We continue to strongly support the introduction of the Design and Distribution Obligations (DADOs) and Product Intervention Powers (PIP) for the reasons outlined in our previous submissions. The recent examples of misconduct revealed by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Sector (the Royal Commission) have provided even further evidence of the need to improve product design and distribution, and enhance the enforcement powers of regulators.
We reiterate recommendations outlined in our previous submissions on the proposed DADOs and PIP to the extent that they have not been addressed in the revised Bill. In particular, we maintain our position that the DADOs and PIP should apply to ‘financial products’ as defined in the Australian Securities and Investments Commission Act 2001 (ASIC Act). This would reduce regulatory gaps and incentives for firms to engage in regulatory arbitrage, a major problem that has also been highlighted at the Royal Commission, and which had been flagged in submissions to the Financial System Inquiry (FSI). Importantly, it would ensure that regulated and unregulated consumer credit are captured by these reforms.
We note that the revised Bill has weakened the regime in several key respects, which risks undermining the policy intent behind the regime. In preparing our submission, we returned to the original objectives of the PIP and DADO recommendations in the FSI Final Report. These objectives are more pertinent than ever in an environment of declining consumer confidence in financial services providers and should inform consideration of any exemptions or weakening of obligations. These objectives included:
- Reduce the number of consumers buying products that do not match their needs, and reduce consequent significant consumer detriment;
- Promote fair treatment of consumers by firms that design and distribute financial products;
- Build consumer confidence and trust in the financial system; and
- Limit or avoid the future need for more prescriptive regulation.
We have reviewed the revised Bill having considered these original objectives, and we have made additional recommendations relating to amendments in the revised Bill as a result. In relation to DADOs, our organisations:
- Support the requirement to provide target market determinations to the public free of charge, increased penalties and the extended civil liability regime;
- Support some but not all aspects of the ordinary shares exemption;
- Have concerns with some of the other proposed exemptions, in particular margin lending and products listed under section 708;
- Oppose the weakened requirements for suitability of target market determinations, record keeping, ASIC notification and timeframes for stopping harmful product distribution;
- Oppose the proposed exemption for personal financial advice and dealing associated with implementing personal financial advice; and
- Oppose the extension of the transition period to two years.
In relation to ASIC’s PIP, our organisations:
- Strongly support extending the regime to funeral insurance, extended warranties and short-term credit;
- Oppose intervention orders only applying to products acquired after the date of the order; and
- Reiterate previous recommendations to strengthen ASIC’s PIP, including extending the maximum period for interventions and allowing ASIC to intervene in relation to a broader range of conduct, including remuneration and training.
We have provided further comments and recommendations within the downloadable submission.