The next big change to the law – product design and distribution laws
The Design and Distribution Obligations and Product Intervention Powers Bill 2018 has been amended following changes proposed by the government, the Shadow Minister for Justice and Financial Services Clare O'Neil MP, and members of the Senate. As Clare O'Neil MP has said, although the title of the Bill is not well understood by the general public, how financial services are designed and marketed to them is very important. Here Langton Clarke takes a closer look.
What is the objective of the Bill?
The Bill seeks to do two main things:
- Impose obligations on financial services providers to comply with new design and distribution obligations.
- Give ASIC new powers to intervene where products are causing, or likely to cause, significant consumer detriment.
In other words, our clients will have to provide specific design requirements to ASIC, get approval for those requirements, and explain who the target audience for their product is.
Although the Bill was drafted prior to the Royal Commission, it seeks to respond to some of the issues that arose, such as financial products being marketed to groups that will never be able to access and/or use them, most notably insurance products.
The segment of the consumer market the financial services provider is targeting will be made in writing and publicly available. All downstream participants in the industry will then be required to ensure the sale and marketing of products are carried out in accordance with the target market determination.
The Bill is now at the third reading stage, so is likely to pass in the first sitting next year. This will be the first significant shift in the way our funds management and product issuer clients will develop their products for the retail market.
The introduction of this legislation could mean a large swathe of the Australian public is excluded from accessing innovative and/or successful products, due to product issuers not wishing to include less sophisticated investors in their target market.