Reams of paper won’t stop bad decisions: ASIC
Consumers are unlikely to be swayed to make correct financial decisions by ‘reams of paper' due to their own inherent biases, according to the Australian Securities and Investment Commission (ASIC), which has called on financial institutions to provide greater guidance for consumers to make informed decisions.
The regulator also stated it was interested in how behavioural biases and inclinations shaped consumer actions, claiming that "consumers can suffer from choice fatigue/overload, or their judgement may be clouded by a tendency to substitute particular information with other, potentially irrelevant attributes".
The statements were made by ASIC Commissioner, John Price, speaking at the Customer Owned Banking Convention in Darwin earlier this week, where he said while the regulator was considering cultural indicators in its surveillance work, this was not new and "ASIC has always considered indicators and factors that drive poor behaviour".
"What we are doing in this culture work is ‘joining the dots' on the very concrete aspects of the way firms operate to give us a better picture of their culture and how that might affect consumer outcomes," Price said.
"But our biggest focus when it comes to culture is to encourage organisations to reflect on their own culture, and how that might be going wrong and enabling or encouraging unfair treatment of investors and consumers."
Price restated ASIC's view that there had been erosion in consumer trust of financial institutions due to the actions of representatives of those institutions as well as its expectation the latter would comply with the law.
Price also called on institutions to be aware of consumer behaviour and to provide unbiased guidance to ensure consumers were able to make appropriate decisions.
"ASIC is aware that consumers can be subject to a number of behaviour traits that make so-called ‘rational' decision making difficult at times," Price said.
"Biases are often automatic and unconscious. They make consumers susceptible to making poor financial decisions. The existence of consumer biases means that ‘reams of paper' correcting information asymmetry won't always enable consumers to make the best decisions."
"We believe industry has a role to play in understanding how behavioural biases impact consumer decision making, and using that understanding for the greater good — for doing the right thing by your customers so that they are in the best possible position to make responsible financial decisions."
"Of course, ASIC expects consumers to play their part in this, also, by being engaged and taking responsibility for decisions that affect them, but this will be much more likely if an organisation has a culture of doing the right thing by the customer and ‘nudging' them in the right direction."
AUTHOR
Jason Spits
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