Australia's regulator, ASIC, is soon to receive a serious
weapons upgrade that will go far beyond the old tools of product
disclosure statement stop-orders and misleading or deceptive
conduct remedies (although as noted above, these powers would have
been more than adequate to stop the testimonial-style advertisement
we described at the beginning of this article).
In summary, Treasury proposes that:
Issuers of financial products to retail clients in Australia,
and their distributors, will be caught by the new "design and
This means that Australia's 70 retail OTC derivatives
product issuers will be caught – and so will any introducing
broker operators who target people in the Australian
Issuers will be expected to identify appropriate target and
non-target markets, distribution channels, and conduct ongoing
review to ensure distribution is appropriate.
Australian issuers already have
ASIC's RG227 which suggests that issuers maintain and apply
a written client qualification policy that meets certain
requirements. However, this regulatory guide does not have the
force of law, and most brokers elect not to comply with some of the
benchmarks on an "if not, why not" basis.
Distributors will be expected to ensure their products are
distributed in accordance with the issuer's expectations, and
comply with reasonable requests for information.
ASIC will have powers to make interventions in relation to the
product, a product feature, or the types of consumers that can
access the product or the circumstances in which consumers access
The paper provides examples such as imposing additional
disclosure obligations, mandating warnings, requiring advert
amendments, and restricting or banning the distribution of the
When looking closely at the commentary, it appears that ASIC may
not be able to directly require restricted leverage. Rather, it can
restrict who can access high leverage by saying something like
"We think that offering leverage of more than 1:20 to retail
clients would cause significant consumer detriment, so stop
it." So, ASIC can achieve the same outcome, but possibly not
as directly or easily as the FCA can (the FCA has broad product
The proposal paper is a bit unclear, however. For example, on
page 36 it suggests that ASIC could set minimum standards for
certain products or product features.
What is clear is that under this proposal, ASIC could require
disclosure of standardised risk warnings, including profit-loss
ratio, as well as prohibitions against bonus promotions. It can
also restrict certain products, including products with certain
leverage levels from being available to certain client groups.
ASIC can make a product intervention if it identifies a risk of
significant consumer detriment.
This will require ASIC to undertake consultation before making
an announcement (the UK's FCA did this before its
leverage/disclosure announcement too).
ASIC's product intervention can only last for up to 18
months under the proposal, during which time the Government will
consider whether the intervention should be permanent.
This stretches out the period from 12 months, as initially
proposed in 2014. However, it falls short of the UK's permanent
In terms of timing, the obligations will apply to new products
issued 6 months after the reforms become law. Existing products
will have 2 years to come into line with the new obligations.
It's quite possible that these proposals will become law
sometime in 2017.
Consultation on the proposal paper is open until 15 March 2017.
As we have done in the past, if industry participants have a shared
desire to lodge a joint submission, we're happy to crowd fund
Our lawyers across Sydney and Melbourne have deep expertise in
the matters discussed in this paper – which also span across
into other product types, including insurance, superannuation,
non-cash payments, credit, and managed funds. We would be happy to
talk about this article in January 2017 when the office
The 2016 Budget saw many highly anticipated changes announced to Australia's superannuation rules.
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