Changes to the product design and distribution laws
The new Design and Distribution Obligations and Product Intervention Powers Legislation means a significant shift in the way fund managers and product issuers develop products for the retail market, including managed funds. Here, senior associate Elliott Stumm explains ASIC's new product intervention power and what the design and distribution obligations mean for product issuers and distributors.
Product intervention power
The intervention power, which came into force in April this year, allows ASIC to make a range of orders to proactively reduce the risk of consumers suffering significant detriment from financial products. Those orders include:
- Banning a person from issuing a product to consumers.
- Directing a particular product only be offered by way of issue to certain classes of consumers or in particular circumstances.
- Directing a product not be distributed unless accompanied by an appropriate warning or label.
- Breaching the new provisions may result in civil penalty proceedings, criminal prosecution or damages through civil action.
Design and distribution obligations
The design and distribution obligations, which will come into force in April 2021, create additional distribution obligations on product issuers and distributors, including to:
- Make a publicly available target market determination in relation to certain products.
- Not promote a product to retail clients unless a target market determination has been made.
- Review the target market determination to ensure it remains appropriate.
- Keep records of the person's decisions in relation to the new regime.
- Notify ASIC of any significant dealings in a product that are not consistent with the product's target market determination.
Finally, last minute changes to the new laws extended their application to credit facilities provided to retail clients.
You can find more background information explaining these changes in our December 2018 edition of Fundamental.
Please contact a member of our Funds Management team if you need more information about these changes and how it affects your business.