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ASIC calls for an end to the blame game

by Reporter11 minute read
ASIC, blame game

Financial services entities will no longer have the opportunity to “shift blame” when instances of wrongdoing are identified, the regulator has said, adding that it intends to use newly proposed powers to promote greater accountability in the sector.

In a speech delivered on Tuesday (17 July), deputy chair of the Australian Securities and Investments Commission (ASIC) Peter Kell criticised financial institutions for shifting blame when instances of wrongdoing are identified in their businesses.

Highlighting that the financial services royal commission and recent inquiries into finance were “doing very important work in highlighting the costs and consequences of financial services misconduct”, he added that they have covered case studies of “some very poor conduct with clear and devastating costs to customers”.

Echoing comments made by ASIC chairman James Shipton in his appearance before House of Representatives Standing Committee on Economics in June, Mr Kell said: “[We] have seen too often that financial services firms have acted other than to serve the ultimate purposes of the financial system, and put their own interests first to the detriment of customers and the public.


“As a result, the financial services industry is suffering a significant trust deficit in the eyes of the community.”

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Mr Kell said that he was therefore “pleased” that initiatives were underway to “significantly upgrade ASIC’s penalties and powers”.

He made note of the government’s recently proposed Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2018, designed to bolster the regulator’s enforcement and intervention powers.

“There are several other areas of regulatory reform which will play an important part in addressing the ‘trust deficit’ and improving standards in the financial services sector,” Mr Kell said.

“These are financial product design and distribution obligations and the introduction of product intervention powers for ASIC.

“The design and distribution obligations will apply to issuers or distributors, and would be imposed at the stage of product design and distribution, and after the sale of the product.”

The deputy chair claimed that the powers would allow ASIC to ensure that financial entities continually serve a customer’s needs post sale.

“What we have seen again and again in this sector is that the upfront offer to the customer is simply not matched by post-sales experience,” the deputy chair continued.

“The charging of ongoing fees without providing a service in the financial advice sector is but one example.

“These obligations will bring accountability to issuers and distributors of products by requiring them to establish processes and controls for ensuring products are designed with customer needs and understanding in mind, and are marketed to the section of the population for whom they are useful and appropriate.”

Mr Kell added that under the proposed reforms, the “opportunity” to “shift blame” when service falls short would be stamped out.

“There will no longer be the opportunity for ‘product manufacturers’ to shift blame to ‘product sellers’ and vice versa, when something goes wrong, which has been an unfortunate feature of the financial services industry for too long,” Mr Kell said.

“The reform signals that responsibility for good consumer outcomes runs right across the supply chain.”

The deputy chair also made reference to product intervention powers outlined in the proposed bill, which would “empower ASIC to regulate (by requiring alteration to) or, if necessary, ban potentially harmful financial and credit products where the regulator is satisfied that a financial product has, will or is likely to result in significant consumer detriment”.

He added that the government is still considering the scope of this power, but that “ideally, this will be a broad flexible power that will enable ASIC to intervene in relation to all products within our jurisdiction, with a range of interventions including where features such as the remuneration structures raise the risk of significant harm”.

“With a flexible power, ASIC would be able to take the most effective approach possible in the circumstances to achieve the right market outcomes,” Mr Kell said.

“We encourage [the] industry to start thinking now about whether your product design and distribution is meeting these obligations, and capable of producing good consumer outcomes.”

[Related:  Industry ‘on notice’ over conflicts of interest: ASIC]

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