Greater consumer-focused outcomes in sight with latest reforms in the Financial Services Sector

14 Sep 2021

Arising from the recommendations and findings of the Royal Commission into Misconduct into the Banking, Superannuation and Financial Services Industry (‘Royal Commission’), the following six reforms will commence in October 2021:

1. Reference checking and information sharing requirements – commencing 1 October 2021
2. Breach reporting and the ‘notify, investigate and remediate’ obligations – commencing 1 October 2021
3. Design and distribution obligations – commencing 5 October 2021
4. Hawking – commencing 5 October 2021
5. Deferred sales model for add-on insurance products – commencing 5 October 2021
6. Internal dispute resolution – commencing 5 October 2021

1. Reference checking and information sharing requirements

In response to recommendations from the Royal Commission, ASIC have released the “ASIC reference checking and information sharing protocol” (‘ASIC Protocol’) which seeks to promote transparency and better information sharing practices about the conduct and history of financial advisers and mortgage brokers. As part of the latest obligations imposed on licensees, they are now required to take reasonable steps to obtain a reference from a referee licensee (i.e. a current or former licensee in the last five (5) years) prior to the recruitment of any prospective financial adviser or mortgage broker.

2. Breach reporting and the ‘notify, investigate and remediate’ obligations

The latest breach reporting reforms will seek to give effect to recommendations of the Financial Services Royal Commission that would address concerns of inconsistent and delayed reporting of breaches by licensees.

The reforms will not only extend the same reporting obligations to credit licensees, but they will also provide further clarification on existing obligations for financial service licensees. Whilst ASIC recognises that not every instance of non-compliance should or will be reported, a list of reportable situations has been defined and distilled in the current draft Regulatory Guide 78 titled ‘Breach reporting by AFS licensees and credit licensees’. Reportable situations are now defined as follows:

• deemed breaches or ‘likely’ breaches of core obligations that are significant, such as material loss or damage caused to clients, quality of advice and failure to act in the interest of the client and misleading or deceptive statements engaged in relation to financial products or services.
• investigations into breaches or likely breaches of core obligations that are significant
• additional reportable situations, including conduct constituting gross negligence, serious fraud or other circumstances prescribed by the regulations
• reportable situations about individual financial advisers and mortgage brokers of other licensees with respect to the provision of personal advice to retail clients about relevant financial products.

Other notable features of these reforms include:

• licensees to lodge breach reports within 30 days with ASIC should they be aware of or have a reasonable basis to believe that a situation is ‘reportable’ under the new reforms;
• an obligation to report investigations into reportable situations which have a duration of more than 30 days;
• credit licensees now subject to same breach reporting obligations as AFS licensees pursuant to the National Consumer Credit Protection Act 2009 (Cth)
• annual publishing of breach data reports received by ASIC

3. Design and distribution obligations

Following demand for guidance and extensive consultation with the Financial Services sector for ASIC guidance on product design and distribution obligations, ASIC have recently released  Regulatory Guide 274 titled ‘Product design and distribution obligations’. The Regulatory Guide provides licensees with the necessary guidance on the applicable financial products and ASIC’s interpretation of these obligations that require financial products to be designed to meet the needs of the client and distributed in a timely manner.

4. Hawking

Hawking reforms set to commence on 5 October 2021, are said to strengthen existing prohibitions on hawking conduct by providing consumers with greater protections and control in circumstances of unwanted or unsolicited product offerings. Adopting a technology approach, the newly define ‘unsolicited contact’ is set to include any real-time communications that extends beyond the previous prohibition from telephone discussions and in-person meetings.

Other notable features of these hawking reforms include:

• a single consolidated hawking prohibition applying to all financial products;
• consumer consent is now required for contact and must be positive, voluntary, clear and capable of being reasonably understood.
• businesses can no longer rely upon consent previously given by consumers as consent previously given will now only be valid for six (6) weeks and may also be withdrawn by on any occasion; and
• a statutory right of return for consumers who had acquired a product via hawking conduct.

5. Deferred sales model for add-on insurance products

Also forming part of the reforms with respect to the design and sale of insurance products, a mandatory four (4) day pause has now been introduced to address concerns of poor-value products and unfair sales practices associated with add-on insurance. Known as the ‘Deferred Sales Model’, the 4-day pause on the sale of an add-on product, following the aquisition of a principal product or service, is designed to allow consumers the opportunity to make more informed decisions and will provide an appropriate amount of time to consider the value of the offer and any alternatives.

6. Internal dispute resolution

Updates to the existing guidance on standards and requirements for internal dispute resolution (‘IDR’) process for consumer complaints will also take effect on 5 October 2021. Some notable updates include:

• reduced response timeframes for complaints made by consumers:
  • 30 calendar days for standard complaints instead of the previous 45 calendar day period; and
  • 45 calendar days to respond to superannuation and traditional trustee complaints instead of 90 calendar day period.
• customer advocate review of appeals against IDR decisions must also fall within, and not exceed, the maximum IDR response timeframes for complaints.
• IDR responses must now contain specific information in IDR responses complaints received to allow consumers the opportunity to escalate (if required)
• guidance in how to appropriately address representatives who are not acting in the best interests of the consumer.

For more information on relevant ASIC guidance and further updates on these latest reform, please visit: 21-213MR ASIC’s approach to new laws reforming financial services sector | ASIC - Australian Securities and Investments Commission

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