As we continue to see new stories of consumers whose lives have been
destroyed by scandals in our financial system, parliament is about to
consider some important changes that are meant to make this less likely in
These involve two of the most important recommendations of the Financial System Inquiry: the introduction of a design and distribution obligation
and a product intervention power.
The design and distribution obligation is like vaccination - it is meant to
prevent problems occurring in the first place.
For the first time, financial businesses will be required to design each
product they sell with consumers' needs in mind. This means, for example,
that an insurance company will need to identify the types of consumers a
particular insurance policy is intended to assist. It will need to make
sure that it is sold in a way that means it's likely to get to the right
people. If it's a policy that will only benefit older people, it shouldn't
be pushed upon young people. If it only benefits working people, it
shouldn't be pushed upon people with no prospect of work.
This is intended to avoid the problem that we see far too often of people
losing money through being flogged insurance policies on which they'll
never be able to make a claim.
The product intervention power, on the other hand, is like quarantine - it
will kick in if vaccination fails to protect the population.
ASIC, the financial regulator, will have the power to intervene where it
sees a risk of harm to consumers. ASIC will be able to restrict who the
product can be sold to or require changes to advertising. In the worst
cases, it will be able to impose a temporary ban on the product, taking it
right off the market.
These changes reflect a big shift in the way we think about the risk of
harm created by financial markets. Whereas in markets for physical products
like cars and appliances we have strong safety laws, which require a
manufacturer to guarantee that a product is safe and allow regulators to
recall unsafe products, our financial markets have lacked these basic
But while it's great to fix these gaps, isn't it sad that this is even
necessary? Wouldn't it be better if banks and insurance companies did the
right thing without being asked? Where a business has a licence from the
government that gives it the privilege of selling financial services,
shouldn't the quid pro quo be that it doesn't rip us off?
Until our financial businesses - large and small - demonstrate they can act
with integrity, we need to tell them what the community expects and
deserves, in law.
Alan Kirkland, CHOICE CEO