ASIC to ban toxic products from August

“The product intervention power is not a new concept. Australia is joining regulators in other jurisdictions like the US, the UK, the EU, Hong Kong and Taiwan with product intervention powers,” Ms Chester said.

ASIC has been pushing for product intervention powers for around six years. Unlike the UK however where the regulator has emergency powers to ban products immediately, ASIC will have to jump through a number of hoops first.

Once ASIC is satisfied a product is causing or risks causing serious consumer detriment it must begin a public period of consultation with stakeholders.

The Australian Financial Review understands that in a situation where there was a single product capable of causing significant consumer detriment it could compress the consultation period to around three to four weeks.

In the majority of instances however consultation will take several months raising the possibility that more consumers could be harmed in the lag between identifying the problem, starting the consultation process and issuing the ban.

Product manufacturers who are the target of individual bans may appeal the process through the Administrative Appeals Tribunal. Product-wide bans will be the subject of Parliamentary review.

Among the bodies to throw their support behind the powers are the Financial Services Inquiry, the Productivity Commission, Treasury and the Final Report from Commissioner Hayne into Misconduct in the Banking, Financial Services and Superannuation industry.

ASIC has released both Consultation Paper 313 and a Draft Regulatory Guide and is seeking feedback from the industry by August 7 with the final regulatory guide to be released in September.

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The Australian Financial Review understands however that ASIC will seek to exercise the powers before final guidance is released.

The consultation paper explores the issue of term deposits with automatic rollovers.

In 2009 ASIC found some banks were deliberately trying to confuse depositors by paying very high interest rates on select term deposits and very low interest rates on others.

“These products were marketed as suitable for consumers, including retirees who wanted a safe investment with a steady return, requiring minimal management,” the paper reads.

Banks however would change the mix regularly and investors who were not paying attention would find themselves marooned in low paying products.

“The dual pricing practice established by the ADIs, described above, meant that these products functioned in a way that was inconsistent with consumer expectations”.

“If there had been a product intervention power in 2009, we may have considered using it in these circumstances.”

The long running practice of flex commissions where car salesmen would trouser big payments for selling auto loans to customers at rates up to 700 basis points above the base rate was another example where ASIC said it may have chosen to intervene if it had the power earlier.

The new powers are expected to work in conjunction with design and distribution obligations which do not come into effect until April 2021.

ASIC believes that once the onus is put back on the manufacturers it will have fewer reasons to use the product intervention powers.

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