The closer you look at the recent discussion about product intervention powers for ASIC, the clearer it becomes that the discussion has little basis in fact.

The Murray Inquiry has asked whether ASIC should be given product intervention powers. However, it has not considered the possibility that ASIC already has all the powers it needs. The Senate Report into ASIC's performance recommends that ASIC's regulatory 'toolkit' be expanded, so that 'it is equipped to prevent the marketing of unsafe products to retail investors'. Again, the Senate inquiry did not consider, in any meaningful way, the scope of ASIC's existing powers.

Both inquiries seem to have taken at face value assertions made (by various submitters) to the effect that ASIC needs more powers. In my view, the correctness of those assertions should be tested, not assumed. The following discussion bears this out.

ASIC's existing powers

ASIC already has an astonishingly broad range of far-reaching powers to intervene in the design and distribution of financial products.

PDS stop order power

First, there is ASIC's PDS stop order power. ASIC can make a stop order if a PDS is misleading or deceptive, if it omits required information or if the PDS is not clear, concise and effective. These preconditions to the exercise of the power are not demanding. They do not require ASIC to satisfy any materiality threshold – any non-compliance is sufficient to trigger the power.

ASIC can make an interim stop order without affording procedural fairness if it considers the associated delay would be 'prejudicial to the public interest'. Again, this is not a demanding threshold – if ASIC forms the relevant view, the relevant power is triggered. While an interim order can only last for 21 days, if ASIC does afford procedural fairness there is no time limit on the order it may make.

In practice, if ASIC does not like a PDS it will often 'invite' the issuer to withdraw it. In this way, ASIC exercises considerable informal power in addition to having its formal PDS stop order power.

And yet the Murray Inquiry asks whether ASIC needs 'the power to prescribe marketing terminology for complex or more risky products'.

Modification power

Secondly, there are ASIC's powers to modify key Parts of Chapter 7 of the Corporations Act 2001 (Cth). This has been described as 'the executive agency that is charged with administering the corporations legislation [having] the power to re-write aspects of that legislation. It can, in effect, do the work of Parliament'.

The power was used in an extraordinary fashion in September 2008 to regulate short-selling. ASIC made four class orders concerning short-selling over a period of just over four days. The cumulative effect of the class orders was that 'two new sections of the Corporations Act had come into effect, regulating a major form of market activity, and those sections had then been subject to several amendments, all without any parliamentary involvement'.2

These modification powers are broad. The Federal Court has said 'there is no statutory foundation for stating that the power [of modification] … should be used "sparingly"'.3 The High Court has noted 'the difficulty of pointing to any basis upon which [the modification power's] operation could be confined'.4 ASIC appears to share the courts' views as to the breadth of its powers. Financial service lawyers will be well familiar with other class orders which effectively enact wholly new provisions of the Corporations Act.

And yet the Murray Inquiry asks whether ASIC needs 'the power to temporarily ban products where there is a significant likelihood of detriment to customers'.

Efficiently, honestly and fairly

Thirdly, there is the requirement that an Australian financial services licensee do all things necessary to ensure that the financial services covered by its licence are provided efficiently, honestly and fairly.

The Federal Court has said that the words 'efficiently, honestly and fairly', in a financial advice context, connote 'an element not just of even handedness in dealing with clients but a less readily defined concept of sound ethical values and judgment in matters relevant to a client’s affairs'.5

If ASIC is so worried about the design phase of complex financial products, why hasn't it relied on this requirement to do something about it? If ASIC wants more powers, shouldn't it first have to demonstrate that its existing powers are inadequate?

Other matters

Financial Conduct Authority

Much has been made, in the submissions and reports, about the Financial Conduct Authority's (FCA) 'new' temporary product intervention powers. Again, much of what has been said seems to misunderstand the situation.

True, the FCA now has a specific power to make temporary product intervention rules, where it considers it 'necessary or expedient' not to go through public consultation. However, its predecessor, the Financial Services Authority, had long had the power to make product intervention rules (whether permanent or temporary), although the test for avoiding public consultation was somewhat more demanding – the associated delay had to be 'prejudicial to the interests of consumers'. The simple point is that referring to the FCA's 'new' powers, without also referring to the pre-existing position, tends to overstate the extent of the change that has happened.

Conclusion

Perhaps I am wrong, and ASIC does need more powers – but how will we know unless the Murray Inquiry does the hard work that needs to be done in order to find out?