Navigating shifting financial regulations: How service providers can prepare

Financial service industry regulations have been in a state of flux for the past few years worldwide, and Australia’s market landscape is no exception here. With the introduction of fintech as a new sector of the market and the widespread adoption of BNPL (buy now, pay later) financial products and services, policymakers and industry bodies have been advocating for reform of existing regulations surrounding digital services.

Similarly, fluctuations in interest rates over the past few years, have also prompted many mortgage holders, car loan holders, and insurance policy holders across Australia to compare loans and policies in order to find more competitive deals. And where better deals can’t be found as the costs of car ownership and homeownership continue to rise, consumers are looking to regulatory reform as a potential solution for alleviating growing pressure on their hip pocket.

So what does regulatory reform mean for small business owners and entrepreneurs in the finance sector? In most cases, shifting regulations will naturally result in industry pressures to update your business operating procedures and internal policies to better reflect regulatory changes. Small business owners that can maintain a proactive approach to regulatory compliance may find commercial benefits as a result, namely by cultivating consumer confidence in their brand and business.

Here are a few ways that small to medium-sized finance firms, institutions, and service providers in Australia can stay on top of current and projected regulatory shifts.

Maintain robust business insurance cover

Safeguarding your business operations is foundational to preparing for industry or market change. So for financial advisors and other specialists, professional indemnity (PI) insurance is a priority investment. Not only will a robust PI insurance policy help reduce risks of your business facing financial losses due to legal action resulting from giving low-quality, irrelevant, or outdated financial advice, but it can also help to protect any of your clients affected by that advice.

As market landscapes are changing rapidly, financial advisors and planners are required to maintain an increasingly conscientious approach to providing their services. Maintaining transparency and accountability can help sustain client relationships in the face of regulatory shifts, but if clients are ever forced to take legal action against your business to recoup their own losses, your insurance coverage will help ensure your firm stays prepared to respond and recover.

Update financial products to reflect industry changes

From emerging regulations surrounding digital/AI adoption to cyber and operational resilience policies, financial institutions across Australia are working tirelessly to meet evolving regulatory demands and preparing for future political and economic landscapes. But it’s not just company policies that need to be updated – financial products must also be adapted to reflect these industry changes.

A strong example is insurance providers and the addition of climate-related financial disclosure requirements. Australian insurance providers have been contending with climate risks for the past few decades, with the 2020 summer bushfires marking a turning point in claims handling and underwriting standards across home and building insurance policies in high-risk bushfire zones. 

Similarly, non-bank financial institutions have also been busy at work updating their short-term loan products (like BNPL products, for instance) to reflect consumer protection law reform. With new regulations calling for improved communications surrounding loan interest rates and the establishment of personal insolvency agreements, both non-bank and bank lenders (i.e. for mortgages, car loans, etc.), maintain the same communication and transparency requirements to their consumers/clients.

Digital transformation initiatives for process updates

Fintech has revolutionised the financial services industry both nationally and internationally. Technologies like blockchain have made digital transactions easier to track, helping to combat digital fraud and risks of money laundering. Alongside these security improvements, however, the integration of technology in financial services has also shaped consumer demands – and it’s time for service providers to rise to the challenge and meet these demands.

For instance, as more everyday Aussies grow increasingly reliant on mobile banking, ASIC’s Banking Code of Conduct has naturally been updated to include foundational operating standards for ePayments, online banking features, and customer service requirements to adequately facilitate online/mobile banking. Some of these operating standards include:

• The use of 2FA/MFA to authenticate web and mobile app users for online banking
• No requests for personal information over the phone (outside of identity verification) to combat scammer risks
• The integration of dedicated Customer Advocates in banks to improve outcomes during error and dispute resolution

Digital transformation is just as essential for non-bank institutions as they are for banks, however. Financial service providers like BNPL companies (Afterpay, for example), are also investing in digital development to make customer app experiences more supportive, ensuring improved transparency surrounding loan rates, payment schedules, and customer service channels.

Similarly, some insurance providers are also investing in digital claims handling to streamline customer experiences and support improved transparency in claims processing. These digital-ready changes are the product of industry regulatory shifts calling for greater transparency in communications and operating procedures between financial service providers and their customers.

Cultivate a culture of compliance in your workplace

Finally, with industry regulations changing almost annually, financial institutions are also being encouraged to invest in internal compliance officers to help firms better monitor regulatory changes. Dedicated compliance officers can offer support in maintaining fully compliant policy documentation, risk assessment and evaluation processes, and conducting gap analyses to drive risk mitigation and process improvements. These are all key strategies for maintaining not only Australian industry standards, but also staying compliant with internationally recognised standards like the ISO Standards, for instance, which continue to be a strong trust metric for consumers globally.

Building a culture of compliance can also help financial service providers maintain internal compliance requirements like adhering to payment regulations, systemic stability requirements, and other essential processes that aren’t customer-facing.  

Safeguard your enterprise with regulatory considerations

With all the technological advancements and changing consumer patterns across the financial industry landscape, service providers simply cannot afford to drop the ball when it comes to regulatory compliance. Non-compliance cannot only come with great financial risks for your business, but can also tarnish your firm or brand reputation, which can have long-term consequences for your company and operations.

With internal investments in compliance management as well as robust insurance, business protections, and communications transparency as well as other components of customer relationship management, Australian financial service providers of all sizes can safeguard their business operations, and adapt sustainably for the future.

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