Top corporate regulator Joe Longo says there could be a case for banning some advertising of risky financial products, citing previous moves to outlaw cigarette ads, as he warned online promotions of high-risk investments were harming consumers.
With thousands of people having lost their retirement savings after switching to high-risk products, some of which were allegedly marketed with high-pressure sales tactics, the Australian Securities and Investments Commission (ASIC) and government are working to close “regulatory gaps” in the financial services sector.
Longo, the chair of ASIC, said that as well as improving consumers’ financial literacy so people better understood the risk of chasing higher returns, there was also a need to consider restrictions or bans on some sorts of financial advertising. Longo said online financial product promotions had proliferated, particularly through social media, and some of these ads were unreliable.
“Particularly through social media, there’s a whole range of ways in which Australians are exposed to pretty aggressive financial product promotion,” he said in an interview.
“So I think we need to be looking for ways of helping Australians navigate that. And secondly, possibly even looking at restrictions or prohibitions of some kinds of advertising, to nip it in the bud.”
When asked for an example of such advertising, Longo pointed to promotions “encouraging people into high-risk property investments,” but he added he did not have a specific “wish list” of prohibitions or restrictions.
Any ban would require action from the federal government, and Longo said his comments were more aimed at raising the topic for public discussion.
Longo said he was not pushing for more regulation, adding “it’s more about the sort of thing we do with cigarette advertising”.
“There are some activities that we want to discourage, and there are some kinds of financial product advertising that are harmful. It’s not leading to good outcomes for investors and consumers, and so we need to discourage that kind of advertising.”
Australia’s federal government banned all forms of tobacco advertising through a series of measures introduced from the 1970s onwards, and restrictions on cigarettes have also included graphic health warnings and plain packaging laws.
Raising awareness about the dangers of high-risk investing, especially with superannuation money, is a top priority for ASIC, after the collapse of managed investment schemes Shield and First Guardian. About 12,000 Australians had invested in the schemes and more than $1 billion has been lost, sparking discussion on how to improve safeguards for consumers.
Longo, who will end his five-year term as ASIC chair in May, said the regulator was keen to improve the public’s understanding about risk-taking in finance by explaining to the public that “more return means more risk.” He said ASIC could be investing more in its MoneySmart website to reach wider audiences, but he signalled it would need more funding from the federal government to do so.
“We’re funded already to run MoneySmart and some campaigns, but I think there’s an opportunity here for government to invest a lot more in us,” Longo said.
Another priority for ASIC this year is to maintain the pressure on superannuation funds over their services to members, after it previously took action against CBus and AustralianSuper over their handling of death benefit claims.
Longo said super funds had been successful at the helping members accumulate savings, but the industry still faced a “very significant challenge” in the retirement phase of super, when members access their money and other services.
He said funds had got the message about the need for improvement in member services, but it would take time. “The way to think about this, it’s a little bit like where the banks were five or 10 years ago,” Longo said. “They’ve got to invest now.”
Another major issue on Longo’s plate has been the performance of market operator ASX Ltd, which has had a run of damaging incidents in recent years including outages and the failure of a key technology project.
A sweeping inquiry into ASX in December found the company had under-invested in technology, systems and processes, and Longo said that by the time he left in May, he hoped there would be a clear plan to bring about cultural change in the market operator.
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