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Proactive disclosure frameworks vital: PJC

The parliamentary joint committee (PJC) examining the education, ethics and professionalism of financial advisers believed the industry needed to take a proactive approach to the systems and frameworks in place for product disclosure, its chair said today.

“An area of the Financial System Inquiry that potentially impacts SMSFs is the whole issue of product intervention,” Senator David Fawcett told the 2015 SMSF Association National Conference in Melbourne.

“Overseas experience shows us there are a couple of [means] that are reactive, so if someone goes off the rails, then the regulator has the opportunity to step in and to curtail, limit or ban particular products, whether it’s completely or just to a particular set of consumers.

“Whereas other people have an expectation of potentially a more proactive system, and that clearly has a huge impact on the capacity and competence of the regulator to proactively look at products, but that’s something that I’m not certain is going to be like therapeutic goods administration where every product will have a stamp.”

The Liberal senator used an aviation analogy to communicate how he envisaged the financial services and superannuation industry operating in the future.

“I think it’s going to be like when everyone hops on an aircraft, they don’t expect that it’s going to be the fastest [service], but that it will get them there safely every time,” he said.

“Whereas somebody who wants a more extreme performance or wants to fly in an experimental category, the degree of disclosure associated with the risks around that are mandated by the regulator.

“I see frameworks around the design criteria of disclosure as what we are looking at, from the more proactive side of it.”

He also used James Reason’s Swiss cheese model, which demonstrated that while every protection put in place had holes, the more protections that were in place, the less chance those holes would line up and allow an error to occur.

“So in the financial services space all those same things apply,” he said.

“We’re concerned about the individual adviser, but we’re also concerned about the product that they’re dealing with and how suitable it is, we’re concerned about the culture of the companies they work with and we’re also concerned about the regulator.

“So I think that approach to understanding, in this case the safety of the consumer, is a useful model to adapt so we look at things like potential product intervention as one of those additional defences.”

The PJC was also aware that every time the government changed something, it placed cost burdens onto the industry, he said.

“We don’t want to re-regulate and we don’t want to duplicate,” he said.

“We want to make things as seamless as possible [and] effective as possible, so we’ve done a lot of work around what industry wanted and how we can minimise those costs.”

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