AFR and Deloitte Banking and Wealth Summit.Sofitel Wentwoth, Sydney. Conduct Risk & Risk Culture roundtable with Peter Kell, Deputy Chairman ASIC .April 5 2016. Photos Quentin Jones. Photo: Quentin JonesThe corporate watchdog is seeking greater powers to step in and change how some salespeople in the financial sector are paid, to prevent staff having an incentive to promote inappropriate products.
The Australian Securities and Investments Commission deputy chair, Peter Kell, on Wednesday made the case for the regulator receiving beefed-up powers to intervene in the design and distribution of financial products.
The federal Treasury is consulting on a proposal to give ASIC these powers, which would allow it to veto higher-risk products.
But Mr Kell said the watchdog wants an extension of the Treasury’s proposal, and is also seeking the power to ban certain types of pay structures that are clearly against the interests of customers, such as certain types of commissions.
If it were given these powers, it would allow the watchdog to rule out the “most pernicious” aspects of how some financial products are sold to customers, Mr Kell said.
“We are keen to have the product intervention power not only in how the product has been designed, but also the associated way that people are remunerated for selling it,” he told a Senate committee inquiry into consumer protection in the banking, insurance and financial sector.
“You can imagine there may be instances where the product itself is not necessarily a problem, as long as it is sold to the right people. But if people are being paid very high commissions or other sorts of benefits for selling it, then the temptation will be to sell it to the wrong people.”
“That for us, I think is the key area where we think we would like to see an extension to what has been proposed.”
Mr Kell gave the example of “flex commissions” paid by lenders to car dealers – where a dealer receives a higher commission if a customer takes out a car loan with a higher rate of interest.
Current rules made it much more difficult for ASIC to address this “really unfortunate” practice, which had embedded itself in the industry.
“We have stepped in and done something about that, but it has taken us a lot longer, and it has been a lot more convoluted than would have been the case with a product intervention power.”
Customers who are vulnerable or have poor financial literacy were most likely to be victims of this type of commission, he said.
Perversely, incentives such as “flex commissions” tended to be adopted across the industry, because failing to do so would hurt sales of loans.
Mr Kell was also asked about recent reports by News Corporation of internal documents that showed ASIC staff before 2015 seeking feedback from banks on draft press releases about misconduct within banks. He said the regulator had since changed its approach, and the emails reflected “healthy debate” within ASIC.
ASIC’s push for greater intervention powers comes as the banking industry is pledging to overhaul how it pays frontline staff, by reducing sales targets linked to bonuses, and cutting commissions paid to mortgage brokers.