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Retail clients and complex products

Retail clients and complex products

March 27, 2014 5:15 PM | Posted by Richard Batten, Tim Sutton, Thomas Ellicott | Print this page

One issue to pay close attention to in the Financial System Inquiry is whether there will be any developments in relation to complex products.

The current financial services regime affords consumers with access to almost any financial product, regardless of complexity, provided that proper disclosures are given. This approach stems from the Wallis Inquiry, which recommended removing the prohibition on retail participation in OTC derivative markets.

In the wake of the GFC, there have been murmurings of a return to restrictions on access to certain types of product. The 2012 St John Report proposed limiting the sale of complex products. In a similar vein, in its January 2014 Report 384: Regulating Complex Products, ASIC noted that investors have greater difficulty making informed decisions regarding the key features and risks of complex financial products.

However, it is not clear that returning to an interventionist mode of regulation will improve market outcomes. It may be overly simplistic and paternalistic to assume that consumers are incapable of understanding complex products. Taking a restrictive approach is ultimately likely to limit the ability of consumers to meet their financial needs, and reduce the capacity of the Australian financial services industry to innovate and compete internationally. To me, such an outcome would appear out of step with the Government's growth-driven agenda.

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