Financial product manufacturers and distributors should be subject to a conduct obligation, the Financial Planning Association argues in a submission to Treasury.
In its submission responding to the FSI final report – released yesterday – the FPA recommended that the government implement FSI recommendation 21, which calls for the introduction of a “targeted and principles-based product design and distribution obligation”.
“In our view, product issuers are key gatekeepers in the Australian financial system and decisions made by these financial intermediaries have significant consequences for the end users of the financial services system,” the submission states.
“These obligations may require financial intermediaries who produce and distribute financial products to tailor their disclosure obligations to the needs of their intended client.
“These regulations may also require these intermediaries to reasonably adjust the scope of their professional obligations to those needs as well.”
The association suggests the government examines how financial product governance has been implemented in international jurisdictions, singling out the European Securities and Markets Authority’s published position on the regulation of structured retail products as a pertinent example.
While ESMA’s obligation on EU providers goes further than the Murray Inquiry recommendation – adding product testing, redemption and review process obligations to those at design and distribution stage – the FPA argues that a similar “principles-based” approach could be applied in the Australian context.
In addition, the submission calls for a clearer regulatory approach to automated investment products or ‘robo-advice’ tools.
The FPA proposes that the “advent of online and/or automated advice tools … presents as many challenges and risks as it does opportunities” and calling for clearer regulatory guidance on these products.
Explaining there is a wide range of robo-investment tools in operation with varying degrees of application to strategic financial advice, the submission says ASIC’s traditional “technology-neutral” approach to regulation may no longer be appropriate.
“We are also interested in what kind of regulatory regime would apply to automated advice tools,” the submission states, adding that the Corporations Act did not adequately deal with the rise of these products.
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