The Turnbull Government has today announced the key features of two important reforms for consumers, to ensure Australians are treated fairly and ethically by financial product providers.
The Design and Distribution Obligations and the Product Intervention Power will ensure that financial products are targeted and sold to the right consumers, and where products are inappropriately targeted or sold, ASIC will be empowered to intervene in the distribution of the product to prevent harm to consumers.
The Design and Distribution Obligations will require issuers of financial products to:
- identify target markets for their products, having regard to the features of products and consumers in those markets;
- select appropriate distribution channels; and
- periodically review arrangements to ensure they continue to be appropriate.
In addition, distributors of financial products will be required to:
- put in place reasonable controls to ensure products are distributed in accordance with the identified target markets; and
- comply with reasonable requests for information from the issuer in relation to the product’s review.
The Design and Distribution obligations will apply to products that are sold to retail clients (with some exceptions) and ASIC will also have the power to exempt a product, or a class of products, on a case-by-case basis.
The Product Intervention Power will enable ASIC to intervene in the distribution of a product where it perceives a risk of significant consumer detriment. The actions ASIC could take include:
- requiring the amendment of product marketing and disclosure materials;
- imposing consumer warnings and labelling changes;
- restricting how a product is distributed; and
- banning products.
ASIC will also be empowered to ban aspects of remuneration practices, where there is a direct link between remuneration and distribution of the product.
Before it uses the new power, ASIC will be required to consider a range of relevant factors, to consult prior to making an intervention, and to publically release a statement of reasons for any intervention.
ASIC will be able to make an intervention for a period of up to 18 months. During this time, the Government will consider whether the intervention should be made permanent.
The reforms respond to two recommendations of the Financial System Inquiry (FSI) to introduce:
- design and distribution obligations to ensure financial products are targeted at the right people; and
- a temporary product intervention power for ASIC, when there is a risk of significant consumer detriment.
In addition to these stand-alone measures recommended by the FSI, the total ambit of ASIC's enforcement powers and penalties for corporate misconduct have been reviewed by the ASIC Enforcement Review Taskforce, the findings of which are being considered by the Government.
Submissions on the exposure draft legislation are invited until 9 February 2018.
The Government would like to thank all participants for their involvement in the consultation process to date. Submissions received can be accessed on the Treasury website.