Financial Products Design and Distribution Obligations and ASIC Intervention Power – Draft Legislation

The Government has released an exposure draft of the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2018 which will amend the Corporations Act and the National Credit Act to introduce:

  • financial products design and distribution obligations under the Corporations Act to ensure that products are targeted at the right people; and
  • a temporary financial product intervention power under the Corporations Act and a temporary credit product intervention power under the National Credit Act for the Australian Securities and Investments Commission (ASIC) when there is a risk of significant consumer detriment.

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 financial 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 financial product and a credit 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.

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