A joint report released by Australian and Dutch regulators has spotlighted cases where financial services disclosure has been less effective than intended, ineffective or in some cases, backfired, contributing to more consumer harm.
The Australian Securities and Investments Commission (ASIC) released the report with the Dutch Authority for the Financial Markets (AFM) exploring the effectiveness of disclosure for financial products on consumer outcomes.
The report spans ten years of case studies across a broad range of financial products and services in Australia, the Netherlands, the UK and the US.
ASIC Deputy Chair, Karen Chester, says, “It’s time to ‘call time’ on disclosure as the default consumer protection. It’s not the ‘silver bullet’ once thought, nor should it be relied upon as one. Disclosure can and has backfired in unexpected and harmful ways.”
The reported identified key limits of disclosure supported by 33 case studies, which include that:
- Disclosure does not ‘solve’ the complexity in financial services markets (8 case studies from Australia and the Netherlands about insurance, investments, financial advice and credit)
- Disclosure must compete for consumer attention and influence (12 case studies from Australia, the Netherlands, the US and the UK about credit, insurance, investments, superannuation and banking)
- One size disclosure does not fit all – the effects of disclosure are different from person-to-person and situation-to-situation (4 case studies from Australia and the Netherlands about investments, insurance and superannuation)
- In the real world, disclosures can backfire in unexpected ways (3 case studies from the Netherlands, US and the UK about financial advice, credit and investments)
- And a warning about warnings (6 case studies from Australia, the Netherlands, US and the UK about credit, financial advice and investments)
The report also found that these limitations are not confined to longer forms of disclosure, or traditional paper-based disclosure, but also apply to warnings and ‘simplified’ disclosure.
It’s not the ‘silver bullet’ once thought, nor should it be relied upon as one.”
“Our report highlights the need to rebalance the onus from consumers to firms – to become a shared responsibility. To do this, firms need to understand, measure and deliver on consumer outcomes”, said Chester.
“This aligns with the Royal Commission and the ensuing legislative reform program the Government has underway.”
The report also reveals how firms can work around and undermine disclosure. The report identifies unnecessary product complexity and ‘sludge’ that can get in the way of consumers switching products or making complaints.
Chester said that disclosure has been asked to do too much.
“It cannot solve the complexity of the financial system. Especially when that complexity, in the form of thousands of barely differentiated products, is firm induced’, she said.
ASIC stated it will take a more consumer outcome-focused approach going forward.
“Mandated disclosure still has an important role to play. It contributes to market transparency and can enhance competition. But its value as a consumer protection tool cannot be assumed. ‘The evidence shows that it is necessary but not sufficient’, said Chester.
Click here to read the report.
Notwithstanding PDS’ and SOA’s have blown out to the monstrous proportions and complexity they now are due to legislative and regulatory requirements, we should all be very alarmed by this announcement which is clearly heralding a continued push to strip businesses of their rights to rely on the law, disclosure and policy wording; and to devalue the PDS and contracts in general.
It is ironic that ASIC should be calling this out.
ASIC is an entity that has for years, bamboozled everyone with their input, “advice” and regulation recommendations that have come from their team of Lawyers.
Let us be perfectly clear here.
If you want simplification of disclosures in documents, or wordings in contracts, the last entity you employ to do this, is a Lawyer, as they are incapable of “Plain English” wording.
The reason why there have been issues and you do not need extensive research to know this, is people do not understand and therefore do not fully read the illegible, mumbo jumbo placed in front of them.
A defence that will always defeat the legal eagles, is that people cannot be expected to understand and unfair wordings can be over ruled.
The Legal Industry, has for centuries, held the world to ransom with their “other world” mentality of their own language that is alien to the rest of us and the quicker this changes, the better.
How about praise for ASIC for disclosing this report. Where possible change should be evidence based rather than ideologically based.
It’s a bit rich for ASIC to desire cleaning up to to speak of Disclosures. Are they going to look at reducing or cleaning out SoA’s? After all, it’s the lawyers who create complex wording! I was sent a letter from my super fund warning me of changes that at the outset, seemed to be adverse. The letter stated that a second letter would be forthcoming which would detail the changes. As it was, the changes weren’t that bad. I wrote to the fund and suggested they turn a negative into a positive – send only one letter which spells out how any such changes would benefit their customer. The response – they had to obey their lawyer’s directives!
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