The following paper focusses on the changes as they apply to general and life insurance and discretionary mutual products only and is current as at 16/1/18
SUMMARY OF THE NEW OBLIGATIONS
What is changing – The Corporations Act being amended to:
- include the following Design and distribution obligations related changes that apply to general and life insurance products issued to retail clients and other risk management products (e.g discretionary mutuals) for which a PDS is required:
- four new design obligations (apply to issuer/insurer):
- to make a target market determination in relation to the product;
- to review the target market determination as required to ensure it remains appropriate;
- keep records of the person’s decisions in relation to the new regime; and
- to notify ASIC of any significant dealings in a product that are not consistent with the product’s target market determination.
- five new distribution obligations (can apply to issuer and distributors, including insurer agents and brokers (when acting for insurers or not)):
- not to deal, or provide financial product advice, in relation to a product unless a target market determination has been made;
- not to deal, or provide financial product advice, where a target market determination may no longer be appropriate;
- to take reasonable steps to ensure that products are distributed in accordance with the target market determination;
- to collect information related to the distribution of a product; and
- to notify the issuer of a product of any significant dealings in the product that are not consistent with the products target market determination.
- new content in s1018A advertising notices regarding the target market;
- new ASIC powers request information relevant to its regulatory role; issue stop orders in relation to suspected contraventions of the new regime; and make exemptions and modifications to the new regime.
- four new design obligations (apply to issuer/insurer):
- provide ASIC with a new broad product intervention power – new product intervention power to regulate, or if necessary, ban issue of harmful financial products (including insurance and discretionary mutuals) to retail clients where there is a risk of significant consumer detriment.
When the changes apply from:
- The design and distribution related changes apply to:
- an existing financial product (ie one where the first issue of the product occurs before the commencement of Schedule 1 of the Bill) 24 months after the new law receives Royal Assent; and
- all other financial products 12 months after the new law receives Royal Assent.
- The ASIC product intervention power applies from the day after the Royal Assent. However, the power is not retrospective. It only applies in relation to retail client products that are acquired on or after the commencement date.
Breaches result in – liability to the state through civil penalty proceedings or criminal prosecution; and liability to persons suffering loss or damage through civil action.
Estimated increase in annual compliance costs for the industry as a whole will amount to – $232.1 million for the design and distribution changes and $7.7 million for the product intervention power changes.
IMPORTANT NOTICE
This document is designed to provide helpful general guidance on some key issues relevant to this topic. It should not be relied on as legal advice. It does not cover everything that may be relevant to you and does not take into account your particular circumstances. It is only current as at the date of release. You must ensure that you seek appropriate professional advice in relation to this topic as well as to the currency, accuracy and relevance of this material for you.
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