Product design and distribution laws that aim to boost consumer protections have passed Parliament in the final sitting days before the expected federal election.
“These reforms mean consumers will be better protected from being sold financial and credit products that are not suitable for their circumstances,” Treasurer Josh Frydenberg and Assistant Treasurer Stuart Robert said today.
The laws, flagged before the Hayne royal commission started and since amended to cover a wider range of products, require issuers including insurers to specify appropriate target markets, while distributers must take steps to ensure they are sold accordingly.
The Australian Securities and Investments Commission (ASIC) gains stronger powers to intervene if it identifies a risk of significant consumer detriment from the sale of a financial product.
“By introducing design and distribution obligations and providing ASIC the power to intervene, the Government is yet again going further in its response to the royal commission,” Mr Frydenberg and Mr Robert said.
The Consumer Action Law Centre says the reforms are “commonsense” and has urged ASIC to use its new powers where necessary.
“Consumers need to know the financial service providers they rely on are designing products such as short-term loans and insurance in their best interests,” CEO Gerard Brody said.
“Legislation in this area is now flexible, future-proof and responsive to new products that pose risks to consumers.”
ASIC says the design and distribution obligations will be phased in over two years and the reforms overall are critical in building trust.
“These new powers will enable ASIC to take broader, more proactive action to improve standards and achieve fairer consumer outcomes in the financial services sector,” Chairman James Shipton said.
The National Insurance Brokers Association noted in a royal commission submission last year that the design and distribution bill specifically carved out brokers giving personal advice to retail customers.
“This was in recognition of the view that general insurance brokers providing personal advice to retail clients are not responsible for the issues these important reforms are seeking to address, and in any event remain subject to the ‘best interest duty’ obligations,” the submission said.
This week’s Parliamentary sittings are expected to be the last before a May Federal election, with Prime Minister Scott Morrison expected to announce the date in the next few days.
The Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2019 made it through the Senate on its last sitting day yesterday.