As the demand for service grows the use of new technology has changed the task of the Australian Securities and Investment Commission (ASIC). Jillian Segal looks at ASIC’s role in drawing guidelines for an industry increasing dependent on the wired world.
It would not be a radical position to state that the business of financial services is undergoing a fundamental shift. Most industry practitioners are well aware of the changes.
Much of it is being driven through the Internet where new organisations are developing and attracting investor support, penetrating markets and grabbing market share faster than ever.
The role of intermediaries has also changed with consumers now able to deal direct when shopping online for financial products, but at the same time they are overwhelmed by previously unknown choices and information.
Not to forget that this also opens up new avenues for unscrupulous operators to take advantage of the distinct lack of consumer education and experience in an online world.
As such the new economy offers a myriad of challenges and opportunities, not only for the financial services industry and consumers, but also for the government and regulators.
As such, alongside with its regular duties of being the industry watchdog, ASIC has set itself three tasks in the world of online financial services.
– educating consumers about the risks of investing in schemes promoted on the internet without making the necessary checks
– developing new enforcement and surveillance tools to track activity and identify investments on the internet
– developing policy and codes of conduct to facilitate e-business in the area of financial services.
For many years now financial planners have had to educate clients in many areas in regards to investing such as risk, diversification and understanding when an investment is not sound.
However when it comes to the Internet and the world of online financial services these lessons seem to be quickly forgotten. Many consumers believe the dangerous myth that says if it is on the Internet, it must be legal and secure.
Nothing could be further from the truth and it is important advisers keep that in mind and point it out to clients who may use the Internet as well.
One of our strategies is to continue to hammer the core message to all consumers that they should thoroughly check any financial scheme and its operators before pouring hard earned dollars into investment schemes promoted on the Internet. These are not new concepts, the same rules apply for offline investments as well.
As such the simplest way to access such data is through the ASIC website.
Currently there are a number of websites run by ASIC but the site atwww.watchdog.asic.gov.auhas a specific focus on providing information relating to investments for the general consumer.
And while it may appear to be consumer focussed ASIC is happy for advisers and planners to use the site and to encourage clients to do the same.
The reason for this is that the site offers searches through a national names index which supplies basic details about current and former companies, business names and other organisations.
Other searches include a listing of all fundraising disclosure documents like prospectuses, offer information statements and profile statements lodged with ASIC from 13 March 2000.
Consumers can also seek reassurance that the intermediary chosen is legitimate through a professional register search which checks if the intermediary is licensed with ASIC or has been banned or disqualified.
As regulator it is also important that high standards are maintained and the Electronic Enforcement Unit routinely reviews sites against predetermined risk criteria to ensure any potential and actual breaches of the Corporations Law are detected.
Not surprisingly, the type of misbehaviour on the Internet mirrors the scams and frauds of the offline world. Enforcement and surveillance action targets the areas of
– online prospectuses and initial offers which breach the Corporations Law.
– investment advice given online without an appropriate licence or consideration of the needs of investors receiving the advice
– non-disclosure of commissions and potential conflicts of interest by advisers
– the indiscriminate offering of securities around the internet
– dissemination of false and misleading information about securities
– creation of false markets, manipulation of prices or volumes, and insider trading as a result of information disseminated about securities on the internet.
As a result of having to ensure these events do not happen policy statements have been created to help interpret the legal requirements for e-commerce.
This focus is widening to cover not only securities, but also protection of consumersin financial services, including superannuation, insurance and deposit products. Key policies relating to e-commerce include
– PS 107 covering electronic prospectuses,
– PS 118 covering investment advisory services which sets out guidelines for those providing investment advice online.
– PS 150 covering electronic applications and dealer personalised applications which sets out when relief will be given from the Corporations Law so electronic applications for securities need not use the procedures required for paper applications.
To complement policy and law, ASIC is also promoting codes of conduct as a means of promoting ethical behaviour in the online world and hopes to release those towards the end of this year.
As financial services professionals the need to use many of the basic services ASIC provides may seem to be pointless, given the experience and education that’s goes with being a planner.
However recent experience continues to prove that the investing public needs ever greater assistance and vigilance to ensure the industry remains professional.
This was evidenced when on April Fool’s Day last year ASIC launched its own scam website –Millennium Bug Insurance.The website offered a fake investment scheme with ASIC seeking to highlight the willingness of people to invest in companies that they knew nothing about. Exposed in May, the joke succeeded in convincing more than 1400 people to ask for further investment information and 233 people to pledge over $4 million to the scheme.
