See our December 2020 update - ASIC releases guidance on new design and distribution obligations
The Australian Government has released for consultation an exposure draft of the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Power) Bill 2018 (Cth) (Bill). The draft bill is intended to introduce design and distribution obligations in relation to financial products. The purpose of these new obligations is to ensure that service providers are providing suitable financial products to consumers.
The new obligations apply to offers of financial products that require disclosure under the Corporations Act or which are exempt from such disclosure under a mutual recognition scheme. This includes products that require disclosure to investors (eg, by product disclosure statements) but excludes MySuper products, margin lending facilities, securities issued under an employee share scheme and fully-paid ordinary shares.
The new law inserts four new design obligations which are imposed upon the person who is responsible for preparing the disclosure document. These obligations require that person to:
- make a determination in relation to the target market for the product;
- review the target market determination to ensure it remains appropriate;
- keep a record of the person’s decisions in relation to the new regime; and
- notify ASIC of any significant dealings in a product that is not consistent with the target market determination for that product.
The new distribution obligations apply to a person that engages with potential investors in relation to a product (ie, a person that is responsible for making offers, or giving advice or disclosure documents to potential investors). The obligations require that person:
- not to:
- engage in ‘retail product distribution conduct’ in relation to a product unless a target market determination has been made (‘retail product distribution conduct’ means dealing, providing financial product advice, giving a product disclosure document, or making a recognised offer, to a retail client);
- engage in retail product distribution conduct where the target market determination may no longer be appropriate,
- take reasonable steps so that retail product distribution conduct is consistent with the target market determination;
- collect information specified by the issuer, and complaints related to the distribution of a product, and provide both to the issuer; and
- notify the issuer of a product of any significant dealings in the product that are not consistent with the products target market determination.
The Bill provides ASIC with powers to request information from service providers and enforce the new arrangements including through stop orders where there is a suspected contravention and through civil penalties. Criminal penalties may also apply to entities who contravene the new arrangements.
Any interested parties are invited to comment on this consultation and responses to this consultation can be submitted up until 15 August 2018.