The federal government yesterday released the findings of the final FSI report, with Treasurer Joe Hockey telling a press conference the government will now “carefully consider” all 44 recommendations while committing to a fresh bout of stakeholder consultations until March 2015.
One of the more significant recommendations is the proposal to introduce a “targeted and principles-based product design and distribution obligation”, under which “product issuers and distributors” would be held to higher standards of consumer duty.
The report recommends this obligation requires product providers to make consumer risk assessments at the product design and distribution phases as well as after the point of sale, thereby promoting “fair treatment” and building confidence in the system.
FSI chair David Murray told the same press conference yesterday that the introduction of additional obligations for product providers to consider the consumer interest represents a significant deviation from the regulatory status quo.
“We have concluded that disclosure and financial literacy are not sufficient by themselves to work in the interests of consumers,” Mr Murray said.
“This signifies a paradigm shift for the system; we have recommended higher obligations for product manufacturers and distributors, stronger regulatory framework and a more proactive regulator.”
In addition to these new obligations, the report recommends that penalties should apply to companies and issuers that are not compliant, while suggesting ASIC’s powers should also be beefed up.
ASIC should be given additional powers over the product manufacturing space, including the ability to make amendments to PDSs and other disclosure documents, place restrictions on distribution for suitability reasons or even ban products from the market.
“The Inquiry believes that targeted early intervention would be more effective in reducing harm to consumers than waiting until detriment has occurred,” the report states.
“The regulator should be able to be proactive in its supervision and enforcement.
“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 larger group of consumers.”
Meanwhile, the report has encouraged both regulators and the industry develop more innovative approaches to product disclosure and communication, such as using online tols and “new media”.
