The dodgy financial products that have become the hallmark of the banking royal commission could be stopped from sale if the corporate cop gets its way on new legislation being considered by the government.
The $750 billion unregulated self-managed superannuation sector could also be up for a rude shock with the Australian Securities and Investments Commission also asking for new powers to intervene and stop promoters in the sector hawking their products to people with low super balances.
ASIC has made the pitch for new powers in a submission to a parliamentary committee reviewing new amendments to Treasury laws aimed at giving the regulator powers to intervene and stop products that are inappropriate for retail consumers.
The Financial Services Inquiry conducted by David Murray recommended giving ASIC the powers to intervene in the market to stop products from being sold to the consumers.
The idea is that ASIC would be able to stop some of the consumer detriment caused by stopping products before they are sold or if the regulator has concerns about the appropriateness of a product being distributed by financial institutions.
Financial services companies would also have obligations and increased accountability for the products they design and distribute if those products are found to be inappropriate.
ASIC senior executive leader Greg Kirk said in the regulator's submission that it strongly supports and welcomes the bill.
"It has been recognised for some time that disclosure alone is not adequate to achieve fair consumer outcomes," Mr Kirk said.
"Noting the range of problems that had been seen across different types of products, the FSI's proposed model was to improve broad and scalable obligations on issuers and distributors."
The royal commission has heard a litany of misconduct and conduct falling below community standards at the product level.
ASIC says in its submission the new laws should extend to credit products, despite the draft legislation not covering such product due to the belief that they are already subject to responsible lending rules.
It also wants products not covered by the Corporations Act, or the National Credit Act and instead sit under the ASIC Act to be included in the legislation. These sorts of products include funeral expenses policies, certain types of warranties and some buy now, pay later products.
The government has stopped short of recommending the powers for ASIC to regulate the design and distribution of these products, despite the rapid development and use of fintech products in Australia.
The royal commission has heard a litany of misconduct and conduct falling below community standards at the product level. These include dodgy insurance products, credit products targeted at unemployed people and funeral expenses policies targeted at Indigenous communities.
In a separate submission, the Australian Banking Association was also broadly supportive of the legislation but has submitted that some elements should be altered so that it does not unfairly target institutions covered by the legislation.
The ABA believes allowing the laws to cover basic deposit accounts will have little benefit to consumers as most of those types of products are effectively free such as transaction accounts.
The ABA has also baulked at making contraventions of all of the provisions in the bill a criminal offence, instead suggesting the penalties be scaled so that minor, technical breaches are not treated the same way as products intentionally designed to detriment consumers.This article was first published by https://www.smh.com.au
Author: Sarah Danckert