ASIC targets complex retail products
Complex retail products will come under the Australian Securities and Investments Commission (ASIC's) scrutiny due to poor market returns and growth in the self-managed super fund (SMSF) sector.
The regulator plans to crackdown on financial advisers, product issuers and distributors involved in the mis-selling of complex retail products.
ASIC commissioner Greg Medcraft said it would consider the appropriateness of advice as well as the advertising and product disclosures behind the products which included synthetics, synthetic-protected exchange-traded funds (ETFs), capital-protected products and capital notes or hybrids.
Medcraft said as SMSFs continued to grow into a larger proportion of the superannuation sector, and in an environment of low returns, they would be attracted by the higher yield offered by complex products.
"Self-managed super funds will need to invest their money somewhere and complex products that offer high yields in a low-growth environment often look very attractive.
"Our concern is that there's a real risk of complex products being mis-sold to retail investors, and products that are mis-sold are dangerous for investors because they don't understand the risks," he said.
Product issuers should take notice of the recent legal action taken against Lehman Brothers, which found the company liable for the losses of collateralised debt obligations incurred by Australian councils and charities, according to Medcraft.
"Issuers are likely to pay for investors' losses, either due to protecting their reputation or legal action…It's clearly not a sustainable business model if your customers don't understand the product and lose money," he said.
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