There is a danger that legislative changes watering down elements of the Australian Securities and Investments Commission’s (ASIC) fintech sandbox will give rise to unlicensed advice, according to consumer group CHOICE and the Consumer Action and Financial Rights Legal Centre.
In a submission to a Senate Economics Legislation Committee review of the legislative changes, the two organisations said that while they supported encouraging competition they were extremely concerned about the risks involved.
“The legislation would allow, for example, unlicensed financial advice on superannuation products, insurance and long-term investments,” the submission said. “These services are too complex and too important to the long-term well-being of consumers to be offered without the adequate protections that the sandbox removes.”
The two consumer organisations argued that rather than watering down consumer protections, the financial industry needed much higher standards to “prevent the scandals that have drained consumer savings and investments”.
“We note that the Explanatory Memorandum states that the legislation seeks to ‘strike a better balance in encouraging innovation that delivers choice for consumers and minimising risks to consumers and the integrity of the financial system’,” the submission said. “The premise that competition and consumer protection must be balanced or traded against one another is misguided.”
“As noted in Australia’s competition legislation and in recent reviews of competition settings, competition is a means to achieve good consumer outcomes and not an end in itself.”
The submission said innovation could produce significant benefits for consumers but that not every product innovation was necessarily in consumers’ best interests.
“This is particularly the case in complex markets such as financial services, where the risks of bad product design and mis-selling can have catastrophic consequences,” it said. “For example, we have recently seen ‘innovation’ from payday lenders which has led to more online targeting and quick loan applications for high-cost debt.”
“Similarly, we’ve seen ‘innovation’ in the superannuation sector with new entrants offering relatively high-cost options to consumers that are sold in a highly-targeted manner online,” this submission said.
“New funds, such as Future Super, market on providing values alignment with members by investing in ethical, green, sustainable and tech related options. However, fees on these new products are well above the industry average.”
