union.49
ASIC Chair Greg Medcraft flagged the people will always make the best
importance of behavioural economics decision possible and have no shortage
when he said in a press release that of willpower. However, research and
“undertaking evidence-based studies evidence tells us this isn’t always the
about how people think and behave in case.” 51 Instead, a gap often emerges
the real world is going to be increasingly between what people intend to do and
important to smarter regulation. These what they end up doing. When people
studies provide valuable insights into how are on “auto-pilot”, for example, they will
people make decisions and how ASIC can often use shortcuts and rely on biases
improve outcomes.”50 and stereotypes to make decisions.
Around the same time, the Behavioural
In some cases, they won’t act on their
best intentions due to complexity and
Economics Team of the Australian
choice overload.
Government (BETA) observed that
“traditional policy makers assume
future[inc]
25

4. P
 ulling it all together
Rapidly changing technologies present regulators with significant challenges,
often causing them to rethink their approach to the regulatory process. Their
response must be timely, as the global race for fintech investment is fierce,
and failure to adapt quickly could result in investors being drawn to countries
with more responsive regimes.
Funding is also an important consideration,
and maintaining adequate funding is an
ongoing concern for regulators worldwide.
With this in mind, high-performing
regulators of the future will need to do
more with less, causing them to challenge
the status quo, embrace technology and
innovation, and adopt a flexible and
disruptive mindset.
Regulators in Australia and New Zealand
have taken some positive first steps towards
becoming high-performing regulators of
the future; however, between now and
2030, further changes are essential.
To be successful, regulators will implement
these changes in collaboration with
stakeholders, including governments,
policy makers, business and consumers.
26 The Regulator of 2030: Regulating our digital future
In many instances this will necessitate a
change in culture from the solitary and
reactive “corporate cop” of today to the
nimble and real-time regulator of the
future. Regulators must continue to adapt,
as getting policy and regulatory settings
right is vital for cultivating the innovation
in our markets that underpins economic
growth.
Exciting challenges lie ahead for our
regulators as they seek to learn from and
understand the entities they oversee,
embrace innovation, create a flexible and
agile culture, and harness the power of
technology to become the regulators of
2030 and beyond.
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30 The Regulator of 2030: Regulating our digital future

PERSPECTIVES ON PROSPERITY

charteredaccountantsanz.com/futureinc