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'Necessary but not sufficient': disclosure regime under fire

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Mandatory disclosure laws designed to protect and help consumers make informed choices have failed to produce the intended results, a study by the Australian Securities and Investments Commission (ASIC) says.

At its worst, disclosure has backfired in unexpected ways and left consumers in a far worse position than before, according to a joint report it has compiled in collaboration with the Dutch Authority for the Financial Markets.

In a statement accompanying the report, ASIC Deputy Chairman 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.”

She says disclosure “can and has backfired in unexpected and harmful ways. The over-reliance on disclosure in some ways proved an enabler of the poor conduct and poor consumer outcomes revealed by the [Hayne] royal commission.

“Put simply, 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.”

While not calling for an end to the disclosure regime, ASIC signalled it would not hesitate to use its new product intervention powers to protect consumers.

Insurance featured prominently in the 33 case studies the report examined in Australia, the UK, the US and the Netherlands.

In one involving home insurance, just 41% of participants provided with the “simple” key facts sheet chose the best product. The result was the same when another group of participants was given the more extensive product disclosure statement (PDS).

“The results showed that many participants were not able to select the best option, even in these idealised ‘quiet’ circumstances – isolated from the busy context of the real world, including the many distractions, demands and influences that affect our decisions and behaviour,” the report says.

“While it is clear that disclosure still has a role to play in retail financial services markets, no one regulatory tool can be a cure-all for all regulatory problems.”

The Insurance Council of Australia this year released an action plan to improve the disclosure regime, one that spokesman Campbell Fuller says “aims to maximise the effectiveness of product disclosure but also recognises the insights that can be gained from behavioural science.

“In this regard, the Insurance Council is advocating for the Government to undertake a review,” he told today.

The Consumer Action Law Centre says the ASIC report shows “the age of disclosure is over”.

“This excellent report confirms what consumer advocates have long known. We cannot rely on disclosure to ensure people are sold fair, safe, and valuable insurance products,” Senior Policy Officer Cat Newton told