Financial Product Design and Distribution Obligations and ASIC Product Intervention Powers Bill

The Australian Government has introduced the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2018 into the House of Representatives. Background.

UPDATE: The Bill was passed by both Houses on 3 April.  It is awaiting Royal Assent.
ASIC’s product intervention powers will commence on the day after Royal Assent.
Financial product providers’ obligations in respect of design and distribution of financial products will commence 2 years later.

The Bill, if passed, will:

  • amend the Corporations Act to introduce design and distribution obligations in relation to financial products; and
  • amend the Corporations Act and the Credit Act to introduce a product intervention power for the Australian Securities and Investments Commission (ASIC) to prevent or respond to significant consumer detriment in relation to both financial and credit products.

The new design and distribution regime applies 24 months after the Bill receives the Royal Assent.

The intervention power applies from the day after the Royal Assent. However, the intervention power is not retrospective. It only applies in relation to products that may be acquired by consumers on or after the commencement date.

Design and disclosure obligations
The new obligations are intended to improve consumer outcomes by ensuring that financial services providers have a customer-centric approach to making initial offerings of products to consumers.

The new law gives ASIC powers to enforce the new arrangements. These include the ability to request necessary information, issue stop orders where there is a suspected contravention of the law and to make exemptions and modifications to the new arrangements.

The obligations generally apply to offers of financial products about which the offeror must make disclosure under the Corporations Act. This consists of products that require a disclosure document, such as a product disclosure statement or prospectus.

The Government also proposes to make regulations that would apply the regime to a number of products that do not presently require disclosure including:
• simple corporate bonds depository interests in simple corporate bonds, where the simple corporate bonds are, or are to be, issued under a two-part simple corporate bonds prospectus;
• debentures of a body that is an Australian ADI or registered under section 21 of the Life Insurance Act 1995;
• basic deposit products; and
• custodial arrangements that are not already subject to the new regime, including an interest in an investor directed portfolio service.

The Government proposes to exclude the following products from the regime:

• depository interests in fully paid foreign ordinary shares that would, if offered directly to retail clients, be excluded from the regime;
• medical indemnity insurance;
• interests in defined benefit superannuation funds; and
• interests in eligible rollover funds.

Intervention power
ASIC will be able to proactively intervene in relation to financial and credit products by making orders to prohibit specified conduct related to the product.

The intervention power will apply to products regulated under the Corporations Act and Credit Act:
• In the case of the Corporations Act, the intervention power generally only applies to financial products that are or are likely to be, available for acquisition by retail clients by way of an issue. However, the power also applies to such products in certain anti-avoidance sale situations.
• In the case of the Credit Act, the intervention power will apply to all products that may be provided by a person in the course of engaging in a credit activity or proposed credit activity. Such products consist of credit contracts, mortgages an, guarantees in relation to those contracts, and consumer leases.

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