The corporate regulator cannot meet the high expectations of recent inquiries without the addition of product intervention powers to its ‘regulatory toolkit’, says ASIC deputy chair Peter Kell.
Mr Kell singled out the recommendation of the Financial System Inquiry that ASIC be granted product intervention powers at a Centre for International Finance and Regulation workshop in Sydney yesterday.
“We agree with the FSI’s conclusions that, if well designed, this power ought to enable ASIC to be more proactive and allow for more targeted and timely intervention,” Mr Kell said.
Such a power would allow ASIC to focus on areas that are posing the most risk to financial markets, he said – rather than applying the same requirements “across the board” irrespective of each company’s compliance level.
The power, if granted, would also provide ASIC with regulatory options beyond disclosure, Mr Kell said.
“One of the important themes in the [FSI] report is that there have been some distinct limitations for disclosure as a regulatory tool in retail markets,” he said.
The lesson since the 1996 Wallis Inquiry has been that Australia placed too great an emphasis on generic disclosure requirements without considering the use of other regulatory tools, Mr Kell said.
He also took the opportunity to highlight three ‘misconceptions’ about the proposed product intervention powers.
First, such a power would not represent “some radical new approach to regulation”, he said, noting there have been a number of reforms that have resembled product intervention in recent years.
“The FOFA prohibition on conflicted remuneration is in effect product intervention. And new consumer protection provisions in the payday lending area put a direct product intervention (that is, a cap) on fees,” he said.
The second misconception is that ASIC already has product intervention powers, Mr Kell said.
“ASIC does in some areas and to different degrees have powers that are akin to what the FSI has described as product intervention powers,” he said.
“However, I think anyone seriously looking at ASIC’s [toolkit] would know those powers are inflexible and have distinct limitations and applications."
In particular, he challenged the notion that ASIC's current ability to impose licence conditions represents genuine product intervention powers.
ASIC's deputy chair also dismissed the suggestion that product intervention is “all about banning products”.
“The [FSI] report mentions things such as amending marketing materials, changes to key terminology that might be leading to poor consumer outcomes, restrictions on particular distribution, et cetera,” Mr Kell said.
“Banning products would indeed be a rare occurrence, but I would argue it’s nonetheless important to have there because as a regulator, having a big stick – even if it’s very rarely, if ever, used – is very useful to encourage better market outcomes,” he said.
However, in most circumstances, ASIC expects the use of product banning powers would not be necessary, Mr Kell said.
Finally, he noted that ASIC “cannot and should not fix all market problems”.
“But the FSI report and other recent inquiries have clearly highlighted that there’s an expectation that the regulator should be more proactive and that a regulator with the right powers would help reducing consumer detriment,” he said.
“This expectation frankly cannot be met with the current regulatory toolkit, and I think the FSI recognised that."
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