Reliance on mandated disclosures has often proved ‘ineffective’ and disclosure is no longer the ‘silver bullet’ it once was, according to a report by the Australian Securities and Investments Commission (ASIC).
The report, which was conducted jointly with the Dutch Authority for the Financial Markets, examined the effectiveness of disclosure for financial products on consumer outcomes.
It found reliance on mandated disclosure and warning had been ‘ineffective’ and occasionally caused more consumer harm than less. This included unnecessary product complexity which made it hard for consumers to switch products or make complaints.
Five limits of disclosure were identified by ASIC:
- Disclosure does not ‘solve’ the complexity in financial services;
- Disclosure must compete for consumer attention and influence;
- One size disclosure does not fit all – the effects of disclosure are different from person-to-person and situation-to-situation;
- In the real world, disclosures can backfire in unexpected ways; and
- A warning about warnings.
Going forward, ASIC suggested it would take a more consumer outcome-focused approach which would make the most of its regulatory toolkit as well as using its product intervention powers.
ASIC deputy chair, Karen Chester, said: “It’s time to ‘call time’ on disclosure as the default consumer protection. It’s not the ‘silver bullet’ once thought, nor should it be relied upon as one. Disclosure can and has backfired in unexpected and harmful ways.
“Our report highlights the need to rebalance the onus from consumers to firms – to become a shared responsibility. To do this, firms need to understand, measure and deliver on consumer outcomes. This aligns with the Royal Commission and the ensuing legislative reform program the Government has underway.
“Put simply, disclosure has been asked to do too much. It cannot solve the complexity of the financial system. Especially when that complexity, in the form of thousands of barely differentiated products, is firm induced’
