Thinking | 8 July 2020

ASIC finalises its regulatory guidance on its product intervention power

By Vince Battaglia and Harry New

In this article, we outline ASIC’s new regulatory guidance on the administration of its product intervention power. We compare it with the draft regulatory guide ASIC issued last year and describe some of the developments in ASIC’s use of this power.

Overview

  • On 17 June, ASIC published ASIC Regulatory Guide 272 Product intervention power (RG 272), which provides an overview of ASIC’s product intervention power (PIP).
  • RG 272 takes into account ASIC’s consultation on the draft regulatory guide in 2019, as well as the recent decision in Cigno Pty Ltd v Australian Securities and Investments Commission [2020] FCA 479 (Cigno).
  • ASIC has consulted on a number of proposed product intervention orders (PIOs) and issued a PIO in respect of a model of short-term lending.

Background

ASIC’s PIP came into effect on 6 April 2019, with the commencement of Schedule 2 of the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019 (Cth) (PIP Act).

The PIP Act amended the Corporations Act 2001 (Cth) (Corporations Act) and the National Consumer Credit Protection Act 2009 (Cth) (NCCP Act) to confer on ASIC the power to proactively intervene and make orders prohibiting specified conduct in relation to certain financial products and credit products, on an industry or individual basis, where the conduct results or is likely to result in significant detriment to retail clients.

Last year, ASIC consulted on a draft version of RG 272 from 26 June to 7 August (for more information on the draft guide, see our earlier article here).

According to ASIC, RG 272 takes into account the consultation process and the judgment in Cigno, handed down on 15 April, in relation to PIP (for more information on this decision, see Issue 38 of our fortnightly regulatory round-up).

Developments since the consultation

Since releasing the draft RG 272, ASIC has made a number of changes to the guidance. To clarify some of these changes, ASIC also released ASIC Report 661 Response to submissions on CP 313 Product intervention (REP 661).

We outline some of these changes in the table below.

Changedescription
PIOs in respect of classes of financial productsIn Cigno, Stewart J held (among other things) that there need not be any existing products, or more than one product, in a ‘class’ of financial products, before ASIC may exercise its PIP in relation to that class of financial products.

These observations are reflected at RG 272.23. In comparison to the draft RG 272, ASIC also added comments that a market-wide PIO is likely to be appropriate even where a practice is not currently widespread, but there is a risk that the practice will be ‘phoenixed’ or adopted by others.
Causing significant consumer detrimentIn Cigno, Stewart J also held that relevant detriment need not result from features inherent to the financial product – it is sufficient for detriment to result from particular circumstances in which the product was issued or offered. ASIC added an additional note at RG 272.47 to reflect these observations.
Notifying consumers about PIOsAt RG 272.29 to RG 272.31, ASIC added a reference to its power under section 1023N of the Corporations Act and section 301N of the NCCP Act to require a specified person to notify existing customers about a PIO.
Factors relevant to whether a financial product has, will, or is likely to result in significant consumer detrimentAt RG 272.51, ASIC listed various matters it may take into account when considering if a product is likely to result in significant consumer detriment. In RG 272, a new matter was added: ‘products, conduct or methods of distribution of a sufficiently similar nature that have previously resulted in significant consumer detriment’.

ASIC also inserted a further factor to Table 1, which provides a non-exhaustive list of factors that ASIC may consider. The new factor is the ‘impact that the detriment has had, will have or is likely to have on consumers’. In REP 661, ASIC explained that while it is required to specifically consider financial loss, ASIC may also take non-financial loss into consideration.
Balancing regulatory objectivesRG 272 does not contain the paragraphs 000.57 to 000.59 of the draft RG 272, which outlined briefly ASIC’s approach to balancing its objectives as set out in the Australian Securities and Investments Commission Act 2001 (Cth) and the impact of ASIC’s actions on competition in the financial system (where they came into opposition).
ConsultationAt RG 272.66, ASIC added a clarification that the nature of its consultations may vary significantly in different cases.

At RG 272.67, which states that ASIC is required to consult with APRA before making a PIO that will apply to an APRA-regulated body, ASIC added that it will also consult with other regulators as appropriate.

Other developments

Since the commencement of PIP, ASIC has also:

  • consulted on and made a PIO banning a model of lending in the short-term credit industry;
  • consulted on a proposed PIO to prohibit the issue and distribution of over-the-counter (or OTC) binary options to retail clients and to impose certain conditions on the issue and distribution of OTC contracts-for-difference (CFDs); and
  • consulted on a proposed PIO to impose certain conditions in relation to the sale of add-on financial products through car yard intermediaries.

Conclusions

Financial services and credit participants who have dealings with retail clients should be mindful of ASIC’s PIP.

Those interested in acquiring businesses dealing with complex products (or companies holding AFSLs with complex product authorisations), should keep in mind the broad nature of ASIC’s product intervention power. They should also be aware that ASIC surveys segments of the financial services industry (such as CFDs).

In publishing RG 272, ASIC noted that the availability of PIP is ‘particularly timely’ in light of the impact of COVID-19.

Contact

Vince Battaglia

Vince is an experienced funds management and financial services practitioner, working with Australian and global fund managers.

Harry New

Harry leads our financial services team and focuses extensively on financial services law and corporate advisory.

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