ASIC has initiated consultation on new powers allowing it to intervene where it feels financial products have caused or are likely to cause consumer detriment.
Under new product intervention powers, ASIC will be able to take action against financial and credit products with the potential to cause significant financial detriment to consumers.
The powers would see ASIC handed the ability to temporarily ban individual products, product features, impose sale restrictions, and amend product information or choice architecture. Initial actions can last up to 18 months, though may be extended or made permanent thereafter.
The powers fall under the design and distribution obligations enacted in April which do not apply until April 2021. However, the product intervention power is available to ASIC now.
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The powers are not intended to be used for pre-approval of products so as to not create a perception it is a low-risk product if ASIC has not intervened. Intervention can also only be prospective.
The product intervention power is an incredibly important addition to ASIC's regulatory toolkit, ASIC deputy chair Karen Chester said.
"ASIC can now step in and respond to significant consumer detriment in a targeted and timely way. But there are also important checks and balances - it is a temporary intervention power and we must consult before each and every use," she said.
The ability for the regulator to intervene is not a new concept, with regulators in the US, UK, European Union, Hong Kong and Taiwan already exercising similar powers, she added.
"ASIC having this power was recommended by the 2014 Financial System Inquiry, supported by the Financial Services Royal Commission, consulted on and agreed to by the Government and received overwhelming support across the Parliament in April this year," Chester said.
Example case studies of the kind of instance ASIC would intervene in include the automatic rollover of term deposits seen by ADIs in 2009.
Institutions were actively and deliberately engaging in dual pricing; advertising the higher interest rates available on two or four deposit terms while maintaining significantly lower rate for all other terms. Which deposit terms received the higher rates and would be advertised would also change regularly.
Automatic rollovers on a default basis meant some consumers were inadvertently rolled over into low interest rate term deposits, believing they were receiving the higher rate.
Consultation is open until August 7 with the final regulatory guide expected in September. ASIC is seeking to understand the impact such powers will have on the cost of compliance and the likely effect on competition.