Goverment backs calls for a fairer financial system

20 October 2015 | Financial System Inquiry response endorses a stronger ASIC and an end to surcharging.

The long-awaited farewell to excessive credit card surcharging?

The federal government’s response to the Financial System Inquiry (FSI) promises a number of big wins for consumers, including an end to excessive credit card surcharging, better protections in the financial services sector, and a critical look at commission-driven mortgage broker remuneration.

Find the best low-rate credit cards in our credit card review.

FSI recommendations

From mid-2016, the ACCC will be given the power to intervene in cases of excessive credit card surcharging – a game changer for the like of Qantas, Jetstar and Cabcharge who have long been among the worst of the serial surchargers.

If effectively implemented, the new powers should put an end to a decade-long drain on consumers' pocketbooks.

The news is also promising on the equally important FSI recommendation to give the corporate regulator more powers to protect consumers against dodgy behaviour in the financial services industry. 

The FSI called for ASIC to take a pre-emptory role in consumer protection, including examining the design and intended distribution of financial products before they're unleashed on consumers – a recommendation that government has embraced in principal.

"The new ASIC power to examine product distribution and design will make everyone in the financial system responsible for consumer outcomes," says CHOICE chief executive Alan Kirkland. "It will see consumer interests considered in every step of financial product development – from product design, distribution, sale and after sale processes."

"The government has also supported the recommendation for the regulator to be given new product intervention powers. This new power would allow ASIC to stop financial disasters before they start and to ban harmful products, rather than cleaning up after unscrupulous players have fleeced customers," Mr Kirkland says.

Mortgage brokers on notice

Our shadow shop of mortgage brokers in May this year raised a number of concerns about the commission-driven mortgage broker remuneration model. More than a few participants in our shadow shop were given poor mortgage advice and steered toward deals that appeared to favour the broker.

Now the government has agreed that ASIC should investigate whether mortgage brokers are acting in their own or their client's interests.

"The response also recognises that we need to go further in banning commissions that stop consumers getting quality advice across the financial system. We were pleased to see the government commit to crack down on commissions in life insurance advice and promise an ASIC investigation into mortgage broker remuneration," says Mr Kirkland.

What's best? Life insurance inside superannuation, or a separate retail product? Find out in our life insurance review.

How will the FSI response affect me?

Points of interest for consumers from the government's response to the FSI also include:

  • A commitment to examine the efficiency of superannuation and default products for retirement.
  • A Productivity Commission review of access to data, which could lead to consumers accessing information about how they use financial products and allow personalised product comparisons.
  • A commitment to create a targeted and principles-based financial product design and distribution obligation,  that will make all participants in the financial system responsible for consumer outcomes.
  • A commitment to reform the commissions received by financial advisers on life insurance products to reduce conflicts of interest.
  • A commitment to raise standards in the financial advice sector by increasing education, ethical and professional standards for advisers.
  • New legislation to make sure financial advisers and mortgage brokers have to disclose any relationships they have with institutions like major banks or parent companies.
  • An agreement to review ASIC's enforcement regime, looking at introducing new penalties in 2017.
  • Ongoing reviews of the state of competition in the financial sector.