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ASIC surveillance takes on AFS licensees

June 2018

In response to the Financial System Inquiry, Improving Australia's Financial System 2015, the Federal Government has released the draft Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2017. Associate Kristy McCluskey outlines the design and distribution obligations and ASIC's enforcement powers.

Design and distribution obligations

The Bill introduces design and distribution obligations recommended by the Inquiry, including:

  • obligations to ensure financial products are targeted at the right people
  • a temporary product intervention power for ASIC when there is a risk of significant consumer detriment.

The purpose of the obligations is to improve consumer outcomes by ensuring the promotion of suitable financial products to consumers. Importantly, these obligations generally apply to offers of financial products requiring disclosure under the Corporations Act.

The design obligations will require issuers to:

  • make a "target market determination" for a product, by identifying target markets for the product having regard to its features
  • periodically review their determinations to ensure they remain appropriate
  • notify ASIC of any significant dealings in the product that are not consistent with the product's target market determination.

The distribution obligations will require product distributors to:

  • refrain from promoting a product unless a target market determination has been made 
  • ensure products are distributed in accordance with the target market determination 
  • notify the product issuer of any significant dealings in the product that are not consistent with the product's target market determination.

Enforcement

The obligations also grant ASIC enforcement powers, including the power to:

  • request information
  • issue stop orders where a contravention of the law is suspected
  • make exemptions and modifications to the obligations.

Civil and criminal penalties apply to contraventions of the obligations.

Implementation

There has been no update on the Bill since consultation closed.

However, the design and distribution obligations will apply to the first issuance of new financial products 12 months after the Bill receives Royal Assent, and for existing financial products 24 months after the Bill receives Royal Assent.

The ASIC intervention powers will apply the day after Royal Assent.

We will keep you up to date with further developments. Please contact a member of our Funds Management team for more information about how we can help.

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