The Australian Competition and Consumer Commission has proposed the development of a new consumer protection system in its submission to the Financial System Inquiry.
"The system would involve existing industry complaints handling and dispute resolution schemes being brought under an umbrella body responsible for all facets of the provision of consumer protection in financial services," Acting ACCC Chairman, Mr Allan Asher, said today.
"In addition, a new small statutory body is proposed to harmonise and assess industry schemes.
"The industry-based component of the scheme would cover accreditation, compliance, complaints handling and public education. It would be subject to oversight and audit by a small, independent body within the Treasury portfolio.
"The statutory body would be responsible for setting policy in the financial services sector, conduct audits of the industry-based component and compliance inspections of individual financial services providers.
"This system would leverage off the considerable effort and good faith shown by the financial services sector in establishing complaints handling and dispute resolution schemes and in developing codes of conduct. It would also incorporate an appropriate level of audit and oversight to ensure a high level of consumer protection is achieved, with minimum government intervention."
In its submission, the ACCC set out goals for an effective regulatory structure for consumer protection in the financial services sector. Such a structure should:
- involve the minimum necessary intervention;
- promote competition;
- promote competitive neutrality;
- provide inexpensive and speedy consumer remedies;
- promote consistency;
- maximise consumer welfare;
- be durable and flexible;
- not be unnecessarily complex; and
- provide an effective mechanism for addressing market problems.
Competition & prudential issues
In the submission, the ACCC said that it sees a pro-competitive advantage in bringing banks, building societies, credit unions and friendly societies under a single prudential supervision regime.
Mr Asher said the ACCC urged the inquiry to continue to 'Hilmerise' the financial services sector by promoting regulatory arrangements which were competitively neutral, consistent and flexible.
"In particular, all regulation and laws which restrict competition, or have the potential to do so, should be reviewed and repealed unless justified. The ACCC considers that the Hilmer reforms, national competition policy and the Trade Practices Act all have important roles to play in the future regulation of the sector.
"Additionally, the Act is a most important piece of consumer protection legislation and its universal application is paramount to underwriting consumer protection in the financial services sector. The ACCC would be strongly opposed to any proposal that the financial services sector be cosseted from competition and consumer protection laws," Mr Asher said.
Misleading & deceptive conduct
The submission strongly argues for the retention of the misleading and deceptive conduct provisions of the Act, which are accepted as a universal code of best business practice, as probably the most important provision with regard to the protection of financial services users.
"Given the extent of information imbalance in financial markets, and the high value of many transactions, the administration of the misleading and deceptive provisions by the ACCC is vital to its work in protecting consumers of financial services," Mr Asher said. "It is by abusing the information gaps faced by consumers that sub-standard and fraudulent operators exploit consumers and draw business away from reputable and ethical suppliers of financial services.
"The administration of the misleading and deceptive conduct provisions by the ACCC not only protects consumers but assists business by sanctioning providers whose conduct is unethical.
Mergers
Mr Asher reiterated the ACCC's view that mergers in the financial services sector should continue to be covered by the substantial lessening of competition (mergers) test. He also said that mergers in the sector will continue to be considered by the ACCC on a case by case basis. Considering mergers case by case allows the ACCC to fully take account of changes in product design and delivery, changes to the structure of the market, the impact of new technology and changes in consumer behaviour.
Recommendations
The submission also recommends:
- that the Council of Australian Government (COAG) Competition Principles be extended to the financial services sector;
- that foreign ownership restrictions on financial services providers be removed;
- that the shareholding restrictions in the Banks (Shareholding) Act be removed;
- that the Banking Act be amended to make it explicit that the Treasurer's consent to amalgamations and the like shall not be withheld on competition grounds;
- a review of all anti-competitive legislation, regulation and trade practices in the financial services sector ;
- the continued application of consumer protection rules to the financial industry;
- there be increased reliance on industry codes to achieve consumer protection outcomes;
- that regulation and laws holding back more competition between building societies, credit unions and banks be reviewed and repealed;
- that mergers between banks and insurance companies only be subject to the Trade Practices Act and prudential requirements;
- that the prohibition of anti-competitive mergers, unless authorised under Part VII of the Act, remain;
- that the authorisation process under the Act continue to apply to the financial services sector; and
- that new mechanisms to monitor and address the impact of globalisation on the sector be considered.