ASIC's new rules

New ASIC regulations that make it simpler to switch between banks and limit the length of PDSs may mean more favourable outcomes for consumers.
 
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01 .A fairer financial sector

New ASIC rules

Along with ASIC’s more far-reaching efforts, new rules were added to the books in 2012 to:

  • tackle the fine print on simple investment schemes
  • clamp down on misleading advertising, and
  • force banks to make it easier for consumers to switch to a competitor.

And as part of ASIC’s ongoing push for greater transparency, the regulator has imposed tougher disclosure rules on complicated investment schemes and is now disclosing more fully its own limitations in the area of consumer protection. The new rules should make a difference – but only if financial services providers choose to follow them.

Shorter PDSs

As of June last year, product disclosure statements (PDSs) on most superannuation-related financial products, simple managed investment schemes (but not multi-funds, hedge funds and the like) and margin lending arrangements are down from up to 100 pages to a maximum of eight A4 pages. And PDSs must now have uniform headings, cover specified information and avoid tiny font sizes. 

For insurance products automatically included within super accounts, the PDS must state the type of cover, the cost of the insurance and how a person can decline, cancel or change the cover. Although the industry was granted a two-year transition period for existing products starting from when the changes were first announced in June 2010, ASIC says it will allow some leeway for financial services providers to get on board, but will take “stronger regulatory action” if it detects systematic breaches. 

Simpler switching between banks

Our 2011 banking satisfaction survey confirmed a troubling truth: Australia’s big four banks have long held the lion’s share of accounts, yet received the lowest satisfaction ratings. Not much appears to have changed since the survey. In fact, a recent IMF report found Australia’s banking sector to be the most concentrated in the world, with the big four together controlling almost 80% of the sector. Why don’t customers simply take their money elsewhere? 

Along with a general feeling that one bank is as bad as the next, many survey-takers told us the inconvenience of transferring direct credit and debit details was a formidable obstacle. However, this hurdle will no longer exist should the banks abide by the new regulations. New bank account switching rules that took effect in July last year mean your new bank (we recommend one that charges the fewest fees and allows you to easily switch money in and out of an interest-bearing savings account) can demand your current bank provide a list of regular direct debits and credits over the previous 13 months. Under the new rules, you can then sign a single form at your new bank authorising it to provide the debiting and crediting institutions with your new account details.  

 
 

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ASIC took a hard look at deceptive advertising last year and says its actions resulted in more than 80 ad campaigns being changed or terminated. The use of terms such as “stress free” for complicated and risky investment products was one focus; another was discount home loan offers that lured customers in with come-ons such as “guaranteed finance” and “no application refused”. GE Money was obliged to change an online ad that was less than upfront about interest rates on loans. 

Conflicted reporting

ASIC also took steps to make sure the information you or your financial adviser are relying on to make investment decisions is not biased in favour of the companies offering the investments. In December last year, ASIC Commissioner Peter Kell warned that “if standards do not improve, ASIC will revisit the regulation of research report providers and consider whether specific law reform is needed”. In cases where product issuers pay researchers to rate their products, and the researchers stand to stay in their employer’s good graces by granting favourable ratings, it’s not hard to see where conflict of interest might be an issue. 

FoFA on the way

In late January this year, ASIC released a regulatory guide for financial advisers in advance of the Future of Financial Advice reforms start date of 1 July this year. For the many consumers who receive and pay for advice on an ongoing basis rather than under a fee-for-service model, the guide spells out some long-overdue obligations. From July, advisers must begin providing an annual fee disclosure statement that outlines the fees paid, the services provided and the services the client was entitled to receive – all requirements that CHOICE welcomes. 

Setting the standard 

In one notable gesture of leading by example, ASIC released a series of straightforward information sheets and reports last year that cover what happens when misconduct is brought to ASIC’s attention, when and why it may get involved, and how it exercises its enforcement powers. The agency directly addressed one longstanding point of confusion for consumers, making clear that it will only go after individual cases if it thinks the case is relevant to investors as a whole and does not generally aim to recover funds. 

ASIC also deserves credit for an impressive degree of plain-spoken clarity in its public reports. The commission’s message to financial advisers in its enforcement report for the first half of 2012, which comes under the heading “Honesty”, is one example. “Do not lie or mislead, do not steal others’ money, do not knowingly abuse your position or exploit the trust of the investing public.” Over that period, ASIC penalised money managers for “knowingly issuing misleading statements, stealing from clients and falsifying documents”, as well as banning one adviser for seven years for giving advice that wasn't appropriate to their client’s circumstances.

Blowing the whistle whistle-blower

If you’re misled by an ad, hit with a War and Peace-length PDS or your bank won’t pass on your switching details, let ASIC know. You can also email us at investigation@choice.com.au

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