The Government has released a Proposals Paper for Design and Distribution Obligations and Product Intervention Power.

Currently, the regulatory system focuses protections on when consumers acquire a product through a financial adviser and on the type of information disclosed to customers. The proposals relate to the design of financial products, the direct distribution of their products (in contrast to the advised distribution) and the post-sale evaluation of products.

Design and distribution obligations
The proposals include:

• The obligations will apply to financial products made available to retail clients except ordinary shares. This would include insurance products, investment products, margin loans and derivatives. The obligations would not apply to credit products (other than margin loans) but will apply to credit providers offering financial products such as consumer credit insurance.
• ‘Issuers’ and ‘distributors’ of financial products must comply with the obligations. ‘Issuers’ are the entities responsible for the obligations under the product. Examples of issuers include insurance companies and fund managers. ‘Distributors’ are entities that either arrange for the issue of the product to a consumer or engage in conduct likely to influence a consumer to acquire a product for benefit from the issuer (for example, through advertising or making disclosure documents available). Distributors that provide personal advice will be excluded from the distributor obligations. Examples of a distributor include a credit provider that offers its customers consumer credit insurance or a fund manager that distributes its products using a general advice model.
• Issuers must identify appropriate target and non-target markets for their products, select distribution channels that are likely to result in products being marketed to the identified target market; and review arrangements with reasonable frequency to ensure arrangements continue to be appropriate.
• Distributors must put in place reasonable controls to ensure products are distributed in accordance with the issuer’s expectations and comply with reasonable requests for information from the issuer related to the product review.

ASIC product intervention power

The proposals include:

• The power would apply to all financial products made available to retail clients (securities, insurance products, investment products and margin loans) and credit products regulated by the National Consumer Credit Protection Act 2009 (the Credit Act) (credit cards, mortgages and personal loans).
• ASIC could make interventions in relation to the product (or product feature) or the types of consumers that can access the product or the circumstances in which consumers access it. Examples of possible interventions include imposing additional disclosure obligations, mandating warning statements, requiring amendments to advertising documents, restricting or banning the distribution of the product.
• In order to use the power, ASIC must identify a risk of significant consumer detriment, undertake appropriate consultation and consider the use of alternative powers. ASIC must determine whether there is a significant consumer detriment by having regard to the potential scale of the detriment in the market, the potential impact on individual consumers and the class of consumers likely to be impacted.
• An intervention by ASIC could last for up to 18 months. During this time, the Government will consider whether the intervention should be permanent. The intervention will lapse after 18 months (if the Government has not made it permanent). ASIC interventions cannot be extended beyond 18 months. ASIC market wide interventions are subject to Parliamentary disallowance.
• Interventions made by ASIC in relation to an individual product or how a specific entity is distributing a product will be subject to administrative and judicial review. Market-wide interventions subject to Parliamentary oversight include a 15-day Parliamentary disallowance period. The Government will review ASIC’s use of the power after it has been in operation for five years.

It is not proposed that the Government ‘pre-vet’ financial products before they are made available to consumers. Providers will be responsible for ensuring products are targeted based on consumer needs, while consumers will still be responsible for the ultimate outcomes of their financial decisions.