The Financial System Inquiry final report has recommended that ASIC be granted a “proactive product intervention power” where there is “risk of significant consumer detriment”.
The new power would allow the corporate regulator to make amendments to marketing and disclosure statements, issue warnings to consumers, restrict product distribution, and ban products outright.
The proposal is modelled on similar powers held by the Financial Conduct Authority (FCA), which is ASIC’s counterpart in the UK.
In a speech on Monday Mr Murray revealed the FSI held a “long discussion” with the FCA this year about the product intervention power.
Mr Murray also said he hoped the power would be used “very sparingly” by ASIC in the future.
Speaking to InvestorDaily, Herbert Smith Freehills partner Luke Hastings pointed out that the FCA exercised its product intervention power to ban the sale of certain ‘CoCo’ (contigent/convertible) hybrid bank products to retail investors in August 2014.
“That resulted in quite a hue and cry,” Mr Hastings said.
“I wouldn’t have necessarily described that as a ‘sparing’ exercise by the FCA,” he said.
As it currently stands in Australia, ASIC must provide some evidence the law has been breached before a product can be removed from the market, Mr Hastings said.
But under the FSI’s proposed product intervention powers, ASIC will be able to ‘shoot first’ and ask questions later.
“I think it’s a retrograde situation where ASIC doesn’t need to demonstrate a suspected breach of the law before it can exercise such a strong power,” Mr Hastings said.
The product provider in the regulator’s crosshairs will only be in a position to appeal the decision after the fact.
But by time the decision is overturned it could be too late, Mr Hastings said.
“Once ASIC has banned a product, temporarily or otherwise, it’s going to be the kiss of death,” he said.
“It will be very, very difficult to resuscitate a product after that.”
