Reg October: ASIC Determined to Improve Financial Systems and Processes by Imposing Policy Reforms on Licensees

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At the beginning of October 2021, 6 critical policy reforms will take effect, imposing more onerous obligations on Australian Financial Services and Australian Credit Licensees (together “licensees”). The aim is to improve the financial systems and processes in Australia and bring fairer outcomes for consumers following a very damaging Royal Commission into Financial Services and years of scandals.

While ASIC acknowledges that it will take a reasonable approach in the initial stages to enforcement of the new provisions under the reforms, it expects licensees to comply with best efforts and will not hesitate to take action if the licensee is not responding positively and causes harm to consumers.

To comply with the new policies, licensees should prepare in advance to have the relevant policy documents and compliance measures in place and to train staff if necessary to ensure smooth implementation of those policies in the daily operation of the business.

The key messages for licensees following the launch of the new policies are summarised in the table below:

New PolicyCommencement DateAffected LicenseesKey MessagesHow we can Help
Breach Reporting Regime1 October 2021 AFS and Credit licensees– The scope of ‘reportable situations’ is now broader
– Reporting must be done via the ASIC Regulatory Portal within the prescribed timeframes
– Investigation requirements are imposed on certain licensees
Download our template Breach Reporting Policy to ensure your policies and procedures reflect the updates made to RG78.
Reference Checking and Information Sharing Requirements1 October 2021Financial advisers and mortgage brokers– ASIC imposes greater obligations on licensees to conduct reference checks on prospective employees seeking to become a financial adviser or mortgage broker
– Licensees are required to share information about the performance records of financial advisers and mortgage brokers
Download our template Representatives Policy to ensure your policies and procedures reflect the changes coming into effect from 1 October.
Internal Dispute Resolution (IDR) Policy5 October 2021AFS licensees dealing with retail consumers and all credit licensees– ASIC sets out enforceable provisions in RG271 including a reduced timeframe for complaints handling and a broader definition of ‘complaint’
– A public complaints policy is required for the relevant licensees
– Complaints data must be maintained for systematic issue identification
Download our template Dispute Resolution Policy to ensure your policies and procedures are updated to reflect the new IDR regime.
Design & Distribution Obligations (DDO)5 October 2021licensees issuing or distributing certain financial products– Certain licensees are required to implement and maintain consumer-centric product governance arrangements throughout the product lifecycle
– Product issuers are required to develop a Target Market Determination for each financial product to assess market fitness and make it available to public
– ASIC imposes obligations to take reasonable steps, keep records and report significant dealings
Refer to our blog article on the updates to the regime to ensure your business is prepared.
Hawking Prohibitions5 October 2021AFS licensees dealing or issuing financial products– The consolidated prohibitions apply to all financial products
– The definition of ‘unsolicited contact’ extends to all forms of real-time communication without consumer consent
– Consumer consent is valid for 6 weeks only and must be positive and voluntary
Download our template Anti-Hawking Policy which has been prepared based on ASIC’s guidance on anti-hawking reforms and RG38.
Deferred Sales Model5 October 2021AFS licensees dealing with add-on insurance products– A mandatory four-day deferral period is introduced between the sale of a principal product or service and the sale of add-on insurance
– Licensees must comply with specific requirements to start the four-day deferral period
Contact Sophie Grace for further assistance.

Breach Reporting Regime

Effective from 1 October 2021, the new breach reporting regime will implement a new breach reporting requirements for licensees. Licensees are required to report to ASIC a broader range of ‘reportable situations’ as defined in the new legislation, including situations that are ‘deemed’ reportable. Certain AFS and Credit licensees are also required to investigate the breaches within 30 days of the licensee being aware of the circumstances.

All licensees will need to access the ASIC Regulatory Portal to submit reportable situations, and the submission must be completed within the prescribed timeframes to avoid penalties.

Reference Checking and Information Sharing Requirements

The ASIC reference checking and information sharing protocol (“ASIC Protocol”) will commence on 1 October 2021 to enforce the obligations to conduct reference checks and to share information on individuals who intend to become a financial adviser or mortgage broker. This aims to improve the overall compliance, conduct and risk management of the financial advice and mortgage broking licensees through imposing stricter background checks on prospective employees of AFS and Credit licensees and through enhancing the sharing of information on the performance history of those employees.

Internal Dispute Resolution (“IDR”) Policy

Following the release of ASIC Regulatory Guide 271, the new IDR standards will take effect from 5 October 2021, setting out enforceable requirements for AFS licensees dealing with retail consumers and Credit licensees in handling complaints.

With a focus on improving certainty and timeliness of complaints handling, the new IDR policy expands the definition of ‘complaint’ and shortens the prescribed timeframe for responding to consumer complaints. It also requires licensees to have a complaints policy accessible to the public to assist consumers with lodging complaints and maintain consistent complaints records and data to better cope with systematic issues based on the complaints.

Design & Distribution Obligations (“DDO”)

With the release of the new ASIC Regulatory Guide 274, the DDO regime will take effect on 5 October 2021, after a six-month deferral due to COVID-19. The new DDO regime applies to licensees issuing or distributing certain financial products listed under the Corporations Act 2001, ASIC Act 2001 and National Consumer Credit Protection Act 2009, such as OTC derivatives, managed investment schemes, general insurance, credit contracts and consumer leases.

The new policy requires the relevant product issuers and distributors to implement and maintain consumer-centric product governance arrangements throughout the product lifecycle, including design, distribution, monitoring and review. Product issuers must also develop a Target Market Determination (“TMD”) for each financial product to assess market fitness and make it available to public prior to distribution. Issuers and distributors are then required to take reasonable steps according to the TMD, keep records and report to ASIC any significant dealings in relation to the TMD if necessary.

Hawking Prohibitions

Effective from 5 October 2021, the newly consolidated anti-hawking regime aims to enhance consumer protection by prohibiting AFS licensees who deal in or issue financial products from approaching consumers with unwanted products.

The new regime incorporates the three existing hawking prohibitions and now covers all financial products as defined in the Corporations Act 2001. The new prohibitions also include a clearer definition of ‘unsolicited contact’, which extends to all forms of real-time communication without consumer consent, such as cold-calls. It further specifies that consent is only valid for 6 weeks and must be positive, voluntary and clear. This provides broader protection and greater control for consumers in deciding whether to buy a financial product. Refer to RG38 for ASIC’s guidance.

Deferred Sales Model

From 5 October 2021, a mandatory four-day pause will be imposed upon AFS licensees selling add-on insurance products following the sale of a principal product or service. ASIC believes that this pause is an important measure in delivering consumer outcomes as it gives consumers time for consideration and opportunity to compare the offering with alternative products.

ASIC has further specified the requirements prior to the four-day deferral period, including information that must be given to consumers and the required methods to give the information. ASIC considers this a key reform in the add-on insurance market, as it recognises the concerns that those products have been widely mis-sold with poor value and involving unfair sales practices.

Further Reading

ASIC’s approach to new laws reforming financial services sector

RG38 – The Hawking Prohibition

RG78 – Breach Reporting by AFS Licensees

RG271 – Internal Dispute Resolution

RG274 – Product Design and Distribution Obligations

RG275 – The Deferred Sales Model for Add-On Insurance

About The Author

Alicia Pevely

Alicia Pevely

An integral member of the Sophie Grace team since 2012, Alicia has extensive experience in relation to financial services law, consumer credit law, regulatory matters and ASIC investigations. Working closely with her clients, Alicia has maintained a significant emphasis on AFS and credit licensing and liaising with ASIC. As General Manager, Alicia has oversight of all licence applications and provides advice and support in relation to more complex applications.