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Treasury consults on ASIC intervention power

Treasury has released a new proposals paper that outlines new product intervention powers for ASIC and design/distribution obligations for product providers.


The Coalition government has started the consultation process on two new regulatory measures recommended by the Financial System Inquiry.

The first, a product intervention power for ASIC, is designed to make the corporate regulator "more proactive" and to help reduce "significant detriment" to consumers.

According to the paper, examples of possible interventions include: additional disclosure obligations, mandating warning statements, amendments to advertising documents and restricting or banning the distribution of the product.

"In order to use the power, ASIC must identify a risk of significant consumer detriment, undertake appropriate consultation and consider the use of alternative powers," said the paper.

"ASIC must determine whether there is a significant consumer detriment by having regard to the potential scale of the detriment in the market, the potential impact on individual consumers and the class of consumers likely to be impacted," said Treasury.

In order for ASIC to be able to use the power, the regulator must first identify a risk of "significant detriment" to consumers in their purchase or use of a product, said the paper.

The second measure discussed in the paper is a design and distribution obligation for product providers.

The obligation will require issuers to identify their target consumers and then market to them appropriately.

"Broadly speaking, issuers should seek to match products with target markets based on the needs the product satisfies and the target market’s ability to understand the product," said the paper.

"In considering whether a product satisfies the needs of a target market, consideration should be given to the characteristics of the target market including proximity to retirement, levels of income and wealth, level of financial literacy and access to financial information."

For example, product providers will be required to consider the risk and return profile of the product and how it compares with the risk tolerance of the target market.

Issuers must also consider who their marketing will reach and whether they are appropriate customers.

"Distributors must put reasonable controls in place to ensure that products are distributed in accordance with the issuer’s expectations," said the paper.

Submissions to Treasury on the proposals paper are due by 15 March 2017.

 

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