The latest round of new regulatory reforms emanating from the Banking Royal Commission comes into effect this week, including replacing the duty of disclosure regime with a duty to take reasonable care not to make a misrepresentation.
A statement from Treasurer Josh Frydenberg says these latest reforms strengthen protections for consumers by:
- Replacing the duty of disclosure regime with a duty to take reasonable care not to make a misrepresentation, “…ensuring valid claims cannot be declined for inadvertent failures to disclose information by consumers.” (Recommendation 4.5)
- Strengthening the unsolicited selling (anti-hawking) provisions, including for superannuation and insurance products, to prevent pressure selling to consumers (Recommendations 3.4 and 4.1)
- Introducing a deferred sales model for add-on insurance products, to promote informed purchasing decisions and prevent inappropriate sales of those products (Recommendation 4.3)
- Strengthening breach reporting requirements for financial service licensees in the Corporations Act 2001 and introducing a breach reporting regime for credit licensees under the National Consumer Credit Protection Act 2009 (Recommendation 1.6, 2.8, 2.9 and 7.2)
- Requiring Australian financial services and credit licensees to provide reference checks, ensuring consistent practices throughout the industry for sharing relevant employment information about financial advisers and mortgage brokers (Recommendation 2.7)
- Implementing the new DDO “…to help consumers obtain more appropriate financial products by requiring issuers of financial products to determine an appropriate target market for these products, followed by issuers and distributors being required to sell their products accordingly.”
…one of the most significant and wide-ranging set of reforms ever for the sector…
Meanwhile. the FSC sees the financial services industry as this week implementing “…one of the most significant and wide-ranging set of reforms ever for the sector.”
FSC CEO Sally Loane says in a statement that the largest of all these reforms, the mandatory Design & Distribution Obligations started yesterday and should improve consumer outcomes in financial services (see: Design and Distribution Obligations – What You Need to Know).
She says the DDO regime requires financial services businesses to determine which type of customers are in the target market for the products they issue, and work together so that sales are directed towards customers in that target market.
She notes that the FSC recognised the significance of the DDO changes early, as it has members across many affected sectors, and that two years ago it set out to design a set of tools to enable alignment and efficiency for businesses in the DDO regime.
“The most important of these tools are the FSC’s target market determination templates and data standards for superannuation funds, platforms and wraps, life insurers and fund managers.”
She says these templates and standards will make life easier for product issuers, platforms and financial advisers who would otherwise face confusing and inconsistent compliance requirements. More than 280 non-FSC members have purchased the templates under license (see: Unprecedented Industry Collaboration Produces DDO Templates).
She adds that the council is confident that, working closely with its members, it has done as much as it can to help businesses transition to the new regime.
“We are also pleased ASIC has said it will take a ‘reasonable approach’ to the start of the regulations, which should assist businesses as they adapt.” (See: Reasonable Approach to New Laws Reforming Financial Services Sector.)
Loane states that the red tape burden from this raft of reforms is significant and can add to the cost of delivering products and services and that the council looks forward to continuing to work with Government and ASIC on ways to improve consumer benefits and reduce red tape.
The FSC laid out the dates the reforms begin:
- Individual Disability Income Insurance reforms: 1 October (see: APRA’s IP Intervention – New Product Releases)
- Reference checking and information sharing: 1 October
- New breach reporting requirements: 1 October
- Duty to take reasonable care not to make a misrepresentation: 5 October
- Anti-hawking reforms: 5 October
- Deferred sales for add-on insurance: 5 October
- Internal dispute resolution: 5 October