Financial Services Regulation and Law
Consumers in the finance sector rank among the consumers who are most likely to fall into the sticky trap of hungry and greedy business people who convince them to buy products that they do not really need at heavy costs. Identification of this risk is what prompted the Australian government, under Turnbull’s lead, to move to ensure that consumers of financial products are protected effectively by the law. The government did this by proposing statutory amendments that would give the current watchdog, the Australian Securities and Investments Commission (ASIC), more power to deal with financial companies that breach the law that looks to protect the consumer (ASIC, 2016). The reforms give ASIC power to act directly where they identify real or potential consumer detriment and also limit financial firms to only selling financial products to consumers who really need them. This paper will provide an analysis that shows that the proposed reforms that will give ASIC more powers are ideal for Australia and for the consumers.
The Australian Consumer Law (ACL), which sets a precedence for the functioning of organizations like ASIC, strongly insists of consumer protection (Pearson et al., 2010). In fact, most ACL overviews have an entire chapter or more in them dedicated to consumer protection. The ACL even enumerates business practices that are to be considered are unfair to the consumer by Australian Law. Among these are bait advertisements, false and/or misleading conduct in business, failure to supply gifts and prizes, pyramid schemes, some pricing practices, and acceptance of payments for goods not supplied (Pearson et al., 2010).
A pragmatic view reveals that for these situations to be captured in the ACL, there must be a real need for the legislation. In fact, according to Clements (2016), the extent of mentioning case examples in a statutory document is in itself an indicator of less than adequate legislation in the sector. As such, any move to consolidate the legislation in this area should be welcome. The reforms proposed by the government on the role and power of ASIC are, therefore, necessary and should be welcomed. More specifically, the changes proposed would aid the ASIC in dealing with some of the most likely breeches of the law as enumerated in the ACL. The proposed reform looks to limit financial firms to only selling their products to consumers who really need them (Clements, 2016). As such, limiting advertisements, some which are real bait advertisements, will aid in the achievement of this. Moreover, handing ASIC the power to intervene promptly will aid in better containment of vices like improper pricing strategies and acceptance of payments for good not delivered. Such vices impact on the consumer immediately and thus long litigious process as it is traditionally do little to protect the consumer from imminent harm – rather the traditional way of doing things looked to ensure that the consumer is compensated for the harm suffered (Ali et al., 2014). Further, as Malbon (2013) puts it, there has been an increase in cases of misinformation where consumers are misinformed especially by fake reviews. The new law will look to capture these issues.
Secondly, the proposed reform adds to the consistency of the state laws and aids to remove the few areas of ambiguity that still existed in the law as it was. The reform looks to raise the Australian consumer law to International standards – something that Ramsey (2006) finds very important. The reforms state clearly what is not to be done and the new powers of the ASIC. A good look at the current Australian consumer laws reveals a gap that needs to be filled when it comes to the specific consumer protections that the law offers. For instance, consumers are protected from being misled by the seller and from buying unsafe products but bait advertisements have not been included (Goldring, 1998). As such, a law reform that specifically deals with an issue like bait advertisement enhances the consistency of the current law. Consistent consumer laws are central to the success of business activities in an area and the fulfillment of legal requirements of all businesses entities in the area.
The current ACL laws as they are have proven to have high effectiveness. However, there is no harm in further increasing this effectiveness. Imposing the proposed reforms will ensure better consumer protection and will not be a burden to honest and law-abiding financial firms (Chih et al., 2010). Allowing the ASIC to intervene promptly also ensures that the law achieves its primary intention which is to protect the consumer from any cooperate harm. Moreover, ASIC’s timely intervention will help to avoid the tediousness of the litigious process that one had to go through once ASIC had identified unfair practices by the seller in the past (Chih et al., 2010). As such, this defines the effectiveness of a consumer protection law in the financial market.
As earlier alluded to, the reforms as they are were necessitated by evident gaps within the law that needed to be filled. A 2016 report by the Governance Institute of Australia revealed that the law had gaps in the area of consumer protection which needed to be filled (Clements, 2016). First, the law at the time did not address unfair consumer practices in the face of societal norms. Societal norms can either lead to more consumer awareness or a higher likelihood of consumer exploitation without their knowledge as is the case in Australia (Francis & Armstrong, 2003). A good example for this is the fact that selling and buying is a mutual agreement between the buyer and the seller and is thought to be done after the buyer realizes that they need the goods or services being offered for sale (Robins, 2006). This, however, tends to mask the effects of vices like bait advertisement which can be detrimental to the consumer (Howells et al., 2010). By looking at selling and buying as just a mutual agreement between the buyer and the seller, the law makes some vices lawful. As such, the introduction of a clause that specifically demonizes such easily concealable vices fills the gap in the law. Nevertheless, the law did not deal with false and misleading representation closely. The proposed reforms specifically deal with this issue.
Conversely, the proposed reforms to give ASIC additional powers can be seen to be bossy and unnecessary. The first explanation to this fact is the fact that the ASIC already seem to be having too many powers. ASIC as a regulator in the financial markets are the chief determinants of numerous factors and issues to be observed by the seller. They are responsible for registration of companies and for licensing companies, auditors, and liquidators (ASIC, 2016). They also have the power to relieve firms from the various provisions of the law which they administer. They also make rules that are meant to enhance integrity in the financial markets (ASIC, 2016). The regulatory body also have the power to stop the issuing of financial products which seem to be sold under defective disclosure documents, investigate suspected breaches of the law by reviewing firms’ book and cross-examining the firm executive, issue infringement notices where they believe that the law has been breached, ban firms from providing financial services, seek civil penalties from courts where necessary, and commence prosecutions of alleged offenders (Leung et al., 2009). As such, giving this regulator more powers that will enable them to intervene whenever and wherever they identify market irregularities without having to prosecute the defendant is unnecessary. The sheer lack of necessity of the proposed reform is epitomized by the fact that the compliance culture in Australia is pretty commendable (Pearson et al., 2010) (Clements, 2016). The rare cases of incompliance to the existing law cannot, therefore, necessitate a reform that will see a regulatory body given powers to intervene and dissipate extreme measures like suspension or even permanent dismissal of firms they think are uncompliant. In any case, the few cases of incompliance that are seen currently are not too much for the courts.
Secondly, the new reform does not solve the complexities that exist the current law (Clements, 2016). An effective amendment should have looked to solve the specific issues in the current law. These issues include the imprecise definition of financial service in the current law. As such, it is still not clear which commercial actions fall under the jurisdiction of ASIC or the ACL. These inconsistencies in the current law tend to hamper the full and perfect implementation of the commercial law and as such a good reform should look to correct them and thus a key failure of the reform (Leung et al., 2009).
In addition, there are other areas of ambiguity in the current law on consumer protection that the reform does not solve. The definition of the term consumer, in the first place, is not clear – it is an ambiguity (Clements, 2016). As such, it is not clear who the people that the law purports to protect are. Moreover, the reform does not clarify the future fate of the contentious fundraising clauses in the law as it was. A good reform does look to solve all areas of contention and clear all ambiguity in a particular part of the law (Cooper & de Valores Mobiliários, 2006). Instead of these, the reform in question is just an overboard measure that does not really add value to the corporate sector if it were to be implemented as proposed by the government.
Furthermore, the reform seems to overprotect consumers at the expense of commercial firms. In any case, the penalties proposed by the act and the manner in which they are to be determined and prescribed make them disproportional to the irregularities committed (Cooper & de Valores Mobiliários, 2006). Penalties, like banning firms for indefinite periods or even dismissing them altogether for rather trivial mistakes which are not in any way bad in terms of criminal law like misrepresentation or inappropriate advertisements, seems unfair to the firms (Parker, 2006). Finally, as Pearson (2006 p.1) puts it, there are many aspects of consumer protection that the Australian law as it is, does not address. As Howells et al. (2010) assert, a good legislative change should have looked to address this visible gaps in consumer protection rather than looking to emphasize on aspects which had been addressed before.
Even though the reform on consumer protection in financial markets which has been proposed by the government has a downside, it is a step in the right direction when it comes to protecting consumers. Even though the penalties proposed by the reform for market irregularities seem disproportionate, they will ensure that not only ASIC but also the financial firm put consumer satisfaction at heart. As such, apart from protecting the consumer, the reform enhances responsibility on the side of financial firms. Despite the issues that the legislation does not address, it is a legislation that is perfect for the Australian cooperate sector.
References
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