A PROPOSAL for investors to pass an online exam before investing in complex or risky products has been ridiculed by a leading finance industry consumer advocate.
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The proposal was suggested by Australian Securities and Investments Commission (ASIC) chairman Greg Medcraft in an interview with the Australian Financial Review.
The proposal gained exposure in the media last week before meetings across the state between McGrathNicol, the receivers for the failed Banksia Securities company, and Banksia investors.
Mr Medcraft said companies’ existing obligations to disclose their financial position were not proving to be effective consumer protection and new technology and innovative approaches were needed.
Denise Brailey from the Banking and Finance Consumer Support Association was among numerous members of the financial comunity to give Mr Medcraft’s idea a cold reception.
Ms Brailey flew from Western Australia to talk with investors at the Ballarat meeting. She said she had raised Mr Medcraft’s idea with some of the investors and it had “gone down like a lead balloon”.
She said the proposal appeared to blame investors for financial collapses such as Banksia’s.
Ms Brailey said she doubted that many people would pass the test because few people understood the complexities of high-risk financial products.
People also did not understand which sectors of the finance industry were regulated and which sectors were unregulated, Ms Brailey said.
Under Mr Medcraft’s proposal, investors would be required to take “e-learning module” tests that could take up to two hours.
The tests would examine investors’ knowledge of financial products including margin loans, contracts for difference, derivatives and hybrid securities.
Potential investors could be shut out for 30 days if they failed the exam, which would have password protection to stop cheating.
Mr Medcraft said many consumers did not understand the finance product disclosure statements that were available to them while others did not have time to read them.
In other developments, Ms Brailey said the Ballarat meeting had been told by Matthew Caddy from McGrathNicol that many people who got loans from Banksia Securities would have had trouble getting loans from banks under normal processes.
Mr Caddy had also said many of those with a Banksia loan might have trouble getting refinance if the receivers asked them to do so.
ehimmelreich@fairfaxmedia.com.au
