Financial services providers should review their advertising and sale practices to prepare for changes to the hawking prohibitions which come into effect on 5 October 2021.
Changes to the anti-hawking regime under the Corporations Act are focused on improving consumer protection within the financial services industry and seek to reduce the offering of financial products that may not be appropriate or suitable for a consumer's needs.
ASIC sought consultation on proposed updates to Regulatory Guide 38 The hawking prohibitions (RG 38) ahead of the hawking reforms.
Lawyer Jade Paidel explains the detail.
New legislation will amend the Corporations Act to create a single general prohibition on hawking of all financial products. Under the new laws, a person will breach the hawking prohibitions if they offer to issue a financial product to a retail consumer, or invite the consumer to apply for it, in the course of or because of, an unsolicited contact with the consumer.
The changes extend to product issuers and sellers, as well as their agents and representatives. There are several exemptions including where the offer is made during the provision of personal financial advice.
The current prohibition applies to offers made via unsolicited meetings or telephone calls only. However, the new provision defines 'unsolicited contact' widely to include contact made via telephone calls, face-to-face meetings, and 'any other real-time interaction in the nature of a discussion'.
This change seeks to make the prohibition 'technology neutral' and will capture any verbal or written contact where the parties can, or expect to, respond to each other continuously in real time (such as through instant messaging or chat bots using artificial intelligence).
Contact about the potential offer of a financial product will be unsolicited unless it takes place in response to a clear, positive, and voluntary act by the consumer that would be understood by a reasonable person as giving consent. This aims to tackle situations when consumers are pressured, coerced, or manipulated (hawked) into providing consent to be contacted.
If the consumer does consent, but the offer of the financial product was not reasonably within scope of that consent, the offeror will breach the hawking prohibitions. ASIC's draft RG 38 provides further guidance on the scope of consent, including when the offer or invitation relates to products that are bundled or cross-sold.
Whether contact about a certain financial product is within the consumer's scope of consent will be assessed on a case-by-case basis and depends on the type and features of the financial product offered, and the risk, purpose, or function of the product contemplated by the consumer.
Consent will generally be valid for six weeks, can specify the method of contact, and may be withdrawn by the consumer at any time.
For a breach of the hawking prohibitions to occur, the offer must be 'made in the course of', or 'because of', unsolicited contact. Updated guidance for testing causation is set out in ASIC's draft RG 38.
Any offers made during a meeting, telephone call, or other real time interaction which took place without the consumer's clear informed consent, are 'made in the course of' unsolicited contact.
The words 'because of' capture offers which have a 'casual nexus' to unsolicited contact. Where a product issuer makes unsolicited contact with a consumer, but the actual offer is made during a subsequent contact (which may have been solicited, but where such offer is out of the scope of consent), the offer has a casual nexus to the initial unsolicited contact and would be in breach of the hawking prohibitions.
However, the casual nexus may be broken if between an unsolicited contact and subsequent offer, the consumer has (for example) obtained personal advice or had a reasonable opportunity to consider the product and actively consented to further contact.
A breach of the hawking prohibition is a strict liability offence and can attract a fine of up to $13,320 and/or six months imprisonment for individuals, or $133,200 for corporations.
The new provisions will give consumers a right to return the financial product and receive a refund if the hawking provisions are breached.
Consultation on RG 38 closed on 17 August 2021. Final guidance is expected to be published by ASIC in September 2021.
We encourage all financial services providers and sellers to review their advertising and sale practices ahead of the 5 October 2021 start date of the hawking reforms. If you are unsure whether your practices comply with the hawking prohibitions, contact a member of our Funds Management team who can assist.