ASIC’s intervention powers are expanding: here’s what it means

Alex Burke,  Senior Writer,  No More Practice Education

Putting aside the chaos in Canberra, consultation for ASIC's intervention powers has finished. Here are the new laws and what they mean for you.

In July, then-Minister for Revenue and Financial Services Kelly O'Dwyer opened consultation for the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2018, which is designed to "ensure that financial products are targeted and sold appropriately."

She added at the time that the new laws will enable ASIC to "intervene in the distribution of the product to prevent harm to consumers" in circumstances where it's determined that the product is being "inappropriately targeted or sold."

Let's break this down:

Who is affected?

The proposed law targets "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."

What do issuers have to do?

Issuers of financial products will now need to identify target markets for their products and consider how the features of said products reflect consumer needs in those markets. They will also need to select "appropriate distribution" channels and periodically review arrangements to "ensure they continue to be appropriate."

And distributors?

If you fit into the category of a "distributor" as defined above, you'll have 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."

Read more: Three ways ASIC's new fee review will affect you

What this means is that you'll be prohibited from dealing in and providing advice on a product unless the issuer has provided a target market determination. If one has been made, you'll have to take "reasonable steps" to ensure any advice provided is consistent with the target market determination and notify offerors (who will then be required to notify ASIC) of any significant dealing in a product that wasn't consistent.

Accompanying this, both product issuers and distributors will naturally be required to maintain records relating to their new obligations.

Expanding ASIC's powers

Under the terms of the new laws, ASIC will be given new powers to enforce the above requirements. These include requesting information, issuing stop orders relating to contraventions, enforcing product marketing and disclosure materials, imposing consumer warnings, restricting product distribution, banning products and making exemptions and modifications to the above.

The regulator will also be given the ability to ban “aspects of remuneration practices” in circumstances where it’s determined there’s a link between remuneration and product distribution.

It’s worth noting, though, that these intervention powers can only be made for a period of up to 18 months, after which the Government will determine whether the order should be made permanent.

Are there new penalties?

Penalties for breaching these new requirements range between 200 penalty units and five years’ imprisonment, or a blend of both.

Furthermore, the new draft provides consumers the opportunity to commence a civil action for losses resulting from breaches of an issuer’s failure to notify and a distributor failing to stop distributing when notification has occurred.

So, what’s next?

The proposed date for commencement of the regime will be two years after the Bill receives Royal Assent. While it’s received bipartisan support, it’s entirely possible the Government’s recent leadership shake-up will lead to delays.

While that only creates further regulatory uncertainty for advisers – especially in light of the ongoing Royal Commission – there are definitely practical steps you can take now to ensure compliance with the new regime, regardless of when it kicks in.

You can read the detailed proposed new obligations here, but broadly speaking, considering how your operational controls and risk management can accommodate these requirements will be critical to being prepared.

The opinions expressed in this content are those of the author shown, and do not necessarily represent those of No More Practice Education Pty Ltd or its related entities. All content is intended for a professional financial adviser audience only and does not constitute financial advice. To view our full terms and conditions, click here.

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