Target product manufacturers says FPA

The Australian Securities and Investments Commission (ASIC) should be appropriately empowered to effectively and proactively regulate product providers and the products they develop and sell to consumers, according to the Financial Planning Association (FPA).

In a submission to the Senate Economic Committee inquiry into consumer protection in the banking, insurance and financial sector, the FPA has pointed to the degree to which financial planners are regulated but the multiple participants who offer financial products or services and who influence consumers’ decisions on financial matters who are not.

In doing so the FPA nominated product manufacturers, fund managers, platforms, property schemes, investment banks, and ratings agencies as being among the many operatives not being regulated.

“Each of these participants play some part, either directly or indirectly, in influencing a consumers’ decision to invest in a financial product and the ongoing stability of that product,” the submission said. “However, currently many of these entities or their products or services are not appropriately regulated. Meaning they are not held accountable for their actions and do not have a legal responsibility to the end consumer for their role and influence in getting consumers to buy financial products and services.”

The FPA said product providers should be held accountable for failing to deliver on product benefits due to dishonest conduct, fraud or insolvency, or if there were fundamental flaws in products.

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“These gaps in the law create significant risks for consumers and significantly undermine the role and powers of ASIC and the value of legislation which serves to protect consumers.”

The FPA said that, currently ASIC did not have a legislative obligation to regulate financial products and that its oversight of product providers was limited to matters of corporate governance and disclosure, “and in the main not on the design and other issues related to the products they sell to consumers”.

The submission said complex products were particularly problematic for the following reasons:

 • Complex products require a high degree of financial capability to understand;

 • Where a complex product would be in the best interests of a retail investor, that investor will almost always require a financial intermediary to engage with the product on their behalf;

 • Behavioural economics indicates that product complexity encourages irrational decisions with respect to the product or advice in relation to that product;

 • Issuing and distributing complex products involve the arms-length collaboration of several financial intermediaries, of whom few owe any gatekeeper obligations to the end users or the financial system itself; and

 • Australia’s regulators are not sufficiently empowered to address product regulation, either collaboratively or on a command-and-control basis. Legislation must enable ASIC to effectively and proactively regulate product providers and the products they develop and sell to consumers.