Our comments to the Inquiry in relation to proposals for improving consumer outcomes focus on the specific areas of improvement of disclosure requirements and product suitability assessment.
One alternative is to improve the current disclosure requirements using mechanisms to enhance consumer understanding, including layered disclosure, risk profile disclosure and online comparators.
The disclosure regime has changed over time, with each new regime criticising the previous regime. Post the Wallis Inquiry, diverse disclosure regimes were replaced by a single regime that supplemented with additional or different requirements for particular types of products (the same can be said for credit-related products).
Each time the regime changes, costs are incurred and this is often passed onto investors and borrowers. So, what we think is clear is that there must be clear benefits demonstrated from any ’improvement’ to the current disclosure regime given the costs involved in changing it again.
Another option is to implement further measures that shift responsibility for assessing the suitability of products from the consumer to the product issuer.
The Interim Report states that any substantial shift in the regulatory regime would require compelling evidence to support it. In this respect, the Inquiry can draw on the recent consumer credit experience as a guide. In that context, the new consumer credit regime has required measures where more information is required on the individual customer’s objectives for the proposed credit versus the assumption about what the customer’s requirements are. The flow-on effect of this has been greater back office work and administrative burden – an effect that would be amplified in an investment context.
If the FSI, and subsequently the government, were to adopt this approach we recommend that it do a stocktake of the other regulatory protections to see whether introducing a suitability test would obviate the need for some of the other current or proposed regulatory protections.