Consultation opens into Australian bill for financial products distribution obligations, ASIC powers
Stakeholder views on the exposure draft of the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2018 are invited.
A consultation into Australian law amendments that will introduce new obligations for financial products design and distribution and will give the Australian Securities and Investments Commission (ASIC) new intervention powers opens today.
As part of the Government’s response to the Financial System Inquiry (FSI), Improving Australia’s Financial System 2015, the Government accepted the FSI’s recommendations to introduce:
- design and distribution obligations for financial products to ensure that products are targeted at the right people; and
- a temporary product intervention power for ASIC when there is a risk of significant consumer detriment.
The latest consultation seeks stakeholder views on the exposure draft of the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2018 which implements these measures.
- Design and Distribution Obligations
Schedule 1 to the Bill amends the Corporations Act to introduce design and distribution obligations in relation to financial products. These new obligations aim to improve consumer outcomes by ensuring that financial services providers appropriately promote the provision of suitable financial products to consumers of those products.
The design obligations are:
- to make a target market determination in relation to the product;
- to review the target market determination as required to ensure it remains appropriate;
- keep records of the person’s decisions in relation to the new regime; and
- to notify ASIC of any significant dealings in a product that are not consistent with the product’s target market determination.
The distribution obligations include requirements:
- not to deal, or provide financial product advice, in relation to a product unless a target market determination has been made;
- not to deal, or provide financial product advice, where a target market determination may no longer be appropriate;
- to take reasonable steps to ensure that products are distributed in accordance with the target market determination;
- to collect information related to the distribution of a product; and
- to notify the issuer of a product of any significant dealings in the product that are not consistent with the products target market determination.
In addition, the new law amends the Corporations Act to require advertising or other promotional material for a financial product to refer to the product’s target market.
The new law also permits ASIC to make a stop order with respect to certain contraventions of the new regime. The relevant contraventions are those relating to:
- a failure to make a target market determination;
- dealing in, or providing financial advice in relation to, a product without a determination; and
- failing to take reasonable steps to comply with a determination.
Non-compliance with the new rules will result in penalties. For instance, violating the provision for determining target market for financial products will lead to a criminal penalty of 200 penalty units or imprisonment for 5 years, or both. The civil penalty for this violation is $200,000 for an individual; or $1 million for a body corporation.
- ASIC’s Intervention Powers
The FSI found that early intervention by ASIC could be more effective in reducing harm to consumers compared with waiting for a breach to occur. It recommended introducing a proactive intervention power that would enhance the regulatory toolkit available where there is risk of significant consumer detriment.
Schedule 2 to the Bill amends the Corporations Act and the Credit Act to introduce new intervention powers for ASIC. The intervention power enables the regulator to make a range of orders prohibiting specified conduct in relation to products regulated under those Acts. The intervention power is set to allow ASIC to proactively reduce the risk of consumers suffering significant detriment from financial and credit products.
The range of orders that ASIC can make under a temporary intervention order is rather wide. Some examples include:
- banning a person from issuing a product or class of product to consumers;
- directing that a particular product or class of product only be offered by way of issue to particular classes of consumers or in particular circumstances; and
- directing that a product or class of product not be distributed unless accompanied by an appropriate warning or label.
An intervention order made by ASIC may continue for up to 18 months unless the period is extended by the Minister.
Non-compliance with the new requirements results in penalties. For instance, engaging in conduct contrary to an intervention order may lead to a criminal penalty of 200 penalty units or imprisonment for 5 years, or both. The civil penalty for such a violation is $200,000 for an individual; or $1 million for a body corporation.
Interested parties are invited to submit their comments up until February 9, 2018.
