ASIC reveals ‘shoddy product’ powers

ASIC has released details about how it will use its sweeping product intervention powers.

Another area that ASIC is consulting on in product intervention is the sale of add-on financial products by car yards.

The corporate regulator has released final details about how it will use its sweeping product intervention powers, as it seeks to protect consumers from shoddy products and “significant harm”.

The Australian Securities & ­Investments Commission on Wednesday released a regulatory guide around the powers, which allow it to ban business models or products or restrict how they are sold or administered in the ­market. Deputy chair Karen Chester said the power enabled ASIC “to confront, and ­respond to, harms in the financial sector in a targeted and timely way”.

“But there are important checks and balances — it is a temporary intervention power and we must consult before each and every use,” Ms Chester said.

“The availability of this power to protect consumers from products that result in significant harm is particularly timely now, when so many are facing uniquely challenging circumstances with the impact of COVID-19.”

The product intervention powers, which were enacted by legislation in April last year, will sit alongside other financial product design and distribution obligations, which are aimed at ensuring products are fit for purpose. Those obligations come into force in October next year.

Payday lenders charging mammoth fees were caught in ASIC’s product intervention crosshairs last year. That included the controversial business model of payday lender Cigno that the regulator said was among those that caused “significant consumer detriment”. In September, Cigno’s review application was dismissed by the Federal Court, which upheld ASIC’s product intervention order for short-term credit.

The regulatory guide for product intervention on Wednesday outlined that parties had the right to complain to the Commonwealth Ombudsman, seek independent reviews of ASIC’s decisions, or apply to the Administrative Appeals Tribunal for a merits review.

Ms Chester said that over time ASIC’s use of product intervention could result in less overall regulation of the industry. “In recommending the power, the Financial System Inquiry identified the objective of limiting or avoiding the future need for more prescriptive regulation,” she said.

Under product intervention, ASIC has also proposed to ban the sale of binary options to retail ­clients, and wants restrictions on the sale of highly leveraged contracts for difference.

Binary options are also known as “all-or-nothing options” and typically allow investors to make short-term, high-risk and often big bets on things such as share prices and currency movements.

Another area that ASIC is consulting on in product intervention is the sale of add-on financial products by car yards.

Separately, a financial planner entangled in the Hayne royal commission dodged time behind bars on Wednesday, despite committing a slew of financial fraud ­offences related to loans totalling more than $17m.

Former Aussie Home Loans adviser Shiv Prakash Sahay pleaded guilty in a NSW court for providing ongoing credit services, even though ASIC had permanently banned him from engaging in the activity.

The court sentenced Mr Sahay to a nine-month prison term, which was wholly suspended upon entering into a good behaviour bond of $1000. Mr Sahay was charged on two counts relating to consumer credit protection laws, after ASIC revealed he had provided credit advice on 38 loan contracts for three years until October 2, 2018.

ASIC previously barred Mr Sahay from providing financial advice in July 2015, for falsifying documents on behalf of clients to get them an approved home loan.

Mr Sahay’s conduct as an Aussie mortgage broker was part of evidence brought to the Hayne royal commission that showed the CBA subsidiary failed to report the misconduct to ASIC.