Australian Regulatory Trends 2019

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DISTRIBUTION OBLIGATIONS ON PRODUCT DISTRIBUTORS

NEW PRODUCT INTERVENTION POWERS FOR ASIC

New distribution obligations will also be imposed on the person responsible for making offers, or giving advice or disclosure documents to potential investors (i.e. product distributors). A product distributor will be prohibited from engaging in retail product distributionconductunlessatargetmarket determination has beenmade, or engaging in retail product distribution conduct where a target market determination may no longer be appropriate. In addition, the product distributor will be under an obligation to: –– take reasonable steps to ensure that retail product distribution conduct is consistent with the target market determination; –– collect and provide information specified by the product issuer and complaints related to the distribution of a product; and –– notify the product issuer of significant dealings inconsistent with the target market determination. What is reasonable will depend on the scale of harm of the product if wrongly distributed, as well as the probability of it being wrongly distributed.

The new product intervention powers under the Product Design and Distribution Bill permits the Australian Securities and Investments Commission ( ASIC ) to proactively intervene to reduce harm to consumers before a breach occurs. This may include regulating or banning potentially harmful financial and credit products where there is a risk of significant detriment to retail clients. Where a product is determined by ASIC to cause significant detriment to consumers, ASIC will be able to issue a stop order and take other action that it considers appropriate. Factors which will be relevant to ASIC’s determination as to whether consumer detriment is “significant” for the purposes of this new power include: the nature and extent of the detriment (including any actual or potential financial loss to retail clients), and the impact of the detriment on retail clients. ASICwill be required to satisfy consultation and notification obligations before an intervention order is made.

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