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Regulation set to increase in FY22

Regulators will adopt more aggressive enforcement for companies in the year ahead, according to a new report from Herbert Smith Freehills.

user iconLauren Croft 14 December 2021 Big Law
Regulation set to increase in FY22
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According to a new report from HSF’s global financial services regulatory (FSR) team, ASIC is adopting a more nuanced approach in its enforcement under new chair Joe Longo and deputy chair and head of enforcement Sarah Court, whilst regulators in most countries are leaning towards a more aggressive enforcement approach as they home in on issues emerging in the post-pandemic environment.

The FSR Outlook 2022: Anticipating change, being prepared report considers nine different areas of focus, including diversity and inclusion in financial services; consumer protection; the future of payments; the regulation of crypto assets, crypto finance and exchanges; regulating AI; the changing approaches to enforcement globally; the increased regulatory focus on debt capital markets; and pricing regulation in the insurance sector.

COVID-19 and the repercussions of the UK’s exit from the EU continued to impact regulatory responses this year. But 2021 was also shaped by governments’ desire for financial services to support sustainable economic growth and foster innovation, by the increasing adoption of new technologies by both firms and regulators, and by some rapid and significant changes in social attitudes,” it stated.


“These will all continue to cast their shadow on the regulatory landscape in the next 12 months.”

The annual report revealed that pandemic economic support is at different stages around the world, with regulators in some countries “looking to test their powers to the limit” with visits to remote workers’ homes in some cases. In other parts of the world, however, regulators are dialing back their “contentious enforcement approach”.

Luke Hastings, partner at Herbert Smith Freehills in Sydney, said that the report has set out some of the most pressing areas of focus for the FSR industry in 2022.

Where there has been a level of post pandemic regulatory forbearance, we expect these challenges will cause the pendulum to swing back towards more aggressive methods of enforcement,” he said.

Moreover, the report showed regulators are “treading the fine line” between both supporting and regulating economic activity. Although many markets are doing that in different ways, there is a “global unity of focus on issues such as vulnerable consumers and market misconduct,” according to the report.

The report also revealed that there are early signs of an emerging global trend towards pricing regulation in the insurance sector. In the UK, the regulator has prohibited certain pricing models in the insurance sector, whilst recent discussions and steps taken by regulators in the EU and Australia reflect similar concerns.

Big data and AI are also set to transform how financial services and products are delivered, monitored and regulated – and even how evidence is identified and presented in regulatory enforcement cases. In addition, ransomware attacks have increased, with criminals targeting banks and other financial services firms. The report, therefore, advised firms to consider ransomware scenarios and whether and ransom could lawfully be paid.

Another key area to be aware of moving forward, according to HSF, is cryptocurrency.

“Following 2021’s continued cryptocurrency bull run, the growth of decentralised finance (DeFi), and the rise of cryptocurrency derivatives and stablecoins, lawmakers and regulators around the globe are scrutinising systemic and consumer risks in cryptocurrency markets and grappling with a wide range of issues including scope, market conduct and AML/CTF concerns,” according to the firm.

“In 2022, the firm expects to see lawmakers and regulators proposing separate and bespoke regimes to regulate cryptocurrency markets with a possible risk of regulatory arbitrage.”

Commenting on the report, HSF partner Charlotte Henry said that it has been a “busy 12 months for firms and individuals in the financial services sector, dominated by COVID-19 and political uncertainty”.

“Our global outlook for 2022 draws together the collective thinking of our leading global financial services regulatory practice on themes that we see as at the top of the global regulatory agenda in the next 12 months. We expect the pace of regulatory change to continue to accelerate, as a result of socio-economic and technological drivers, with regulators and firms alike needing to sprint to keep up,” she said.

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