ASIC executive claims pre-FOFA exploitation

ASIC/compliance/financial-planning/FOFA/australian-securities-and-investments-commission/

4 June 2014
| By Staff |
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A senior Australian Securities and Investments Commission (ASIC) executive has pointed to a pre-Future of Financial Advice (FOFA) environment in which "consumer misunderstandings could be exploited for the benefit of the financial services provider".

In doing so, ASIC Commissioner, John Price told a Governance forum that "a particular example of this is the conflicted remuneration structures that were typical in financial advice businesses for a long time". He said the problem had led to the banning of many types of commission payments.

Price told the forum that ASIC had broadly welcomed the Financial Systems Inquiry given the time which had elapsed and the changes which had occurred since the Wallis Inquiry.

He said some of the most significant lessons had been learned at times when things had gone wrong.

Price said that, while each case was different, in many instances of financial collapse or failure, consumers did not understand the level of risk they were taking on, thought they were bearing lower risks than the actual risks of the product or strategy, and ended up bearing more risk than they could manage.

"A second common factor in these cases has often been conflicts of interest in business models or structures," he said. "This meant consumer misunderstandings could be exploited for the benefit of the financial services provider. A particular example of this is the conflicted remuneration structures that were typical in financial advice businesses for a long time."

"We think that understanding the factors behind consumer losses challenges some of the assumptions and philosophy underlying our financial regulatory system. In particular, the assumption that underpinned much of retail financial services regulation since the Wallis Inquiry — that disclosure is the best tool in almost every instance to fix market failures — has not been borne out in practice," Price said.

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