Financial services product providers may come under greater scrutiny in how they issue and distribute direct offerings with consideration to be given for ASIC to restrict or even ban the distribution of products, according to a consultation paper released by the Federal Government.
Minister for Revenue and Financial Services, Kelly O’Dwyer said the Government was seeking feedback on the introduction of design and distribution obligations for financial products to ensure they are targeted at the right people and a temporary product intervention power for ASIC when there is a risk of significant consumer detriment.
O’Dwyer said the design and distribution obligations would make product issuers and distributors more accountable for the products they sell while the product intervention power would enable ASIC to take direct action to address problems with those products.
The paper identified product issuers as “…entities responsible for the obligations under the product” such as fund managers and life insurance companies while 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”.
“This [exclusion of advisers] recognises that there are already substantial protections for people that receive personal financial advice…”
Interestingly for advisers, the paper suggests that any distributor that provides personal advice would be excluded from the distributor obligations and the intention of the reforms was to capture distributors using models where product was provided to directly to consumers
“This recognises that there are already substantial protections for people that receive personal financial advice (for example, the obligation on the adviser to act in the best interests of the client),” the paper stated.
The paper proposes that if ASIC is given product intervention powers it would apply to all financial products made available to retail clients including securities, insurance products, investment products and margin loans.
ASIC would need to identify a risk of significant consumer detriment before acting and under the proposals would be allowed to impose additional disclosure obligations, mandate the inclusion of warning statements, require amendments to advertising documents, and restrict or ban the distribution of the product.
The paper rejected the idea that ASIC be given the ability to pre-approve products as it would create the impression that financial products were risk free if ‘approved’ by the regulator.
It also stated the proposals were unlikely to eliminate all product failures or mis-selling and product providers would still be responsible for meeting their obligations while consumers would still be responsible for the ultimate outcomes of their financial decisions.
Submission on the paper close on 15 March 2017 and can be made here.
It is all very well to state, “consumers would still be responsible for the ultimate outcomes of their financial decisions”, though unless the products, marketing, disclosure and sales spiels of direct product floggers, are clear, easy to understand and concise, then this will be many millions more of Taxpayers money thrown at a problem, with the end result of more complexity and NIL benefit to Australia.
You cannot allow Lawyers to draft anything that consumers are expected to read, as
lawyers are incapable of plain English correspondence.
It is a step in the right direction, though ASIC and the Government need to have all their work screened so it passes the Plain English Test (PET) for requirements that are going to be placed in front of Companies, advisers and consumers,
Then we may see some improvement in the desired outcomes.
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