Banks open to ASIC veto on products (Banksters in Control)
Australian Financial Review Apr 17 2016 9:45 PM
Clancy Yeates
Banks are willing to accept changes that would allow the corporate watchdog to more tightly control or even ban the sale of higher risk financial products that threaten to harm consumers.
As part of its response to Labor calls for a royal commission into banking, one option being considered by government is to fast-track plans to beef up the Australian Securities and Investments Commission's powers to influence specific products, alongside introducing tougher civil penalties for corporate wrongdoing.
The government has previously said it supports giving ASIC the extra powers, a recommendation of the financial system inquiry, but accelerating these plans has emerged as a key option in recent days as the government seeks to fend of Labor's attack.
ASIC chair Greg Medcraft has previously argued the regulator needs the extra intervention power, alongside tougher penalties, to give the right "nudge" towards improving behaviour in the financial markets.
If adopted, such a change would allow ASIC to directly influence financial products long regarded as risky or against consumers' interests. It could affect products such as contracts for difference, some insurance products, or promotions for payday lending.
Aside from banning products, ASIC also wants the power to be able to force companies to change their marketing materials; slap warnings on products that may not be suitable for most customers; and require that some products can only be sold through a financial adviser.
The chief executive of the Australian Bankers' Association, Steven Munchenberg, was broadly supportive but said a key concern of the industry was that such powers did not deter banks from bringing new products to market.
"We support it, but it will need to be done carefully, so that it's clear to banks and other financial institutions when ASIC would be likely to use it and under what conditions, so that they've got some certainty about bringing products to market," Mr Munchenberg said.
"If it's too broad then the uncertainty and the risks will outweigh the benefits."
While banks fear the extra powers could stifle innovation, ASIC says it would only ban products in rare cases, such as if a product's terms and risk profile were so opaque that it was unlikely to be suitable for any retail investors.
The chief executive of the Consumer Action Law Centre, Gerard Brody, said ASIC should be given legal powers that were broad enough to prevent "prevent consumer harm before it occurs," rather than it responding after the fact. An example of a product it could influence was funeral insurance, an area where ASIC previously highlighted the risks for consumers.
Treasury has so far sounded out consumer and industry groups on product intervention powers, and the government said last year it would consult on the planned changes by the middle of this year.