Upfront – ASIC's new focus on consumer outcomes
Almost 12 months on from the completion of the hearings which resulted in the Final Report from the Hayne Royal Commission, it is time to sit back and look at how the financial services landscape has changed or is changing. One of the new initiatives is the introduction of ASIC's Product Intervention Power (PIP) and the Design and Distribution Obligation (DDO).
Initially, use of the PIP has seen ASIC step in to prevent the promotion of a retail credit facility for what are commonly referred to as 'pay day lenders'. The lender has subsequently challenged this as being invalid. At first blush, it is hard to see these types of powers being used for what are perceived to be common and well understood investment products, such as property funds.
However, ASIC recently released a joint report with the Dutch Authority for Financial Markets which we review in this edition of Fundamental. ASIC has suggested this report is 'recommended reading' for those in the financial services industry. I support that.
The report questions whether disclosure is the way (or at least the only way) to improve consumer outcomes and concludes what many have known for a long time: that people do not read disclosure documents, and if they do, then they rarely understand them, even when they are only two or three-page documents.
Prior to the Hayne Royal Commission, the regulator's focus was on improving disclosure which resulted in a very prescriptive approach. While you can't turn an oil tanker around on a dime, nor can you change the behaviour of an industry overnight.
But ASIC has clearly pivoted on this stance and there is a clear 'changing of the guard' in that ASIC is now very focused on consumer outcomes rather than process. This is reflected in ASIC's PIP which gives it the ability to stop a product where it perceives 'significant consumer detriment'.
We are awaiting further regulations around the DDOs which do not commence until April 2021. It certainly is an interesting time and we will be watching very carefully to see what the future brings.