Speaking at the Thomson Reuters Australian Regulatory Summit in Sydney earlier this week, Mr Medcraft drew a distinction between the legal licence to provide financial services and the ‘social licence’.
The social licence, he said, is the corporate culture that the community expects of financial services firms.
Mr Medcraft explained that the rise of social media and the 24-hour news cycle are combining to close the gap between the social licence and the legal licence.
“Customer regulation” – or the influence of “the crowd” – is becoming particularly relevant for companies, he said.
“Often in discussions with companies they’ll [tell me], ‘We’ve improved our conduct dramatically since the [global financial crisis]’; I say, ‘Well, the market’s moved’.
“You’ve got to keep an eye on what the community is thinking and you’ve got to make sure that that gap that’s emerging doesn’t get too wide.”
The vocal influence of the ‘crowd’ is likely to affect how policymakers – and perhaps even the courts – interpret legislation, according to Mr Medcraft.
“If you don’t care about the regulator, you’d better care about the crowd, because they’re getting stronger and stronger. There has been a shift of power,” he said.
“In the future, ‘black letter law’ is going to be a problem – because you’ve got to have principles, given that the digital world is constantly changing.
“Principles-based approaches are the only way of the future, and you’ve got to allow that flexibility because the law cannot keep up otherwise.”
[Related: Fintech threatens Australia’s major banks]