The Australian Securities and Investments Commission (ASIC) wants to reduce disclosure requirements it claims do not benefit consumers and are costly for industries.

Instead, market conduct could be improved if it had a “more flexible regulatory toolkit”, ASIC says in its submission to the financial system inquiry.

The assumption that disclosure is the best way to prevent market failure “has not been borne out” because investors and consumers do not always make rational decisions, even when information is available to them.

If ASIC had more flexibility in how it responds to issues, it could improve regulatory design, which would cut costs to industry.

This could include “product intervention”, allowing it to review how products are developed and perhaps restrict how they are sold or make providers issue consumer or industry warnings.

Disclosure could be improved on comparison sites, such as listing the time taken to pay a claim, or claims ratios. This may need to be monitored and regulated.

ASIC wants a review of penalties and a “user pays” funding model.

The submission says the regulator should be required to consider competition issues when making decisions and that improving cross-border financial activity would benefit the economy.

It calls for a formal mechanism allowing regulators to monitor for risks to the financial system from outside current prudential regulation, and proposes lifting standards in financial advice.