Will ASIC's proposed powers survive? The Government's FSI response risks death by consultation

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 innovation.

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 alone implemented.

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 experience.

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:

• Sweeping superannuation reforms likely post FSI; and
• Further than FOFA: FSI response targets advisers, disclosure and product design.

Footnote

¹Australian Securities and Investments Commission Act 2001 (Cth), s 1(2)(a).

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