The regulator released a new regulatory guide on the administration of the power on Wednesday.
The power, which was legislated in April last year, will allow ASIC to intervene when it deems that a financial or credit product (or class of products) will cause significant consumer harm.
It can be used without a demonstrated or suspected breach of the law, which ASIC stated in its newly released regulatory guidance for the power will let it take action before significant detriment is caused to consumers.
However it is not supposed to be used for pre-approval of products or to prevent all monetary losses or eliminate all market risk.
ASIC can make two types of product intervention orders: an individual order for a specific person or entity in relation to a specific product, or a market-wide order, that is a legislative instrument that applies to a class of products.
Examples it gave of orders it could give included an order for a product be offered only to specific classes of consumers, changes to remuneration arrangements related to the product, or the banning of a product’s issue.
Orders can be made for an initial period of up to 18 months – after which ASIC will need to gain approval from a minister for it to be made permanent or to be extended.
At worst, the guidance warned there are civil and criminal penalties associated with breaching a product intervention order – from both the regulator and consumers who choose to if they cop damages as a result.
ASIC deputy chair Karen Chester said the power is an “incredibly important addition” to the regulator’s toolkit.
“The power enables us to confront, and respond to, harms in the financial sector in a targeted and timely way,” Ms Chester said.
“But there important checks and balances – it is a temporary intervention power and we must consult before each and every use.
“Over time the targeted solving of problems through product intervention may result in less regulation of industry overall. In recommending the power, the Financial System Inquiry identified the objective of limiting or avoiding the future need for more prescriptive regulation.”
She added the availability of the power is timely, when many consumers are in financial hardship through COVID-19.
ASIC has used the power to ban a lending model in the short-term credit industry, as well as consulting on its proposed use to address over-the-counter binary options and CFDs (contract for difference) and the sale of add-on financial products by car yards.
The government also introduced a new governance regime for the design and distribution of financial products under the Corporations Act, where issuers and distributors of financial products must comply with new obligations from October next year.
The design and distribution standards, which provide a governance framework over the lifetime of products, were originally scheduled to commence in April, but ASIC provided a six-month temporary exemption after COVID-19 hit.
