Corporate regulator ASIC will assist five regtech (regulatory technology) firms to test the feasibility of a range of newly developed tech solutions to help businesses comply with corporate disclosure rules.

Part of the Federal Government’s Business Research and Innovation Initiative’s (BRII’s) ‘Regtech round’ (one of five federally funded initiatives within the BRII), ASIC will work with the top five selected regtech developers to assist in the development of solutions to help identify and assess poor market disclosure by listed companies.

Bedrock AI Aus Pty Ltd, DigitalX Limited, Eastern Analytica Pty Ltd, Listcorp Pty Ltd and Pyxta Pty Ltd, were the five shortlisted developers, selected by the Government, for the ‘Regtech round’.

Each of the five companies will have access to between $50,000 and $100,000 in grants to conduct a feasibility study, over three months, to test the viability of their regtech solutions.

Australia’s corporate disclosure rules (which fall under the Corporations Act 2001) obligate publicly listed companies “to continuously disclose information which may have an effect on its market price or value”.

The rules are based on the principle that all investors should have equal and timely access to information about a company, to both protect the investor as well as the reputation of the market, the ASX notes.

While ASIC has the power to issue infringement notices for breaches of corporate disclosure obligations, there are potentially more severe consequences for companies that fail to comply.

Failure to observe continuous disclosure could leave directors liable to class actions “where a company has failed or suffered substantial declines in its share price”, according to the ASX.

A class action against properties group Centro in June 2012 for disclosure rules breaches resulted, for instance, in a $200 million settlement.

ASIC Commissioner Cathie Armour said the latest BRII challenge was deliberately designed around market disclosure, ensuring the solution could be readily adapted for other problem use cases by agencies and industry.

“Working towards an innovative solution has the potential to transform ASIC’s ability to harness technology to reduce regulatory burden, while enhancing market integrity,” Armour said.

ASIC further notes that it is committed to the promotion of regtech as a key priority of its ASIC’s Corporate Plan 2021-25 to support the delivery of better regulatory compliance and consumer outcomes.

The regtech solution will be required to assist ASIC in identifying and assessing regulated companies’ compliance with: continuous disclosure (price-sensitive disclosure) and other disclosure obligations to the market; financial reporting obligations, the prohibition against misleading or deceptive disclosure (such as misleading categorisation of market announcements); and the prohibition against practices that manipulate the pricing of securities.

The next stage of the BRII’s Regtech Round will see two finalists selected out of the five current regtechs to develop and test a proof of concept of their solution over a further 15 months. The two finalists are also eligible to receive further grants of up to $1 million to develop their solution.

Details on the grants and the selected grantees can be found at Business Research and Innovation Initiative (BRII) – RegTech Round.