The ‘novelty’ of a financial product should not be considered as a risk factor, according to the Australian Securities and Investments Commission (ASIC), as it assesses the risk of the collapsed Sterling Income Trust.
In its submission to the Senate inquiry into Sterling Income Trust, the regulator said one of the risks of the product was its novelty. However, it disputed that this categorisation should be brought in as a risk factor.
Sterling Income Trust was sold to investors as a ‘lease for life’ where their long-term tenancy was linked to investment performance. Investors were told the returns from their initial lump sum payment would be sufficient to cover the rent on the long-term lease and that would not be required to make any other payments towards rent, a strategy described by ASIC as “novel and high risk”.
When the scheme later collapsed, investors were left unable to pay their rent. This was particularly devasting for around 17% of investors who were dependant on the investment for their access to housing.
ASIC said it should not include the novelty of a product going forward would as it was a hard to determine what fit into this category.
“In ASIC’s view, ‘novelty’ should not be introduced as a risk factor in our criteria for regulatory enforcement action. The ‘novelty’ of a product is subjective and hard to define,” ASIC said.
“More fundamentally, imposing a higher regulatory burden on ‘novel’ products would be inconsistent with one of the aims of the Australian financial services regulatory regime, which is to promote competition, innovation and flexibility and enable retail investors to have access to a wide range of products.
“Nevertheless, ASIC considers that the ‘novelty’ of a financial product does already interact with our existing guidance for financial industry regulation. The Australian financial regulatory system’s focus on conduct and disclosure regulation means that any ‘novel’ features of financial products (along with any other relevant, non-novel features) must be clearly and adequately disclosed in the relevant product documents, to allow investors and consumers to make informed decisions in a transparent market.”
Comments
Pathetic yet again ASIC
The sad novelty is ASIC have clearly put this in the too hard basket.
No Advisers to blame hey ASIC, oh crap says ASIC surely we can blame the Advisers ?
Well Adviser will at least pay the bills for the investigation and then Advisers will pay to fully refund investors via the CSLR.
Freaking useless ASIC
A true 1 trick pony, always the Advisers fault, if not then make Advisers pay anyhow.
ASIC is a failure.
They dismiss this of novelty when if looked at critically would pose risk.
ASIC was only too keen jump on the climate change bandwagon. If anything was too hard to determine a likely outcome then it would be this area of fantasy. However, anything sexy or likely to generate media adulation ASIC is in like a speeding bullet.
Close ASIC down and the public will be better off.
So Advisers and rating agencies are expected by ASIC to understand any and every investment class, but ASIC who approve the product release say it is too hard to understand the investment???? Have I miss understood what is being said???
Regulatory failure. Or maybe its failure to regulate? You decide.
ASIC is corrupt.
Happy to pursue and end careers of little guys (planners) but ineffectual against these fraudsters.
Wonder if there was an union leader or any industry fund people who had an involvement with Sterling and pulled the strings they use each time to avoid any issues?
Beyond belief.
We don't want to put a burdon any shit quality 'novel' products, but we're happy to let them rip people off for millions with no responsibility. Somewhere along the line the tail has wagged the dog so much that the dog doesn't exist any more. Only some pityful institution called ASIC.
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