The Federal Government will be acting in defiance of the findings of the Royal Commission if it allows “carve-outs” from product design and distribution obligations (DDOs) being demanded by the banks, advice, insurance and wealth management sectors, according to Industry Super Australia (ISA).
The ISA has used a submission to the Senate Economic Legislation Committee review of the legislation intended to underpin the Government’s financial services product design and distribution laws to claim the outcome has been heavily, adversely influenced by the retail banking sector.
Further, it has claimed that if the carve-outs are allowed to stand, it is doubtful the design and distribution obligations will be enforceable in practice.
Suggesting the original legislation had been watered down, the ISA said it was “aware that the consultation process on the draft legislation has been heavily influenced by arguments made by some in the industry that the regime would be unworkable for product issuers”.
“Given the case studies before the Royal Commission we think the purpose of the DDO and product intervention powers (PIPs) need to be reconsidered from the perspective of consumer protection rather than product issuers,” it said.
“It appears that vested interests in the financial retail banking, advice, insurance and wealth management sectors have been successful in securing carve-outs from the legislation. The Committee now has an important opportunity to re-consider those carve outs,” the submission said.
“These carve-outs are being proposed at a time when the Banking Royal Commission has recently uncovered a series of horrific case studies of significant harm and detriment to many hundreds of thousands of consumers,” it said. “They suggest that much of the financial services industry - and Treasury as the key policy regulator - are failing to learn from the lessons of the Royal Commission.”
“If the design and distribution obligations and product intervention power had been implemented earlier and in line with the original policy intent of the Financial System Inquiry, then arguably some of this consumer harm could been mitigated and perhaps avoided.”