In a joint statement, Treasurer Josh Frydenberg and Assistant Treasurer Stuart Robert announced the passing of laws which shake up the design and distribution for financial and credit products.
We discussed these laws last year, mentioning that their passing might have been affected by the change in Prime Ministership. The laws target "retail product distribution conduct," which is defined as dealing in the product in relation to a retail client; giving a disclosure document in relation to an offer of the product to a retail client; providing financial product advice in relation to the retail client; and making a "recognised offer, in relation to a recognised jurisdiction, of the product."
In announcing the passing of the laws, the Treasury said "consumers will be better protected from being sold financial and credit products that are not suitable for their circumstances."
So, who’s affected?
If you’re designing a financial product, you’ll now need to identify, in advance, the consumers for whom the product is appropriate. In welcoming the new laws, ASIC said this represents a “fundamental shift away from relying predominantly on disclosure to drive good consumer outcomes.”
ASIC will have the power to intervene in circumstances where the regulator considers a product to present a significant risk of “consumer detriment.” These powers take effect immediately.
Advisers and distributors
As outlined in the piece linked at the start of this piece, if you’re giving “financial product advice in relation to [a] retail client,” you’re consider a distributor for the purposes of this law. This means you’ll need to implement controls to ensure products are distributed in accordance with the relevant target markets and "comply with reasonable requests for information from the issuer in relation to the product's review."
ASIC chair James Shipton said this will also enable ASIC to “take broader, more proactive action to improve standards and achieve fairer consumer outcomes in the financial services sector. This will be a significant boost for ASIC in achieving its vision of a fair, strong and efficient financial system for all Australians.”
Wrapping it up
While ASIC’s expanded intervention powers have taken immediate effect, parts of the new obligations for distributors and issuers will be phased in over the next two years. You can read the new legislation in detail here.
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