Reflecting on the changes to financial services regulation since the Wallis Inquiry, Mr Price questioned the underlying assumption and philosophy that "disclosure is the best tool in almost every instance to fix market failures".
“People may not have the time, inclination or capacity to read disclosure documents,” Mr Price said.
“Research in behavioural economics also indicates that consumers are not rational in their decision-making.
“This may mean people will not read disclosure documents, or misunderstand them if they do," said Mr Price.
Mr Price’s comments come after ASIC deputy chair Peter Kell spoke about the ineffectiveness of the regulator’s reliance on disclosure last month.
Mr Kell said ASIC’s approach over the past 15 years has been “anything goes, as long as you disclose”.
“The role of disclosure is an underlying principle in structuring your regulatory requirements and regimes,” Mr Kell said.
“That was central to the [1997] Wallis Inquiry regulatory philosophy and is central to ASIC’s powers,” he said.
“ASIC would make the case that conflicts of interest, especially in retail markets, are not particularly well addressed by disclosure and it’s time to rethink that philosophy.”
The assumption that underpinned much of retail financial services regulation since the Wallis Inquiry – that disclosure is the best tool in almost every instance to fix market failures – has not been borne out in practice, Mr Price said yesterday.
“Understanding all this gives us potential to improve regulatory design with a better understanding of consumer behaviour and decision-making,” he said.
