A second round of consultation has launched on draft legislation that will give ASIC powers to intervene should a financial product — including short-term credit — pose a risk of “significant consumer detriment”.
Legislation designed to bolster the Australian Securities and Investments Commission’s (ASIC) enforcement and intervention powers in the financial sector is one step closer to law, with the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2018 progressing to the second round of consultation.
The revised exposure draft of the bill has been developed in response to the feedback received during the government’s previous round of consultation.
If finalised, the new law will give ASIC the power to act if a financial product (not currently regulated under the Corporations Act 2001) is “causing, will cause or is likely to cause significant consumer detriment”.
At this stage, the government is considering using the regulation-making power to allow ASIC to use the product intervention power with respect to:
- short-term credit that is not regulated under the National Consumer Credit Protection Act 2009 (“Credit Act”);
- funeral expenses insurance; and
- certain extended warranties that are functionally equivalent to add-on insurance.
Further, the bill will update the design and distribution obligations for issuers of financial products, who will need to:
- identify target markets for their products and ensure the product will “likely be consistent with the likely objectives, financial situation and needs” of the people in the target market;
- select appropriate distribution channels; and
- periodically review arrangements to ensure they continue to be appropriate.
The bill has also amended a provision to “address concerns that third-party distributors might have to second-guess whether an issuer is complying with requirements to make a target market determination”, and another has been included to “clarify that an issuer will not breach their distribution obligations merely because a third-party distributor fails to distribute products in a manner consistent with the target market determination”.
Distributors of financial products will therefore 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.
Commenting following the announcement of the bill’s progression to the next round of public consultation, the Minister for Revenue and Financial Services, Kelly O’Dwyer, said: “The design and distribution obligations and the product intervention powers 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.”
Ms O’Dwyer added: “We have carefully considered feedback provided in the first round of consultation and made amendments to the draft legislation.
“The government welcomes stakeholder views to ensure the legislation operates to assist consumers to obtain appropriate financial products, and allows businesses to adapt to the new regime.”
The consultation on the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill will close on 15 August 2018, and submissions can be made on the Treasury website.
The legislation is due to be introduced into the Parliament late this year.
ASIC to collect data on “actual consumer outcomes”
Last week, ASIC deputy chair Peter Kell outlined the regulator’s plan to improve standards in the financial services sector through the use of such powers.
Mr Kell stressed the need for greater transparency in the financial sector through “recurrent data collection” about “actual customer outcomes”.
“This has arguably received less attention than discussions of powers and penalties, but I believe it has the potential to be a game changer, and is already helping to improve outcomes in parts of the industry,” Mr Kell said.
“After all, one of the key sources of community and consumer frustration with the financial services sector is the divergence between what is promised and what is delivered over time. If we can improve transparency around outcomes, this will help with accountability and trust.”
As part of the government’s plan to boost accountability in the financial sector, it also announced in April that it’s “strengthening” criminal and civil penalties for corporate misconduct and boosting the powers of ASIC to protect Australian consumers from corporate and financial misconduct.