Financial market participants need to play their part in the regulatory system, working toward the collective goal of efficient and fair financial markets, or face having a "police state" approach - that is, prescriptive regulations.That was the message James Shipton, chair of the Australian Securities and Investments Commission, delivered in a keynote presentation to a large contingent of industry professionals yesterday at the Thomson Reuters Australian Regulatory Summit in Sydney.What follows is a heavily edited version of his presentation. The full speech is available on the ASIC website. "We must also recognise that the regulatory system is not just supported by formal rules, but also by norms, industry practices and, of equal importance, community expectations," he said."One example of this is breach reporting [which] relies on participants identifying breaches quickly and reporting them quickly," he said."And this is why everyone in finance should not just ask if something is legally permissible, but also whether it is the 'right thing to do'."He later expanded this, adding: "we need to start by recognising that every cent in the financial system is 'other people's money'."In other words, finance exists to serve everyday Australians. "It is a means to an end, not an end in itself. And the consequence of this is that finance - and our approach to regulation - must be anchored to the core functions finance serves for society."There aren't many sectors that have as many regulations, or regulators, as we have in finance. Shipton suggested four reasons:1.    Finance serves a very important underlying purpose for society, and through the various conduct failures [we have seen] that it can have catastrophic consequences for real people;2.    Unlike other industries, the underlying 'commodity' or 'product' in finance is, essentially, money, which, for those in finance creates the risk of being 'blinded' by the money, and losing sight of the underlying purpose of finance;3.    From a consumer perspective, the 'democratisation' of finance now means that most adult Australians need to make even more financial decisions than previous generations, where products and services are•    intangible and often complex;•    purchased infrequently and, in the case of superannuation, may only be purchased as a result of compulsion; and•    can represent extreme examples of 'credence goods', where the performance and quality of the good is in many cases not apparent for a long time after purchase.4.    That the regulatory system in finance, globally, has not been performing at full capacity for quite some time, although the financial participants themselves have not played their part, with repeated instances of industry failures that have led to crises not remediated by the industry, leaving additional regulation as the only response. What this means for ASIC's approach and role is to extend responsibility beyond the premise that all the agency does is enforce regulations using enforcement tools and coercive powers. "Regulators like ASIC differ from most other public agencies since we 'deliver obligations', rather than services, for the purpose of modifying behaviours," Shipton asserted. "And ASIC has a broad range of tools