Jillian Segal examines how the Australian Securities and Investments Commission regulates e-commerce, so consumers can participate with confidence in these new developments.
Most industry practitioners are well aware of the fundamental shift that the business of financial services is undergoing. Many organisations are using the Internet to develop and attract investor support and participation, to launch new products, to penetrate markets and to seek market share.
The role of intermediaries has also changed because consumers can now shop online for financial products. At the same time consumers are “bombarded” with previously unknown choices and information.
The Internet has also opened up new avenues for unscrupulous operators to take advantage of the relative lack of consumer education and experience in an online world.
The new economy challenges the financial services industry and consumers, and the government and regulators. As the industry watchdog, ASIC has set itself three main tasks in dealing with online financial services:
educate consumers about the risks of investing in schemes promoted on the Internet without making necessary checks;
develop new enforcement and surveillance tools to track activity and identify those offering investments on the Internet; and
develop policy and codes of conduct to facilitate e-business in the area of financial services.
Consumer education
Consumers should thoroughly check any financial scheme and its operators before pouring hard earned dollars into investments promoted on the Internet. The same basic safety checks apply online as offline.
To help people makes these checks, ASIC offers information and basic searches through the ASIC Web site www.asic.gov.au or through our special consumer Web site at www.fido.asic.gov.au.
Fido stands for “financial information delivered online”. It offers the general consumer information about investing, superannuation, insurance and deposit accounts. Advisers and planners can encourage clients to use this site, which also offers ASIC company searches, including details about current and former companies, business names and other organisations.
Other searches include a list of all fundraising disclosure documents such as prospectuses, offering information statements and profile statements lodged with ASIC from March 13, 2000.
Consumers can also seek reassurance concerning the intermediary they have chosen through a professional register search, which checks if the intermediary is licensed with ASIC or has been banned or disqualified.
Consumers and advisers need to identify and understand risks, make enquiries and diversify their investments using the Internet, just as they would offline.
Many consumers seem to think that proposals over the Internet have greater legitimacy than ones they may receive through other media. For example, on April Fool’s Day 1999, ASIC launched its own scam Web site – Millennium Bug Insurance. By May, the joke had succeeded in convincing 233 people to pledge over $4 million to the scheme and more than 1,400 people to ask for further investment information. Yet the entire scheme was a fake, without any prospectus or relevant licences.
Advisers need to help consumers understand some of the risks as well as the benefits that the Internet creates.
Internet enforcement
Not surprisingly, the type of misbehaviour that exists on the Internet mirrors the scams and frauds of the offline world. Enforcement and surveillance action targets include the areas of:
online prospectuses and initial offers that breach the Corporations Law;
investment advice given online without an appropriate licence or consideration of the needs of investors receiving the advice;
non-disclosure of commissions and potential conflicts of interest by advisers;
dissemination of false and misleading information about securities;
creation of false markets, manipulation of prices or volumes, and insider trading as a result of information disseminated about securities on the Internet.
ASIC’s Electronic Enforcement Unit has successfully traced e-mails and Web sites in order to track down perpetrators of scams.
E-commerce policies and codes of conduct
ASIC has also been busy developing policy to clarify the law in relation to emerging e-commerce issues. Business certainty in e-commerce is critical to the development of e-products with appropriate consumer protections.
Our policy development covers not only securities, but also protection of consumers in financial services generally, including superannuation, insurance and deposit products.
Key policies relating to e-commerce include the following:
electronic prospectuses (PS 107)
investment advisory services – which sets out guidelines for those providing investment advice online (PS 118)
electronic applications for securities (PS 150)
when ASIC will regulate offers over the Internet (PS 141)
the operation of unlicensed financial chat sites and bulletin boards (IPS 162 – released as an exposure draft)
a policy proposal to allow for electronic applications for life insurance and superannuation products (this has been released for public comment)
To complement policy and law, ASIC is also promoting codes of conduct to promote ethical behaviour in the online world and hopes to release these towards the end of this year.
A joint approach
The challenges for consumers raised by the Internet mean that the investing public needs greater assistance and vigilance. Financial service professionals can help ASIC to ensure that the opportunities provided by the Internet to consumers are maximised through education and product choice, and that consumers are protected from unscrupulous behaviour and breaches of the law.
Jillian Segal is the Deputy Chair of ASIC.
