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ASIC takes aim at banks and insurers

The Australian Securities and Investment Commission (ASIC) has “raised concerns” over the advertisement of ‘low risk’ products offered by Commonwealth Bank (ASX: CBA) and HSBC Australia.

The corporate regulator has labelled the advertisement of complex financial instruments for retail customers as “inappropriate” and “potentially misleading”. The CBA was pulled up for its “protected loan” product which advertised as a win-win for the customer who borrows money to purchase shares.

It stated the customer could “walk away with no loss” but ASIC has said that it was misleading because it did not consider costs of the loan and protection.

HSBC said term deposit customers could get better returns through exposure to financial markets in a ‘low risk’ investment. ASIC said the “statement was inappropriate and potentially misleading due to the risk of capital loss with certain HSBC structured products being promoted”.

According to the Sydney Morning Herald, ASIC is taking aim at Woolworths’ (ASX: WOW) car insurance products for similar advertisement issues.

This follows as ASIC said last month it was monitoring the banks for advertisement used under a “multi-branding strategy” that could potentially mislead customers. These advertising campaigns take advantage of customers’ lack of understanding that smaller banks are sometimes owned by one of the big four, although their advertisements would suggest otherwise.

The CBA currently owns BankWest, Westpac (ASX: WBC) owns RAMS, St George, Bank of Melbourne and Bank SA and NAB (ASX: NAB) owns UBank.

Recently, ASIC targeted Suncorp’s (ASX: SUN) life and general insurance businesses, which resulted in a refund of almost $23 million and forced it to make changes to its compliance system for popular insurances brands, which include AAMI, APIA, GIO, Suncorp, Shannons and Vero.

Foolish takeaway

Our banks and biggest insurers are often forced to use tricky advertising campaigns when they begin to feel the squeeze of slowing growth. The companies above all primarily do business on local soil and are at the top of their industries. Growth for these companies is difficult unless we see a dramatic drop in their prices for one-off events. However, for income and safety, many investors happily pile money in our biggest blue chips and arguably any portfolio should have consistent ‘core’ stocks that form the back bone of their stock market exposure. The most important thing is to buy at the right price.

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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.

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