The financial services sector needs new regulation that will put a spotlight on "product rationalisation", a law firm argued.
Herbert Smith Freehills (HSF) has urged for a new stage of "facilitative regulation" in its submission to the Financial System Inquiry (FSI) to enhance efficiency and consumer understanding and confidence in the system.
The law firm proposed a three-tiered rationalisation model, which brings together current merger mechanisms from superannuation and insurance regulation.
It would start with the product issuer being able to grant a merger at the lowest level, level three. A level two would be required for more difficult rationalisations and court approval would be needed for level one rationalisation.
"There is currently a significant efficiency drag caused by the industry's inability to rationalise legacy products," partner at HSF Michael Vrisakis said.
"This arises not just as a result of the costs incurred in sustaining obsolete and inefficient technologies but also from the way that legacy issues consume management time and act as a break on innovation within organisations,"
It has also called for regulation on electronic disclosure as a way to enhance efficiency for the industry and consumers.
Vrisakis said boosting technology and electronic delivery will improve disclosure.
"Current disclosure requirements, which produce complex and lengthy paper documents, have been detrimental to consumers' understanding of financial products and services," he said.
"Electronic disclosure should be the default position, with clients being able to request paper disclosure if they wish."
