The government will be introducing 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.
Where products are inappropriately targeted or sold, the corporate regulator, the Australian Securities & Investments Commission (ASIC), will be empowered to intervene in the distribution of the product to prevent harm to consumers, according to a statement by Minister for Revenue and Financial Services Kelly O'Dwyer.
Treasury has released the related draft legislation that stems from recommendations made by the 2014 Financial System Inquiry that were taken up by the government in October 2015.
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.
ASIC's proposed powers
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.
Any intervention by ASIC will be put in place for a period of up to 18 months, said Ms O'Dwyer. "During this time, the government will consider whether the intervention should be made permanent," she said.
Submissions to the Treasury on the draft legislation are open until 9 February 2018.