The FSI has recommended that ASIC be granted a product intervention power to enable it to take a more proactive approach to reducing the risk of significant detriment to consumers. Specifically, this new power would allow the regulator to intervene to require or impose:
- amendments to marketing and disclosure material;
- warnings to consumers, and labelling or terminology changes;
- distribution restrictions; and
- product banning.
This recommendation would be consistent with increasingly proactive regulation in place in other jurisdictions such as the UK where product intervention powers were introduced in 2012. Similar to the UK regime, the powers would be limited to temporary intervention for 12 months but could be extended by Government. The FSI stressed that the recommended powers are intended to address significant consumer detriment and would not alleviate consumers from bearing responsibility for their financial decisions. This is an important balance that legislative drafters will need to get right to ensure that product issuers do not wear the financial losses brought about by informed but poor purchasing decisions.
The FSI found that ASIC’s current regulatory toolkit has proven inadequate to address some cases of significant consumer detriment where there was not a clear basis to take enforcement action. ASIC is restricted to taking action to rectify consumer detriment after a breach or suspected breach of the law and may only take enforcement action against such conduct on a case-by-case basis. The proposed power could be used against an individual or class of product issuers in relation to a product or class of products. Additionally, the power would allow ASIC to respond effectively and in a timely way to an emerging risk of significant consumer detriment.
The FSI found that the combination of a strong, independent and accountable ASIC armed with the recommended intervention powers would likely reduce consumer losses. The FSI believes that targeted early intervention will be more effective in reducing harm to consumers than waiting until detriment has occurred. In order to do this, ASIC should be equipped to be proactive in its supervision and enforcement.
Consumers have increasing access to complex products thanks to changes in technology. These products can involve complicated structures and heightened risk that may be difficult for consumers to understand even where there is adequate disclosure. Complex products are particularly influenced by behavioural biases because people automatically and unconsciously try to simplify the decision-making process which leads to poor purchasing decisions. These theories of behavioural economics have underpinned the UK approach to product governance and the equivalent intervention powers there.
ASIC would be accountable for use of its power, which is expected to be used infrequently and as a last resort or pre-emptive measure. An affected product issuer or distributor, or class of affected financial services providers, should be able to seek judicial review on the use of the power.
Finally, ASIC would be expected to issue policy guidance (after consultation) describing:
- when the power may be used;
- the process of engagement with affected parties;
- consultation with other regulators before the use of power; and
- transparency in its use and public reporting of the review of this power.
The UK regulator has already used powers to require amendments to terms and, in one case, to ban a product being distributed to particular classes of investor.