With few initial details and extensive consultation
promised, the Government's plan to give ASIC new enforcement
tools is highly ambitious.
In what would be a comprehensive shake-up of the existing
regulatory regime, the Government's FSI response proposes
giving ASIC sweeping new powers to ban harmful financial products
and ban individuals from managing financial firms.
AFS licensees and Australian credit licensees will also need
ASIC approval to effect changes in control.
Industry's cautious support for these reforms to date is
qualified by a strong desire to "strike the right
balance" between consumer protection and product
To that end, the Government has promised detailed consultation
with stakeholders before implementing any of the reforms.
Consultation for many of these proposals will only begin from
"mid 2016" onwards. Thus it is an agenda that will
require commitment from Governments over several terms – and
possibly several persuasions.
Given the political football financial services reform has
become, it is unclear whether the leadership and bipartisan support
needed to pass these likely controversial reforms will ever
materialise. Only the commitment to extensive consultation has been
given at this stage. It remains to be seen whether any detailed
policy proposals and draft legislation are ever developed, let
ASIC's proposed financial product intervention power will
enable it to modify, or if necessary, ban harmful financial
products where there is a risk of significant consumer detriment.
The FSI response promises this will provide ASIC with a tool to
take action in exceptional instances, but without stifling industry
innovation. It is difficult to reconcile this proposal with
ASIC's stated legislative objective to "maintain,
facilitate and improve the performance of the financial system and
the entities within that system in the interests of commercial
certainty, reducing business costs, and the efficiency and
development of the economy".1
Many industry submissions to the FSI argued that a new
intervention power was unnecessary given ASIC's existing powers
to modify financial services law are already used extensively.
Submissions noted such a power increases the risks of market
damage and reputational impacts on financial services providers.
Including mechanisms to ensure regulator accountability in
exercising such a blunt power will be crucial to the success or
failure of this reform.
Similar safeguards must also be present in the legislation
enabling ASIC to ban individuals from management within financial
firms from operating in the industry and in its proposed power to
approve changes in control of AFS licensees and Australian credit
licensees. Departing from the current requirement to only notify
ASIC after a change in control risks adding further regulatory
uncertainty to financial services M&A activity.
Balancing the competing objectives to successfully deliver these
ambitious reforms will require political mastery. A true commitment
to financial services reform necessitates avoiding death by inquiry
– particularly given the industry's recent
The Federal Government's acceptance of all but one of the
recommendations of the Financial System Inquiry almost certainly
guarantees a full reform agenda for the industry in the years
ahead. How this can be achieved without even greater reform fatigue
is a risk for both industry and government.
For more information about the Federal Government's FSI
response, please click through to our articles linked blow:
This newsletter includes links to recent documents relating to superannuation, funds management & financial services.
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