ASIC consults on intervention powers, new hearings launched

The Australian Securities and Investments Commission (ASIC) has opened consultation on its new product intervention powers, which were enshrined under the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2019, which was approved in April.

The powers enable ASIC to intervene and take temporary action where financial and credit products have resulted in or are likely to result in “significant consumer detriment”.

ASIC has issued a regulatory guide, which sets out the scope of the power, outlining when and how ASIC expects to use the power and how a product intervention order is made.

Following the announcement, ASIC deputy chair Karen Chester said: “The product intervention power is an incredibly important addition to ASIC’s regulatory toolkit.

“ASIC can now step in and respond to significant consumer detriment in a targeted and timely way. But there are also important checks and balances – it is a temporary intervention power and we must consult before each and every use.’

The new toolkit will empower the regulator to take a range of temporary actions, including banning a product or product feature, imposing sale restrictions, amending product information or choice architecture. 

“The product intervention power is not a new concept. Australia is joining regulators in other jurisdictions like the US, the UK, the EU, Hong Kong and Taiwan with product intervention powers,” Ms Chester added. 

ASIC can also use the power on a market-wide basis to address “industry-wide problems” but is required to consult before making a product intervention order.

“ASIC having this power was recommended by the 2014 Financial System Inquiry, supported by the financial services royal commission, consulted on and agreed to by the government and received overwhelming support across the parliament in April this year,” Ms Chester concluded. 

Stakeholders are asked to provide input on the product intervention power consultation documents by 7 August 2019.

ASIC has said that it aims to release its final regulatory guide in September 2019.

A separate ASIC consultation on its proposed guidance on the design and distribution obligations will commence later this year.

New public hearings launched

In a keynote address to the Committee of Economic Development of Australia (CEDA), ASIC chairman James Shipton has also revealed that the regulator will host a public forum to consult on its proposed changes to responsible lending guidelines.

In February, ASIC issued a consultation paper to update its guidance on responsible lending, stating that it “considers it timely” to review and update its guidance (in place since 2010) in light of its regulatory and enforcement work since 2011, changes in technology, and the release of the banking royal commission’s final report.

ASIC added that its review of RG 209 will consider whether the guidance “remains effective” and will seek to identify changes and additions to the guidance that “may help holders of an Australian credit licence to understand ASIC’s expectations for complying with the responsible lending obligations”.

The regulator had noted that it was considering the option of holding public hearings to discuss reforms to RG 209 but has now confirmed that it will push ahead with the proceedings.

“For the first time as part of this process, we will be holding public hearings to robustly test some of the issues and views that have been raised in submissions,” the ASIC chair revealed.

Mr Shipton claimed that responsible reforms would be targeted at providing “more certainty for lenders and mortgage brokers”.

“This will encourage more consistent practices across the industry while retaining flexibility for licensees to appropriately tailor lending processes to the circumstances of borrowers,” he said.

According to Mr Shipton, the regulator will also consider the current operating environment before making its final determination, citing falling residential dwelling values and subdued credit growth.

“I will take the opportunity here to acknowledge that while the responsible lending requirements have remained unchanged for almost a decade, and that we have been consistent in our expectations of those requirements, we know house prices have declined over the past year, with fewer consumers seeking finance,” he said.

“Through any economic cycle, responsible provision of credit is critical to the long-term sustainability of the economy as well as being a cornerstone consumer protection.

“This is why we have the responsible lending requirements and why we are consulting to update our expectations on them.”

ASIC’s push to update its responsible lending guidance coincides with the Australian Prudential Regulation Authority’s (APRA) consultation on proposed changes to home loan serviceability guidelines.

If approved, APRA’s proposals would see its 7 per cent interest rate floor removed, and its 2 per cent buffer increased to 2.5 per cent.

[Related: ASIC grants NCCP relief to 75% of applicants]