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29 June, 2019
Draft Regulatory Guide 000 outlines ASIC's policy
What you need to know
Consultation Paper 313 Product intervention power (CP 313) reflects ASIC's proposed principles-based approach towards the use of its new product intervention power (the power):
- The power is broad and flexible with its scope extending beyond the design and distribution obligations (which do not take effect until April 2021);
- Powers can be exercised when significant consumer detriment occurs or is at risk of occurring; and
- ASIC considers that its power is flexible and it can make a variety of different types of orders.
What you need to do
- Familiarise yourself with the ASIC guidance within the draft regulatory guide and consultation paper;
- Review business and compliance practices to ensure you have appropriate financial product governance processes and controls in place; and
- Make any submissions to ASIC in respect of its consultation before 7 August 2019 if you wish to contribute your feedback.
Introduction
On 26 June 2019, ASIC released CP 313 seeking the views of interested stakeholders on proposed guidance regarding the use of the power under Pt 7.9A of the Corporations Act 2001 and Pt 6-7A of the National Consumer Credit Protection Act 2009.
The power commenced in April 2019 following the introduction of the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019. CP 313 attaches Draft Regulatory Guide 000 Product intervention power (Draft RG 000) which provides guidance on ASIC's interpretation of the scope of the power, when and how ASIC expects to exercise the power to make a produce intervention order and how a product intervention order is made. Draft RG 000 is expected to be finalised and released in September 2019 following ASIC's consultation.
To assist consultation, CP 313 includes case studies of past products and practices to demonstrate circumstances in which ASIC may have contemplated using the product intervention power (had it been available in the past) to address consumer detriment at the time.
Scope of the power
ASIC's view is that the power goes beyond the design and distribution obligations meaning that where there is significant consumer detriment, the power may be exercised even where there is no breach of the design and distribution obligations.
ASIC states that there is considerable flexibility in terms of the product intervention orders which can be made.
When ASIC may exercise the power
Draft RG 000 allows for ASIC to intervene by taking temporary action and exercising the power where financial and credit products have resulted in, will result or are likely to result in significant consumer determent. ASIC can use this power on a market-wide basis to address industry-wide problems or by issuing a licensee-specific intervention order.
To determine whether a product has resulted, will result or is likely to result in significant consumer detriment ASIC propose to refer to:
a) the nature of the product and its distribution; and
b) the circumstances of the significant consumer detriment, including:
– the nature and extent of the detriment, including the actual or potential financial loss to consumers resulting from the product; and
– the impact that the detriment has had, will have or is likely to have on consumers.
How a product intervention order is made
ASIC must first be satisfied that a product (or class or products) has resulted, will result or is likely to result in significant consumer detriment. ASIC then proposes to consult with those persons reasonably likely to be affect by the order and then make an order (generally for 18 months). ASIC must publish a notice of their decision to make an order together with the order made. This order may then be extended, amended or made permanent with the approval of the Minster.
ASIC propose that as part of this formal consultation process:
- the product and availability to retail clients will be identified;
- a description of the significant consumer detriment will set out reasons for ASIC's assessment;
- a proposed intervention or description of the proposed intervention will be set out and in some cases; and
- ASIC propose to provide a range of options for intervening.
Whether delayed commencement (and the length of delay) is appropriate for a product intervention order is proposed to be considered on a case-by-case basis taking to account the nature of the order including the extent of any changes it requires or any consequential impacts and the nature, likelihood and extent of the significant consumer detriment.
For further information, please contact:
Corey McHattan, Partner, Ashurst
corey.mchattan@ashurst.com
