After a string of mis-selling scandals that have cost investors tens of billions of dollars, there are very few who will defend the Australian Securities and Investments Commission, which is widely believed to have failed its consumer protection role.
David Murray, however, head of the Financial System Inquiry, has shown his faith in the ability of the regulator to lift its game, not just resisting calls to hive ASIC’s consumer protection function off to the Australian Competition and Consumer Commission, but proposing to boost its funding and powers.
If Murray’s recommendations are adopted by the government, ASIC will prove a clear winner of the inquiry, with more funding — including from possible levies on industry — stiffer penalties for offences under the Corporations Act, new UK-style “temporary product intervention orders” and added responsibility to promote competition in banking. It will be for Treasurer Joe Hockey to consider whether Murray’s reforms would reward ASIC for failure.
In his final report released on Sunday and in his press conference remarks, Murray tackled what has long been a bugbear for consumer advocates: the oft-prevailing attitude that all the regulator has to do to protect the investing public is ensure that the risks of financial products are fully disclosed in offer documents. Over and over again, this light-touch regulatory approach has failed: investors are daunted by complex (and often misleading) prospectuses, and they tend to trust their advisers.
Murray called for an end to it, saying:
“Our recommendations on consumer outcomes reflect a view that disclosure and financial literacy are not sufficient by themselves for the system to work in the interests of consumers. This represents a paradigm shift for the system. We have recommended higher obligations on product manufacturers and distributors; a stronger regulatory framework and a more proactive regulator.”
Like the recent Senate inquiry into the performance of ASIC, Murray recognises ASIC is underfunded and recommends the government give ASIC greater financial certainty through three-year budget reviews (similar to the ABC). ASIC gets most of its revenue from its registry business — which is about to be privatised (controversially). Murray says ASIC’s cost of regulation should be recovered by imposing fees and levies on the finance industry, as the Australian Prudential Regulation Authority already does with its Financial Institutions Supervisory Levy. The Australian Bankers’ Association chief Steven Munchenberg appeared open to this possibility yesterday.
Murray has also backed ASIC’s call for tougher penalties for white-collar crime, writing that the maximum civil and criminal penalties for contravening ASIC legislation should be substantially increased to act as a credible deterrent for large firms. The report mentions disgorgement of profits but does not talk about jail terms.
Murray has also recommended ASIC be given similar temporary product intervention powers to those introduced by the UK’s Financial Conduct Authority in 2012, giving the regulator power to amend financial product marketing and disclosure materials, warn consumers, restrict distribution and impose outright bans where necessary. This is a fundamental reform, as the report writes:
“Currently, ASIC can only take action to rectify consumer detriment after a breach or suspected breach of the law by a firm … The inquiry believes that targeted early intervention would be more effective in reducing harm to consumers than waiting until detriment has occurred. Significant consumer detriment could be reduced if ASIC had the power to stop a product from being sold or, where the product had already been sold, to prevent the problem from affecting a large group of consumers.”
These powers can only help — although many would argue, as Fairfax Media’s Adele Ferguson has pointed out, that ASIC’s problem to date has been its weak enforcement action, rather than any lack of power. The recent Senate inquiry into ASIC found it was “a timid, hesitant regulator” in its dealings with the CBA financial planning scandal and “too ready and willing to accept uncritically the assurances of a large institution that there were no grounds for ASIC’s concerns or intervention”.
Murray has also backed ASIC chairman Greg Medcraft’s concerns about the quality of financial advice, which has been the cause of so much mis-selling. The report supports higher competency standards and a national register of financial planners, and it notes that the former government’s Future of Financial Advice reforms should be allowed to work.
Agree, The ASIC now to take on consumer protection?
It will need money, a change in culture (not easily done); new staff; new guidelines,and regulations etc
It’s years away for actually being a reality (and who knows what it will actually be by then) while the current legislation is in limbo with the reversal in the Senate
Speaking of ASIC underfunding and a lack of consumer protection, what will happen when registry services are sold off as planned?
For a start, ASIC will lose almost all of its revenue – registry fees currently exceed it’s annual budget, meaning it will go from being self-funding (and returning several hundred million a year to the Government) to being loss-making and completely dependent on Government funding.
At the same time, consumers will no doubt be forced to pay more to find basic information on the companies they are dealing with. Taking away transparency isn’t likely to be good for consumer protection.
A double whammy for both the struggling agency and consumers.