ASIC calls for new regulatory tools

by Miklos Bolza14 Jun 2017
The Australian Securities & Investments Commission's (ASIC’s) deputy chairman claims the current regulatory regime is “not up to scratch” and needs broader powers and tools to better meet the challenges of the future.

In a speech at the Thomson Reuters Regulatory Summit 2017 in Sydney on 6 June, deputy chairman Peter Kell identified what was missing from ASIC’s array of tools and what was needed to meet future needs of the financial industry and consumers.

“In areas as diverse as mortgage broking, life insurance, small business lending and dispute resolution, inquiries have identified areas where the current regulatory regime is not up to scratch.”

The current framework’s reliance on self-disclosure was one of its limitations in a range of areas from conflicts of interest in remuneration to fees and charges for consumers, he said.

“It is clear that disclosure has been expected to do more than it is capable of doing to fix market failures. While disclosure is important, it can be ineffective for a range of reasons, such as consumer disengagement, behavioural biases or misaligned interests between providers and consumers.”

While there is an expectation that ASIC is a proactive regulator with more attention on industry supervision, Kell said the current toolkit made this difficult to achieve.

“ASIC’s regulatory framework also places too much emphasis on investigation and punishment after the event, with few tools to address problems as they emerge or before major losses are suffered.

“Further, the only available remedy has often been criminal prosecution, again limiting options for ASIC for a range of misconduct. Inadequate penalties have meant that misconduct which caused significant losses and consumer harm may be only lightly punished or penalised.”

An extended product intervention power would go a long way to helping ASIC become more proactive, he said.

Kell suggested this power be expanded to cover remuneration linked to a product – a factor not included in the current regulatory system.

“It is worth noting that much of the significant consumer detriment we’ve seen in financial services has arisen from remuneration that incentivises the sale of products that are inappropriate for consumers. In some cases, a product is reasonable for more financially experienced consumers, but sales incentives see it ending up in the wrong hands.”

“Without a flexible power that includes remuneration, we may not be able to choose a targeted option, and would be in the incongruous position of having to consider a blunt, wide-reaching tool – such as an outright ban – even when a less interventionist approach would be more appropriate.”

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