The Australian Securities and Investments Commission (ASIC) has initiated consultation on draft guidance for its new financial product design and distribution obligations under the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2019.
The new obligations, which come into effect in April 2021, require product providers to specify the target market for each of their products, ensuring that the design of the products is consistent with the likely objectives, financial situation and needs of customers within that target market.
Following the commencement of the consultation process, ASIC deputy chair Karen Chester said: “The obligations should drive better business and consumer outcomes.
“They simply require business to design products that meet genuine consumer needs and use distribution channels that will likely get them to the right consumers.”
According to Ms Chester, the obligations would also address the causes of much of the misconduct highlighted by the banking royal commission.
“Most of the royal commission case studies – from the mis-selling of products to extremely poor value financial products – would have uniformly failed these obligations,” she said.
“The implementation of this reform presents a significant opportunity for industry to demonstrate they have embedded a consumer-centric approach in their business and are better managing non-financial risks.”
Ms Chester continued: “The design and distribution obligations reinforce fundamental business considerations for firms, their boards and ultimately their shareholders.
“What are the target markets for our financial products? Do our financial products meet the genuine needs of our consumers? Do our distribution channels mean our products will likely get to the right consumers?”
The obligations will be phased in over two years, requiring product issuers to identify in advance the consumers for whom the products are appropriate, and distribute to that target market.
“The two-year transition period recognises that, whilst the obligations are not onerous, it may take time for some firms to implement them,” Ms Chester added.
“Firms that already have good product governance regimes in place will readily adapt to the new obligations.”
ASIC noted that it seeks public impute on the design and distribution obligations by Wednesday, 11 March 2020.
[Related: Regulators tighten accountability framework]
Charbel Kadib is the news editor on the mortgages titles at Momentum Media.
Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.