At a speech to a Centre of International Finance and Regulation workshop on the FSI interim report, Mr Murray said one issue that has been raised through submissions has been the “excessive complexity surrounding the sale and provision of simple financial products”.
“We believe that the combination of disclosure and financial literacy, whilst important, [is] not sufficient in our system,” Mr Murray said.
In this area, he added, the FSI has gone a step further than the 1996 Wallis Inquiry, which focused on “disclosure” as the cure-all for consumer safety.
“There seems to be a need to have a system in which there is a much higher incentive on product providers and distributors in the system to build trust in their own customers,” Mr Murray said.
“We’re looking at the regulatory arrangements, the enforcement arrangements, the penalty arrangements much more closely, and we’ve looked at how these things work outside Australia.”
He explained that other products, such as air safety, pharmaceuticals and medical services, were the subject of heavy regulation and that it was important to get the level of regulation for financial services right.
“It would be simplistic to say that people don’t die from their financial services if they’re badly designed, but what has been very clear to us in the public forums that we’ve held is the degree of suffering [for] people who do lose substantially is very significant,” Mr Murray said.
“So from that perspective, we are trying to work out what should be the regulatory response. A regulatory arrangement where the regulator is trying to second guess every product in the market does not work.”
Not sure adviser remuneration is the issue or the subject of his concern. It appears the “fit for purpose” of products, how they are marketed and whether product complexity is an issue for not only clients but also for advisers. Importantly, for both clients and advisers, products need to act and do what they say they are going to do.