Six reforms arising out of recommendations from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission) and other inquiries will commence in October.

The new laws include design and distribution obligations, restrictions on the unsolicited selling of financial products (hawking), a deferred sales model for add-on insurance products, reference checking and information sharing requirements for financial advisers and brokers, and new requirements around how breaches are reported to ASIC and disputes are managed internally in firms. 

“These changes will support fairer outcomes for consumers and a stronger financial system for all Australians” ASIC Chair Joe Longo said.

“The benefits will increase over time as consumer outcomes become the focus and experience accrues.

“While these reforms have been in the pipeline for some time, ASIC recognises they require significant changes to businesses’ systems and processes and take effect at the same time industry is facing other challenges, including from COVID-19 and renewed lockdowns.

“We therefore recognise there will be a period of transition as industry finalises implementation of additional compliance measures, and ASIC will take a reasonable approach in the early stages of these reforms provided industry participants are using their best efforts to comply.

“In adopting this approach, ASIC will take into account the context that firms are operating in. This includes the scale of the changes, the challenges arising from the current operating environment and noting industry will receive the final guidance on two measures relatively close to the start date.

“ASIC’s initial approach extends to technical or inadvertent breaches, where firms have systems changes underway and act quickly to address problems as they arise. However, where firms are not acting in good faith or where we detect conduct causing actual harm, we will not hesitate to enforce the law.

“We want to ensure the reforms are successfully implemented – and that means we will continue to work with industry, and build on the efforts by industry associations and individual licensees in preparing for these reforms”.

These laws provide consumers with long term protection from the harms highlighted by the Royal Commission, and close regulatory gaps that previously existed. Improved consumer outcomes are at the heart of these reforms, the benefits of which include: 

• consumer focussed product design at the heart of business models, and more transparency about target markets;
• a reduction in sales that occur in circumstances where consumers are subject to pressure;
• greater transparency about problems arising, in the form of complaints and number of breaches; and
• more consumer-centric and timely complaint handling.

The reforms will also provide ASIC with greater visibility of issues in the marketplace, through breach reports, complaints data and data available under the design and distribution obligations. This will help ASIC to identify problems earlier and address them more quickly, with less reliance on disclosure to address consumer harms.

Background

The following reforms commence in October 2021: 

The design and distribution obligations require firms to design financial products to meet the needs of consumers, and to distribute their products in a more targeted manner. The obligations were passed by Parliament in 2019 following a recommendation of the Financial System Inquiry. The obligations reflect similar obligations placed on financial product issuers in the United Kingdom, the Netherlands and the European Union.

The breach reporting reforms seek to address long-standing concerns about inconsistent, inadequate and delayed reporting of breaches by licensees. The reforms will allow ASIC to identify and address emerging trends of non-compliance in industry. Under the new law, industry will be obliged to identify and report breaches and remediate consumers in a more timely manner.  The regime is also extended to credit licensees for the first time. 

The deferred sales model introduces a mandatory four-day pause between the sale of a principal product or service and the sale of add-on insurance. The deferred sales model was introduced to address numerous issues in the add-on insurance market, including poor-value products, unfair sales practices and outcomes, and negative claims outcomes compared to other insurance markets.

The hawking reforms will give consumers greater control over the circumstances in which they are offered products, and prevent consumers being approached with unwanted products on cold-calls or through other unsolicited contacts.

The reference checking reforms will promote better information sharing about the conduct of financial advisers and mortgage brokers—focusing on compliance, conduct and risk management.

Updated standards and requirements for internal dispute resolution will assist in improving timeliness of complaints handling, clearer messaging to consumers, and consistent recording of complaints. The updates also clarify the enforceability of ASIC's IDR standards and ensure that firms are identifying systemic issues that arise from complaints.