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Diagram 17
APPROACHING PRINCIPLES-BASED REGULATIONS WITH REGULATED ENTITIES
Enhance role of industry groups to support principles-based regulations
Source: SC.
Principles-based regulations will require regulated entities to adopt a strategic approach to regulations – this calls for greater senior management involvement to continuously improve their practices and greater capacity for internal compliance teams to make judgement calls when interpreting the principles. To enable this, engagements involving the senior management team will be key to help regulated entities understand the SC’s expectations and develop a shared understanding on the type and level of conduct required by the principles.
Recognising that ‘one size does not fit all’, the SC will apply a facilitative and differentiated approach for smaller or less matured firms over this transition to build their expertise and guide them towards greater adoption of principles-based regulations. To provide greater support, relevant guidance will be provided to help regulated entities better interpret and adopt the principles. Industry groups can also play a more significant role by providing standards, statements of good practices and other publications to guide market participants in adopting these principles.
In line with greater adoption of principles, the focus on culture and conduct of regulated entities will be enhanced. It is important that firms take ownership of their culture – this entails identifying and shaping the drivers of good culture, which will in turn shape the behaviour and conduct of their employees and representatives. In this aspect, regulators globally have taken the following steps in tandem with their shift towards principles-based regulations:
Embark on the development of guiding principles of good culture, drivers of ethical conduct and outcome of culture reform that firms should achieve;
Take the approach to guide firms to self-discover the good culture suited to them and take remediation actions to improve their governance; and
Set expectations for the board and senior management to drive good CG culture.
This will also entail a shift from the current supervisory approach, from one that focuses on compliance culture and governance to one driven by principles, where market intermediaries are responsible to internalise culture and put in place processes, based on their size and business models, to adhere with these principles.
Enhance engagements with regulated entities, with greater interaction with their C-Suites
Adopt a proportionate supervisory approach
Provide relevant guidance for better interpretation
Adopt a principles- based approach towards culture and conduct
CAPITAL MARKET MASTERPLAN 3
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