Fairness must be central to the regulation of financial services, says Consumer Action Law Centre commenting on the Federal Government response to the Financial System Inquiry.
The Federal Government has accepted recommendations to improve product safety in financial services, as well as provide ASIC with a financial product intervention power.
“A product intervention power will enable ASIC to amend or ban harmful financial products where there is risk of significant consumer detriment. When enacted, ASIC will be able to respond quickly when consumers are at risk, and intervene before harm has occurred,” says Consumer Action CEO Gerard Brody.
“We have had a framework for product safety in consumer goods for many years. It is timely to bring such a framework to financial services, where the risk of significant loss can be high. We are particularly concerned about unsafe and low-value products such as payday loans and consumer leases.”
Consumer Action welcomed additional measures to keep dishonest and improper providers from the marketplace. This includes providing ASIC with greater powers to take action when a business changes ownership, and giving it greater discretion to reject financial services and credit licence applications.
“We also strongly welcome a review of ASIC’s enforcement regime. It’s important that penalties aren’t simply seen as the cost of doing business, but that they provide a real deterrent against poor conduct”, says Brody.
Consumer Action also welcomes the following responses from the Federal Government:
- The proposal to legislate a ban on excessive card surcharges, to be enforced by the Australian Competition & Consumer Commission;
- Tasking the Productivity Commission with examining consumer access to and use of data, which may drive competition in financial services;
- Tasking ASIC with examining commissions in mortgage broking, which follows a damning report by consumer watchdog Choice earlier this year that questioned whether mortgage brokers were driven by conflicts of interest and sales incentives;
- The proposal to develop legislation to require financial advisors to hold a degree, pass an exam, undertake continuous professional development, and subscribe to a code of conduct.
The general insurance industry received little attention in the FSI’s final report, but Consumer Action says suitability of insurance is still a serious problem for Australians. Insurance is very complex, leaving many consumers unable to understand what cover is available or to compare different products. It is critical that any suitability or product design obligations must apply to insurance as much as they apply to other financial services.
Consumer Action noted the continued support for the industry proposals to reform the life insurance sector. “We encourage the industry to work closely with consumer groups as they progress these proposals” says Brody.