Product issuers have a role to play in consumer protection, but investors need to take responsibility for their own decisions when investing, according to the Australian Securities and Investments Commission (ASIC) Chairman Greg Medcraft.
In a recent address to the Australian Shareholders Association Conference, Medcraft said the problem of complex products being mis-sold is particularly concerning during periods when people are searching for yield, like the current environment.
Investors should understand the risk-reward pay off and the concept of diversification and education remains key, he said.
“In fact, I like to say if you don’t understand it, you shouldn’t buy it, even if your financial adviser recommends it,” Medcraft added.
However, financial product manufacturers and product issuers have a role to play in ensuring their products are appropriate for the customer and aren’t mis-sold, the Commissioner said.
“My position on this is clear – those selling complex products to unsuspecting investors need to wise up and do the right thing,” he said.
“They might get away with it for a while, but as we saw with the crisis, governments and courts inevitably rule in favour of investors that have been mis-sold these complex products.”
ASIC has a working group on complex products which is currently exploring the best ways to regulate these products, taking into account disclosure and distribution and the whole of the product life-cycle.
One of the major challenges facing financial services regulators around the world is globalisation.
Misconduct is now occuring across the borders and regulators will need to cooperate and help each other in both investigations and enforcement matters, Medcraft said.
He was recently appointed chair of the board of the International Organization of Securities Commissions (IOSCO), which has now formed a task force on cross-border regulation to develop a toolkit of measures to overcome regulatory differences between jurisdictions.
“Australia is a net importer of capital and therefore needs access to capital in other jurisdictions,” Medcraft said.
“Currently, each jurisdiction has its own set of rules and regulations; this can create obstacles to cross-border capital flows, reduce access to markets and add to the cost of capital.”
ASIC would play its role in developing a global approach to market regulation, he added.
