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ASIC has been told to improve its performance and pay close attention to brokers and other advisers who may be acting unethically.
The Senate Economics References Committee report into the performance of ASIC found that the regulator had made a lot of mistakes in monitoring consumer credit since 2002.
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“ASIC has limited powers and resources but even so appears to miss or ignore clear and persistent early warning signs of corporate wrongdoing or troubling trends that pose a risk to consumers,” the report said.
The report warned that consumers are at risk because some trust their brokers and advisers so much that they will sign incomplete documents and fail to ask questions.
It also said that some brokers and advisers had targeted “vulnerable” people with low levels of financial literacy.
“Since 2002, and undoubtedly well before, some unscrupulous people in the financial services industry exploited the inadequate regulation of consumer credit,” the report said.
“Early indications suggest that the new credit laws have been effective in stamping out the predatory lending practices that existed between 2002 and 2010, though most submitters agreed that the laws need time to settle down before a definitive assessment of their effectiveness can be made.”
One reason for vigilance is that new products and business models are giving financial services firms new opportunities to circumvent the law, according to the report.
The senate committee said the government could make ASIC more effective by introducing a user-pays funding model for ASIC and reviewing its range of penalties.
ASIC chairman Greg Medcraft said the regulator had taken the inquiry very seriously, but was unable to comment on the recommendations because they were now before government.
“ASIC has used this inquiry process to learn from the people who made submissions, take a close look at how we do things, and then act on all this to do a better job,” he said.
Meanwhile, the senate committee has criticised ASIC for its “slow response” to the “serious misconduct” that occurred between 2006 and 2010 at the Commonwealth Bank’s financial planning arm.
“ASIC allowed itself to be lulled into complacency and placed too much trust in an institution that sought to patch over its problems,” it said.
The committee’s chairman, senator Mark Bishop, said ASIC was “not sufficiently sceptical” of the Commonwealth Bank and failed to hold it to account.
[Related: ASIC hit hard in $120m Budget cut]
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