Hawking: ASIC lands its final guidance for the sale of financial products
ASIC has released its final guidance on the new hawking regime that commences on 5 October 2021[1]. This is ASIC’s last major piece of regulatory guidance ahead of the introduction of next month’s suite of reforms affecting the insurance and financial services sector.
In this article, we summarise:
- how the new hawking regime will apply;
- the key parts of ASIC’s updated guidance; and
- issues to consider.
Hawking regime: summary
The long-standing hawking prohibition is being reformed to reduce the risk of unsolicited sales of financial products resulting in mis-selling and inappropriate consumer outcomes.
The 2018 Financial Services Royal Commission identified numerous examples of this risk. Particular criticism focused on the regulation of the direct sale of insurance that permits offers to be made in unsolicited phone calls. As an interim step, ASIC banned cold call sales of life insurance and consumer credit insurance products in January 2020.
In essence, the new hawking regime prohibits product issuers and their representatives from making offers to sell retail clients financial products where the offer takes place during or ‘because of’ unsolicited contact. The new law:
- harmonises the existing law into a reformulated single prohibition in s992A of the Corporations Act 2001 (Cth) that applies to all types of financial products;
- extends the prohibition to cover not only offers to sell financial products but also requests or invitations to ask for or apply for financial products;
- defines the concept of ‘unsolicited contact’ as:
- contact to which a consumer did not consent; and
- contact made in a real-time interaction in the nature of a discussion or conversation, such as during a face-to-face meeting or phone call.
A breach of the new law will be a strict liability criminal offence. It will give consumers the right to return products for a full refund for up to four weeks beyond the expiry of any cooling-off period.
Key updates to ASIC’s guidance
ASIC’s updated guidance in RG 38 follows its consultation on the draft guidance that was released in July 2021. This table summarises the main points.
Permitted forms of communication
| Activity | Permitted? | Additional guidance |
| Providing unsolicited advertising or information to consumers |  | The updated guidance reiterates that this will fall outside of the hawking regime where this occurs separately to a discussion (but noting the separate regulation of advertising under the Corporations Act). |
| Providing information about unsolicited products during a discussion | | So long as this information does not contain a quote or a request to complete an application form. |
| Providing follow-up information that contains a quote or an application form |  | ASIC considers that any follow-up information that contains a quote or application form will be an offer or invitation made ‘because of’ the initial unsolicited contact, and so this communication will be prohibited.
A solution is for the follow-up information to:
|
| The use of pop-up advertisements that appear in apps or on websites | | Pop-ups are not regarded as a form of real-time interaction, and may contain links for consumers to click on to apply for unsolicited products. |
Cross-selling, multi-policy discounts and renewals
| Activity | Permitted? | Additional guidance |
| Providing information about a second, unsolicited product during the sale of a solicited product | | This information may also be provided subsequently to the discussion, such as by email. As noted above, the key point is to ensure that the consumer has to take a positive step to re-initiate contact following receipt of this information, which cannot occur during the initial discussion. |
| Providing information about multi-policy discounts that apply during the sale of a solicited product | | As with cross-selling, this is permitted on the basis that the information can be acted on later if the consumer wishes to take advantage of this and re-initiate contact. |
| Making unsolicited offers to renew an existing insurance policy or basic banking product | | ASIC has clarified that although these products will be ‘new’ products once renewed, an unsolicited renewal is permitted – so long as the renewal offer is made no later than 30 days after the existing product expires. The same guidance applies where an insurance policy is reinstated following a lapse. |
Consent
| Activity | Permitted? | Additional guidance |
|
Can offers for sale be made where consumers voluntarily and on their own initiative raise several or additional products during the course of a discussion? | | Offers or sales may be made for each product as the consumer will be treated as having given a valid consent to receive offers about all of them. |
| Can questions be asked to clarify the scope of a consumer’s consent where a consumer misunderstands the scope of an insurance cover? | | Care should be taken to clarify the nature of the insured risk that the consent relates to. For example, where a consumer initiates a discussion about an insured risk but misunderstands the type of insurance cover that applies to this risk, it will be permitted to be ask questions to clarify and identify the appropriate insurance and make offers for this without breaching the hawking regime. |
Issues to consider
ASIC’s final guidance is a welcome update that meets many of the requests made from industry and stakeholders for further detail on how to comply with the new regime. It also provides an increased number of practical examples.
In particular, ASIC further clarifies how it will assess when a subsequent contact is ‘because of’ an earlier, unsolicited contact. This will be helpful for product issuers and their representatives who have sought to understand how they can adapt commonly used sales practices and their ‘natural’ interactions with customers to the new regime. This guidance confirms ASIC’s industry-friendly view that the causal nexus here can be broken more easily than a conventional legal interpretation of the legislation would otherwise suggest.
Product providers and their representatives will want to consider how this final guidance will affect the planned changes to their distribution networks, with a view to considering – in the time available – what changes may optimise their sales processes as part of their compliance with the new law. This may include strategies to optimise the quality of the consents obtained, such as through advertising, and lead conversion through the provision of follow-up information.
How we can help
Hall & Wilcox’s team of experts in financial services regulation have deep experience across the full range of financial products impacted by the hawking regime as well as by the other elements of the financial services legislation reform programme.
Contact us to find out how we can help assess and improve sales and distribution processes to comply with the new law.
[1] Regulatory Guide 38: The hawking prohibition (RG 38) and Report 701: Response to Submissions on CP 346 The hawking prohibition: update to RG 38. The new regime has been enacted in Schedule 5 of the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (Cth).