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Watchdogs would get to bite sooner

Watchdogs would get to bite sooner
Corporate regulators would be able to ban financial advisers earlier and stop dodgy products under a "paradigm shift" outlined by the Financial System Inquiry.

Saying past industry-led standards had failed to "address serious conduct issues", the inquiry also backed tougher disclosure laws including those in the contentious Future of Financial Advice regulations recently struck down by the Senate.

Inquiry head and former Commonwealth Bank chief David Murray said it was clear that most consumers could not fathom the many exotic financial products now on offer.

Failures including Storm Financial, which hit 2800 customers, and Opes Prime, where investors lost $400 million, made the case for a major overhaul in the way clients and providers of financial products operated.

Mr Murray said just telling customers what was going on with a certain investment was not enough.

"The paradigm shift here with this report is that disclosure by itself is not enough," Mr Murray said. "There's an information asymmetry and a knowledge gap and an information imbalance between consumers in the financial system and product providers and distributors."

In a major departure from past practice, the Australian Securities and Investments Commission would have the power to block a financial product before it was sold to the public.

The inquiry found that ASIC could previously only intervene when a problem came to light but the economy would be stronger and safer if the regulator could move earlier.

In an echo of the FoFA debate, the inquiry backed a "better alignment" of the interests of customers and those trying to make money out of financial advice.

It highlighted issues in the life insurance sector, where high upfront commissions appeared to affect the quality of advice.

Not only would ASIC have the power to block new products, it would have powers to ban particular financial advisers.

The report was scathing of the financial advice sector.

The inquiry recommended advisers at a minimum hold a tertiary degree, competence in a relevant area and have a commitment to ongoing training.

The inquiry also found a need for better customer guidance with tools and calculators. It said there were far too many people without enough insurance to cover the destruction of their house.

The inquiry backed provisions to force advice firms to make their ownership transparent and recommended the term "general advice" be replaced with something easier to understand.

Author: Shane Wright Economics Editor Sydney
Source: The West Australian


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