Recommended actions

The Inquiry recommends taking the following actions to promote the fair treatment of consumers, to improve efficiency and build confidence and trust in the financial system.

1. Make issuers and distributors more accountable for design and distribution of products and introduce a product intervention power. To promote positive consumer outcomes, product issuers and distributors should take greater responsibility for the design and targeted distribution of products. This should strengthen consumer confidence and trust in the system and reduce the number of cases where consumer behavioural biases and information imbalances are disregarded. ASIC should also be enabled to take a more proactive approach to reduce the risk of significant detriment to consumers.

2. Focus financial firms and advisers on the interests of consumers. To build confidence and trust in the financial system, firms need to take steps to create a culture that focuses on consumer interests. This should include addressing conflicted remuneration in life insurance advice and stockbroking. Underscoring the importance of improved standards and accountability, the Inquiry recommends giving ASIC enhanced powers to ban individuals from financial firm management. The Inquiry recommends lifting the minimum competency standards for financial advisers, improving transparency of adviser firm ownership and relabelling general advice (see also Recommendation 40: Provision of financial advice and mortgage broking). In addition, the Inquiry recommends enabling better access to quality guidance for home building and contents insurance to reduce the risk of underinsurance.

3. Facilitate innovative forms of disclosure, including by encouraging industry to further use technology. Although the disclosure regime has evolved to reduce complexity over the last decade, consumer behavioural biases and commercial disincentives limit its effectiveness. The Inquiry sees scope to promote efficient communication of information to consumers in a way that responds to technological advances and changing consumer preferences (see also Recommendation 39: Technology neutrality). Risk and fee disclosure remains variable and consumer understanding low. In addition, industry should develop consistent standards to improve disclosure of risk and fees.

The Senate Economics References Committee’s report on ASIC’s performance was released shortly before publication of the Inquiry’s Interim Report. The Inquiry indicated that it would consider the Senate Committee’s recommendations in its final deliberations. In particular, the Senate Committee recommended that this Inquiry consider the adequacy of Australia’s conduct and disclosure approach to the regulation of financial firms. The Inquiry has considered issues raised by the Senate Committee, and makes recommendations in this chapter, including in relation to product issuer and distributor accountability, product intervention power, adviser competency and register, and banning powers.1

Figure 12 illustrates the Inquiry’s recommendations in the context of a typical product life cycle.

Figure 12: Recommendations to improve consumer outcomes

This figure illustrates the current regulatory regime as it applies to the financial product lifecycle, from product design, through distribution, consumer decision-making and post product-sale. It further illustrates the significant recommendations made by the Inquiry that should improve consumer outcomes across this product lifecycle. The figure includes relevant changes discussed in the Strengthening ASIC’s funding and powers recommendation in the Regulatory System chapter and the Technology neutrality recommendation in Appendix 1: Significant Matters. The recommendation for the product design phase is to strengthen product issuer and distributor accountability. For product distribution, the recommendations are to introduce a product intervention power, remove impediments to innovative and electronic disclosure and encourage development of industry standards on risk and fees disclosure. For consumer decision-making, the recommendations are to strengthen the licensing framework, raise competency standards and introduce an adviser register, improve labelling of advice services, improve guidance and disclosure for general insurance, and address conflicts in life insurance and stockbroking advice. Finally, the recommendations relating to the postproduct-sale phase are to introduce a power to ban persons from financial firm management and to increase penalties. 

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1 The Senate Economics References Committee 2014, Performance of the Australian Securities and Investments Commission, Canberra, page 393, 443.