Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon Josh Frydenberg MP)
Chapter 5 - Hawking of financial products (recommendations 3.4 and 4.1)
Outline of chapter
5.1 Schedule 5 to the Bill amends the Corporations Act to ban the hawking of financial products. In particular, the amendments strengthen the existing prohibitions on offers of financial products, securities and interests in managed investment schemes during the course of, or because of, unsolicited contact with a consumer.
5.2 These amendments implement recommendations 3.4 and 4.1 of the Financial Services Royal Commission.
Context of amendments
5.3 The Corporations Act currently contains three separate prohibitions for the hawking of financial products, securities, and interests in managed investment schemes. The Financial Services Royal Commission found that the existing prohibitions did not effectively protect consumers from harm.
5.4 The revised prohibition on the hawking of financial products means that consumers have greater control over their decisions to purchase financial products by determining how they want to be contacted and the kinds of financial products they are offered.
Operation of current law
The general prohibition on hawking
5.5 The primary anti-hawking provisions are located in Division 8, Part 7.8 of Chapter 7 of the Corporations Act. Under section 992A(1) of the Corporations Act 'a person must not offer financial products for issue or sale in the course of, or because of, an unsolicited meeting with another person'.
5.6 The term 'financial product' is defined in Chapter 7 of the Corporations Act. Broadly, a 'financial product' includes insurance products, superannuation interests, shares, interests in managed investment schemes (whether or not they are registered), currency trading, and other products.
Exceptions to the general prohibition
5.7 The Corporations Act provides a number of exceptions to the general prohibition on hawking.
5.8 Broadly, these exceptions include:
- offers of financial products to a person who is not a retail client (see section 992A(3A) of the Corporations Act); or
- offers of financial products under an eligible employee share scheme (see section 992A(3B) of the Corporations Act).
5.9 Further, section 992A(3) of the Corporations Act prohibits a person from making an offer to issue or sell financial products in the course of, or because of an unsolicited telephone call or unsolicited contact with another person unless it is made during certain prescribed hours and the other person is not listed on the do not call register.
5.10 The general prohibition on hawking does not apply to offers of interests in a managed investment scheme or securities, which are covered by specific hawking prohibitions.
Specific hawking prohibitions
5.11 In addition to the general hawking prohibition, there are two specific prohibitions that apply to the hawking of interests in managed investment schemes and securities in sections 992AA and 736 of the Corporations Act, respectively.
Prohibition on the hawking of interests in a managed investment scheme
5.12 Section 992AA(1) of the Corporations Act prohibits offering interests in a managed investment scheme for issue or sale in the course of, or because of, an unsolicited meeting or telephone call.
5.13 However, the prohibition does not apply to:
- offers made to a wholesale client (see section 992AA(2)(a) of the Corporations Act);
- offers of interests in a listed managed investment scheme made by telephone by a financial services licensee (see section 992AA(2)(b) of the Corporations Act);
- offers by a financial services licensee to existing clients who acquired or disposed of interests in a managed investment scheme in the previous 12 months (see section 992AA(2)(c) of the Corporations Act); or
- offers under an eligible employee share scheme (see section 992AA(2)(d) of the Corporations Act).
Prohibition on the hawking of securities
5.14 Section 736(1) of the Corporations Act specifically prohibits offering to sell or issue securities in the course of, or because of, an unsolicited phone call or meeting.
5.15 However, the prohibition does not apply to:
- offers not requiring disclosure documents because the offeree is a professional or sophisticated investor; or
- offers of listed securities made by telephone by a licensed securities dealer; or
- offers of securities by a licensed securities dealer to a client who has bought or sold securities through that dealer in the last 12 months; or
- offers made under an eligible employee share scheme.
Summary of recommendations 3.4 and 4.1 of the Financial Services Royal Commission
5.16 The Financial Services Royal Commission found that the existing anti-hawking provisions do not effectively protect consumers from harm. Case studies showed widespread unsolicited sales of superannuation and insurance products and that hawking methods often contributed to consumers purchasing products that did not meet their needs.
5.17 Recommendations 3.4 and 4.1 of the Financial Services Royal Commission were that the hawking of superannuation and insurance products should be prohibited except to those who are not retail clients and for offers made under an eligible employee share scheme.
5.18 Commissioner Hayne also recommended amending the law to make clear that contact with a person during which a product is offered is unsolicited unless the person attended the meeting, made or received the telephone call, or initiated the contact for the purpose of inquiring about, discussing or entering into negotiations in relation to the offer of that product.
5.19 In response to the Financial Services Royal Commission, the Government agreed to:
- prohibit the hawking of superannuation and insurance products; and
- clarify the definition of hawking for a financial product to include selling of a financial product during a meeting, call or other contact initiated to discuss an unrelated financial product.
5.20 The Government also noted in its response that that the Financial Services Royal Commission did not propose restricting the ability of insurers to contact policyholders in relation to existing policies
Summary of new law
5.21 Schedule 5 amends the Corporations Act to give consumers the power to guide their conversations in relation to financial products. It achieves this by including a new general prohibition of offers to sell or issue financial products made in the course of, or because of, unsolicited contact. The general prohibition will apply to all kinds of financial products, including securities and interests in managed investment schemes, except in certain circumstances.
5.22 Unsolicited contact is any contact in relation to a financial product to which the consumer did not consent that is made by telephone, in face-to-face meetings or any other real-time interaction which is in the nature of a discussion or conversation. Contact is not unsolicited if the consumer consented to the contact in relation to the financial product. For a consumer to consent to contact, they must make a positive, voluntary and clear request to be contacted about the financial product.
5.23 The consent must be provided before the contact is initiated. This means that offers cannot be made to consumers during cold calls or other unsolicited contact even if the consumer makes a positive, voluntary and clear request during that contact.
5.24 The amendments in Schedule 5 also give consumers the power to specify how they can be contacted and the power to withdraw or vary consent at any time. This ensures consumers have control over the form of the contact and can stop the contact from continuing if they are no longer interested in the relevant financial product or no longer wish to be contacted.
Comparison of key features of new law and current law
|New law||Current law|
|The new law prohibits offers to sell or issue financial products to a retail client in the course of, or because of, unsolicited contact.
This includes offers to sell or issue interests in a managed investment scheme.
Requests or invitations to a retail client to ask for or apply for a financial product or to purchase a financial product are prohibited.
|The current law prohibits offers to sell or issue financial products in the course of, or because of, unsolicited phone calls or meetings.
The general and managed investment scheme hawking prohibitions only apply to offers made to retail clients. The securities hawking prohibition does not apply to sophisticated investors.
|Unsolicited contact is contact to which the consumer did not consent which is made by telephone call, face-to-face meetings, or any other real-time interaction in the nature of a discussion or conversation.||Unsolicited conduct is not defined.|
|The new law establishes a general prohibition that applies to the hawking of all financial products.||The hawking regime includes three separate hawking prohibitions. One general prohibition, one for managed investment scheme interests and another for securities.|
Detailed explanation of new law
5.25 Section 992A of the Corporations Act currently prevents a person from offering certain financial products for issue or sale in the course of, or because of, an unsolicited meeting or telephone call with another person.
5.26 The amendments modify section 992A of the Corporations Act to strengthen and broaden the existing hawking prohibition.
5.27 Under the revised prohibition, a person is still prohibited from offering a financial product for issue or sale to another person, but is also prohibited from requesting or inviting another person to ask or apply for or purchase a financial product if the offer, request or invitation is made in the course of, or because of, unsolicited contact with the other person. [Schedule 5, item 2, section 992A(1) of the Corporations Act]
5.28 Extending the prohibition beyond offers to also include requests and invitations means that a person cannot avoid the hawking prohibition by approaching a consumer and asking them to request a financial product or by asking a consumer to fill in an application to be sold or issued a financial product.
5.29 Unlike the existing anti-hawking provisions, which consist of three separate regimes (for the offer of interests in a managed investment scheme, for securities and for other financial products), the revised prohibition on hawking applies to all financial products. [Schedule 5, item 2, section 992A(1) of the Corporations Act]
5.30 The prohibition is limited to offers, requests and invitations in relation to financial products, and is not a prohibition on hawking products generally. This means that while offers, requests and invitations for financial products (for example, car insurance) are covered by the hawking rules, offers, requests and invitations for products that are not financial products (for example, roadside assistance) are not.
5.31 The hawking rules apply to the person (including a body corporate) who undertakes the prohibited activity. Applying the prohibition to such persons means that it is not limited to the provider of a financial service product - it can include, but is not limited to, agents and representatives of the provider of a financial product. Further, as entities are responsible for the actions of their agents and representatives, the hawking prohibition cannot be circumvented by engaging a third party to make offers on their behalf. Where there is no such relationship between a provider of a financial product and a third party who makes an offer, request or invitation, the third party will be solely responsible for any contravention of the hawking prohibition.
5.32 The prohibition will only apply to offers, requests and invitations that are made to retail clients. It does not apply to wholesale clients. [Schedule 5, item 2, section 992A(1)(a) of the Corporations Act]
5.33 The term 'retail client' has the meaning given by sections 761G and 761GA of the Corporations Act. In general terms, limiting the prohibition to retail clients ensures that offers, requests or invitations about financial products to sophisticated investors or wholesale clients (such as businesses that are not small businesses) are not prohibited. Such consumers are more capable of assessing the value of a financial product offered in the course of unsolicited contact and are less susceptible to pressure selling tactics.
5.34 The hawking rules do not prevent a person from contacting an existing client about a financial product that has already been purchased or that is provided under a contract which is still in force. Any offer involving the extension of the term of a contract that is still in force would not involve an offer, request or invitation about a new financial product, and is therefore outside of the scope of the hawking prohibition.
Example 5.1 : Offer to extend existing contract Taylor has a contract with Imaginative Insurance for comprehensive motor vehicle insurance for his car. Prior to his policy expiring, a representative from Imaginative Insurance calls Taylor to ask him if he would like to extend his policy before it expires. This extension relates to Taylor's existing policy and does not involve an offer relating to a new financial product.This offer is not prohibited by the hawking rules because it is in relation to a contract that Taylor currently holds with Imaginative Insurance.
5.35 A further exception is also expected to be introduced through the regulations to allow product issuers to contact customers about renewals of contracts that involve the creation of a new financial product, including the renewal of an expired contract. This exception will not apply to contact that occurs more than 30 days after the contract expires.
5.36 In the case of a superannuation product, superannuation trustees are permitted to contact existing fund members about their benefits, including in relation to changes to their insurance held through superannuation. However, as discussed further below, they will not be permitted to make unsolicited contact with their members to offer, request or invite them to apply for the issue of a new superannuation product (as it is defined for the purposes of this prohibition).
Contravention is an offence of strict liability
5.37 A contravention of the prohibition remains an offence of strict liability. [Schedule 5, item 2, section 992A(9) of the Corporations Act]
5.38 This is consistent with the previous prohibitions on hawking for financial products other than securities. In maintaining a strict liability offence for contraventions of the revised prohibition, the Guide to Framing Commonwealth Offences has been considered. The maximum penalty applicable for contravening the prohibition is 60 penalty units for persons other than a body corporate, which is consistent with the Guide to Framing Commonwealth Offences. The maximum penalty for bodies corporate is 600 penalty units (see the table item in Schedule 3 relating to sections 992A(1), 1311B and 1311C of the Corporations Act). While this amount exceeds the amount of 300 penalty considered appropriate in the Guide to Framing Commonwealth Offences for bodies corporate, the departure from that amount is appropriate in these circumstances. The amount is based on the standard multiplier applicable to bodies corporate under the Corporations Act. This uplift provides a genuine deterrent for bodies corporate to be genuinely deterred from engaging in criminal behaviour that is prohibited by these amendments.
5.39 Corporate participants in the financial sector often have significant resources, which may encourage some operators to view lower penalties as a cost of doing business when compared to the chances of getting caught, and the overall gains to be made from engaging in the criminal behaviour. An increased penalty of 600 penalty units effectively neutralises any profit-based incentive to break the law, and is appropriate to direct toward bodies corporate because it is commensurate with a body corporate's potential size, resources and capacity.
5.40 The Guide to Framing Commonwealth Offences has also been considered in determining the appropriateness of maintaining an offence of strict liability. In this regard, the Guide to Framing Commonwealth Offences outlines that strict liability offences are also appropriate where they are likely to enhance the effectiveness of the enforcement regime, and where there are legitimate grounds for penalising persons lacking fault.
5.41 The Financial Services Royal Commission highlighted the widespread unsolicited sales of superannuation and insurance products, and that hawking methods often contributed to consumers purchasing products that did not meet their needs.
5.42 Maintaining a strict liability offence for the revised prohibition is appropriate and necessary for deterring this misconduct, which can have a serious detrimental impact for consumers. Strict liability offences are likely to enhance enforcement by deterring unsolicited offers, requests and invitations in relation to financial products. A financial services provider will always have control over when they make such an offer, request or invitation and will be aware of all matters that are relevant to demonstrating whether the contact is unsolicited or not.
5.43 The application of strict liability, as opposed to absolute liability, preserves the defence of honest and reasonable mistake of fact to be proved by the accused on the balance of probabilities. This defence maintains adequate checks and balances for persons who may be accused of such offences.
Advertising and provision of information
5.44 The hawking prohibition does not prevent a person from general advertising of financial products or providing information to consumers in respect of financial products that they offer. Standard forms of advertising do not involve an offer, or a request or invitation to a consumer in a form of contact that is covered by the prohibition. A person is free to provide information about their products to a consumer in any form that they wish as long as the mere provision of information does not amount to an offer, request or invitation.
5.45 Additionally, the hawking prohibition would not apply if a consumer actively contacts a person about a financial product after seeing an advertisement for the product, or having received information about it. The positive action by the consumer to contact the person would break the causal nexus, which is discussed further below. In such cases, the contact in relation to the product would be 'because of' the consumer making a request.
Example 5.2 : Information sessions Gary attends an information session being run by Ros from Very Good Super Fund at his workplace. Ros tells the attendees about the benefits and features of the different superannuation products that Very Good Super Fund has available.During the information session, Ros does not make any offer, request or invitation in relation to the different superannuation products. As such, Ros's contact with the attendees during the session does not come within the scope of the hawking rules.However, as Gary is leaving the information session Ros hands him an application form for the Very Good MySuper product and asks him to fill it out. Ros has breached the hawking rules because Gary did not consent to being invited to apply for a superannuation product before Ros gave him the application form and asked him to fill it out. If Gary had approached Ros and asked her how to apply before he had been given the application form then Ros would not have breached the hawking rules.
Application to superannuation interests
5.46 The hawking prohibition applies to any offers, requests or invitations that are made in relation to a class of beneficial interest in a superannuation fund. This is achieved by treating each class as a separate financial product for the purposes of the hawking rules. [Schedule 5, item 2, section 992A(8)]
5.47 Differentiating between different classes of beneficial interests in a superannuation fund is consistent with the approach that is generally taken under the SIS Act, which envisages that there are distinct types of beneficial interest in a superannuation fund. In broad terms, the different types of classes are 'MySuper products' and 'choice products' (which are both defined in section 10 of the SIS Act), and defined benefit interests (which are not specifically defined but are usually referred to as a class of beneficial interests held solely by defined benefit members).
5.48 Treating each class of interests in a superannuation fund as separate financial products ensures that the prohibition applies to any offers, requests or invitations to a member of a superannuation fund to switch between different types of superannuation interest in a fund of which they are already a member (for example, an offer, request or invitation to a default MySuper member to switch to a choice product). As retirement phase products are particular types of choice product, the prohibition applies to any offers, requests or invitations that are made to a member about converting their accumulation interest into a pension, annuity, or other retirement phase interest. However, as discussed above, trustees are not prohibited from contacting their members to provide them with information. For example, the hawking rules permit a trustee to contact a member who is approaching retirement with information about different retirement income products offered by the fund provided that the trustee does not make an offer, request or invitation to the member.
5.49 The deeming provision is limited to the hawking rules and does not affect any other provision of the Corporations Act.
5.50 In the superannuation context, the hawking prohibition does not apply to investment and insurance options for members that form part of a superannuation interest. Such options are not financial products.
Offers, requests or invitations made 'because of' unsolicited contact
5.51 Under the prohibition, an offer, request or invitation is only prohibited if it is made in the course of, or because of, unsolicited contact.
5.52 Further, an offer, request or invitation that is made during unsolicited contact with a consumer will constitute an offer, request or invitation made 'in the course of' unsolicited contact.
5.53 Consistent with the existing hawking prohibition, the words 'because of' mean that an offer will only be prohibited where there is a causal nexus between the unsolicited contact and the offer, request or invitation. The inclusion of the words 'because of' seeks to address the situation in which a person makes unsolicited contact with a consumer, but the actual offer, request, or invitation is made during subsequent contact that is solicited by the consumer.
5.54 Whether or not an offer, request or invitation in relation to a financial product is 'because of' unsolicited contact will depend on the facts and circumstances of each case. An offer, request or invitation will not be 'because of' unsolicited contact where the link between the offer, request or invitation and the unsolicited conduct is trivial, insignificant or remote.
5.55 The causal nexus will be broken between unsolicited contact and a subsequent offer, request or invitation if, after the unsolicited contact occurs:
- the consumer takes active steps to consent to further contact involving an offer, request or invitation in relation to the financial product (for example, calling the person to ask for the product or emailing the person to ask to be contacted about acquiring the financial product); and
- the consumer has had a reasonable opportunity after the unsolicited contact to consider any information that they have been provided about the financial product and assess its suitability.
5.56 The causal nexus will be broken if a consumer obtains personal advice about a financial product after the unsolicited contact and subsequently consents to further contact in relation to that product.
5.57 However, consent will not be valid if a consumer has been pressured or manipulated into providing it. In such cases, any subsequent offer, request or invitation would be made in the course of unsolicited contact. In other words, a person cannot elicit consent from the consumer to be contacted at a later time and then make an offer during that later instance of contact.
Example 5.3 : Offer must be 'because of' unsolicited contact Jonathan has a meeting with his bank to discuss refinancing his mortgage. During the meeting the bank representative provides Jonathan with some brochures about the insurance products that the bank offers. A few days after the meeting, Jonathan reads the brochures and decides to call the bank and ask for a quote for life insurance. During the call, the sales representative offers to sell Jonathan a life insurance policy.The offer does not breach the hawking rules because it was not made 'because of' the initial meeting. Instead it was made because Jonathan took positive steps to consent to being contacted in relation to the policy, had reasonable opportunity to consider the information, and was not pressured into providing that consent.
Forms of contact
5.58 The revised prohibition is technology neutral and will apply to offers which are made during the course of or because of contact which is made via telephone, in face-to-face meetings or in any other real-time interaction in the nature of a discussion or conversation. [Schedule 5, item 2, section 992A(1)]
5.59 This captures interactions between a person and a consumer where they are responding to each other continuously in real-time. That is, the person and the consumer are communicating in a way which is similar to a telephone call or face-to-face meeting because there is an expectation on both parties that the other will provide an immediate response. It does not matter for the purpose of the hawking prohibition whether the communication is written or verbal.
5.60 The hawking prohibition does not apply to communication between a person and a consumer where there is no expectation of either party responding to the communication immediately or where the form of communication necessarily means that there will be a delay in the consumer responding to the person (for example, a consumer could not respond to a hard-copy letter in real-time).
Example 5.4 : Real time interaction Brian contacts Classic Car Cover and requests a face-to-face meeting to discuss options for taking out car insurance in relation to a vintage car that he has just purchased. Classic Car Cover advises Brian that they do not have a sales representative in his area to meet with him in person but can discuss his options either by phone, or by using an online chat service through their website.Brian agrees to use the online chat service. The service allows Brian to discuss his insurance options with a Classic Car Cover representative in real-time. After providing Brian with information about his car insurance options and answering his questions through the service, the Classic Car Cover representative offers Brian one of their car insurance policies.As the contact with Brian through the chat service is conducted in real-time and constitutes a discussion and conversation, the offer and contact are within scope of the hawking rules. However, as the offer was in scope of Brian's original consent to be contacted through the chat service in relation to the car insurance policy, neither the representative nor Classic Car Cover has contravened the hawking rules.
Consumer can specify the form of the contact
5.61 If a consumer chooses to consent to be contacted, the consumer can also limit the form of the contact that they consent to. If a consumer specifies the form of the contact that they consent to and a person subsequently contacts them in a different form then that contact will be unsolicited contact. [Schedule 5, item 2, section 992A(5)(e) of the Corporations Act]
Consumer must consent to contact
5.62 A person can only offer to sell or issue a financial product to a consumer if the consumer has specifically consented to being contacted for the purpose of making the offer for that product, or where the offer was reasonably within the scope of the consumer's consent. [Schedule 5, item 2, section 992A(5)(a) of the Corporations Act]
5.63 Similarly, a person cannot request or invite a consumer to apply for a financial product unless the consumer has consented to the request or invitation to apply for that product, or the request or invitation is reasonably within the scope of the consumer's consent. [Schedule 5, item 2, section 992A(5)(b) of the Corporations Act]
5.64 These requirements reflect the various actions that are prohibited by the hawking rules. While the provider of a financial product may engage in many other types of actions, consent under the hawking rules is only necessary in relation to an action that is prohibited (and is not required, for example, when providing information to a consumer or advertising).
5.65 An offer, request or invitation in relation to a financial product will be reasonably within the scope of the consumer's consent if:
- the consumer has consented to contact in relation to products of a particular type or with particular features, and the product is of that type or has those features;
- the consumer asks for a product which has a particular purpose or function and the financial product that is offered has that purpose or function; or
- a reasonable person would consider the financial product to be within the scope of the consumer's consent.
5.66 A reasonable person should consider a financial product to be within the scope of the consumer's consent if it:
- covers the risks that the consumer consented to being contacted about;
- has the same purpose or function as the product that the consumer consented to being contacted about; or
- is so closely related to the product that the consumer consented to being contacted about that the consumer would reasonably expect to be offered that product.
5.67 A consumer may be offered more than one financial product during the contact if the consumer consented to being contacted about multiple products before the contact, or the consumer's consent is sufficiently broad so as to reasonably apply to more than one product.
Example 5.5 : Products outside the scope of consent Kayla calls Big Insurance Co and asks the sales representative, Tom, to give her a quote for third party property damage insurance for her car. Tom tells Kayla that Big Insurance Co is currently offering a discount to clients who take out car and home insurance policies as part of a package and asked Kayla if she would like a quote for home insurance as well.The offer of the insurance package is outside the scope of Kayla's request because she did not consent to contact involving offers about any product other than third party property damage insurance. Tom has therefore contravened the hawking prohibition.
Example 5.6 : Multiple products Alex calls Trusty Bank, a competitor of his existing bank, and advises the customer service representative that he wishes to refinance the mortgage over his investment property and to 'sort out' the related insurance arrangements. The customer service representative arranges a meeting with one of Trusty Bank's sales representatives, Emily.During their meeting, Emily offers Alex the option of applying for refinancing through Trusty Bank and offers him quotes in relation to their home building insurance and landlord insurance. During the meeting, Alex also asks Emily about home and contents insurance options in relation to his residential property. Emily provides Alex with information about Trusty Bank's home and contents insurance products.The offer in relation to the mortgage refinance is within scope of Alex's consent as he specifically requested contact in relation to it. Although Alex did not specifically refer to the home building and landlord insurance products that Emily offered him, those products are also within the scope of his consent as they are clearly related to his investment property. Trusty Bank's home and contents insurance products are outside the scope of the consent that Alex provided before the meeting because they do not relate to his investment property. However, Emily has not contravened the hawking prohibition in relation to those products as she has only provided information in relation to them.
5.68 In the context of superannuation interests, if a member requests that a trustee contact them to discuss the issue or sale of superannuation generally, a trustee could discuss both MySuper and choice products, because the consent is broad enough to capture both. However, if the consumer instead asks for retirement products, the trustee could not offer the consumer a pre-retirement accumulation product because the consent was not broad enough to capture the second product
5.69 A choice product would also not be within scope of a specific request about a fund's MySuper product. As all MySuper products must comply with the provisions of Part 2C of the SIS Act, all MySuper products have the same core characteristics. Another distinguishing factor between MySuper and choice products is that a superannuation fund has to be provided with authority by APRA to offer a MySuper product whilst there is no equivalent in relation to the offering of choice products.
5.70 Therefore, a consent that only covers contact about a superannuation fund's MySuper product would therefore be restricted to the MySuper product, and would not extend to contact about the fund's other products.
5.71 However, as it is possible for a consumer's consent to be broader than a particular product or class of products, whether or not a fund can make an offer, request or invitation in relation to any particular superannuation product will ultimately depend on the scope of the consumer's consent.
Consent must be given prior to the contact
5.72 For a consent to be valid the consumer must give it before the contact occurs. This means that a person cannot elicit consent from a consumer for the contact after the contact has already begun. [Schedule 5, item 2, section 992A(5)(c) of the Corporations Act]
5.73 This requirement means that a person cannot cold-call a consumer and obtain consent during that call to offer them a financial product.
5.74 Where a consumer consents to be contacted about one financial product, a person cannot elicit consent from the consumer to be contacted about another financial product. In practice, this means that if a consumer contacts or consents to be contacted by a person about one financial product, then that person cannot offer the consumer any other financial product even if the consumer gives consent to be contacted about that financial product during the contact.
Consent must be positive and voluntary
5.75 A consumer's consent must be positive and voluntary. This means that a consumer must take an active step to consent to the contact, such as calling the provider of a product and asking to discuss a financial product or submitting a form online indicating that the provider should contact the consumer. The consumer must have taken this step voluntarily, meaning that the consent will not be valid if the consumer was pressured or forced into consenting to be contacted. [Schedule 5, item 2, section 992A(5)(d) of the Corporations Act]
5.76 Consent is positive if it involves a conscious decision by the consumer to seek a financial product. A consumer response to a leading question or failing to ask for no future contact is not consent for the purposes of the prohibition.
5.77 A consumer's consent is not voluntary if they are coerced or pressured into giving the consent, for example, to receive another service or take up another opportunity. However, it is intended that consent would be voluntary if the consumer was aware that they would need to consent to being contacted about a financial product before they took steps to receive that other service or take up an opportunity.
5.78 Consent is neither voluntary nor positive if a consumer only becomes aware that they have provided consent after the fact (for example, where a consumer has filled out a competition form but did not know that in doing so, to enter the competition, they were consenting to being contacted about a financial product).
Consumer consent must be clear and understood
5.79 For a consent to be valid the consumer must also be clear about what they are consenting to. If the consumer is vague or ambiguous about what they are consenting to then it is not a valid consent. [Schedule 5, item 2, section 992A(5)(e) of the Corporations Act]
5.80 The consumer must clearly indicate what product, or the purpose and function of the product, that they want to be contacted about. In cases where a consumer gives a consent that is unclear, a person would need to obtain further information from the consumer before the contact in which an offer, request or invitation is made to ensure they have clearly stated either the type of financial product they are interested in discussing or the type of outcome they wish to achieve through a financial product.
5.81 It must also be evident that the consumer understands what they are providing consent in relation to. As another person cannot be expected to determine a consumer's actual state of mind, the relevant test is whether a reasonable person would have understood that the consumer consented to the contact. [Schedule 5, item 2, section 992A(5)(e)]
5.82 This requirement means that a person making an offer, request or invitation in relation to a financial product must be satisfied on a reasonable basis that the consumer was sufficiently informed to understand they had provided consent to be contacted by the person, and that this contact may result in the offer, request or invitation.
5.83 Whether a reasonable person would consider that the consumer understands what they are consenting to will depend on the circumstances in each case. Where the consumer initiates the contact and therefore has had sufficient time and information to decide to consent to be contacted, including the method of contact with the financial provider, it is reasonable to assume the consumer would understand what they are consenting to. Conversely, a consumer is unlikely to understand what they are consenting to if they are incentivised to hastily consent to be contacted about a financial product. A consumer who is able to clearly explain what they are consenting to is more likely to understand what they are consenting to than a consumer who gives consent in a vague or ambiguous manner.
Variation, withdrawal and expiry of consent
5.84 A consent may be withdrawn or varied by a consumer at any time. Such withdrawal or variation may take any form, regardless of the form that the consent was originally provided in. [Schedule 5, item 2, section 992A(6)]
5.85 A withdrawal or variation has immediate effect and a person cannot make any offers, requests or invitations after they have been notified by the consumer that the consent has been withdrawn.
5.86 Offers, requests or invitations in relation to financial products that are made subsequent to a related consent being withdrawn will be unsolicited. A person making an offer, request or invitation in relation to a financial product should ensure that appropriate systems are in place to track and record withdrawals of consent. Providers of financial products, or their agents or representatives, who have any doubt as to whether a consent is in place, or has been withdrawn, should confirm by checking the relevant record that a pre-existing consent remains in place before making an offer, request or invitation to a consumer in relation to a financial product.
5.87 A consumer's consent to be contacted will expire six weeks from the day that the consent is given. [Schedule 5, item 2, section 992A(5)(g)(i) of the Corporations Act]
5.88 However, if there is a requirement for the consumer to undergo a medical examination before the financial product can be sold or issued then the consumer can consent to a longer period. Such periods cannot exceed 12 weeks in total. [Schedule 5, item 2, section 992A(5)(g)(ii) of the Corporations Act]
5.89 These time limits ensure that consumers cannot be contacted indefinitely after having provided consent. They balance giving consumers adequate time to discuss a financial product and reach an agreement for its sale or issue against the need to protect consumers from being contacted about products when they are no longer at the front of their mind.
5.90 It is not possible for a consumer to voluntarily extend the period that is applicable to their consent. However, there is nothing to prevent a consumer from providing a new consent at any time after consent is initially provided. This could be done either before or after the original consent expires. In either case, to be valid, the new consent would need to satisfy all of the same criteria as the original consent. While it may be more onerous for a person to obtain a new consent rather than a mere extension, this is an appropriate outcome given the consumer protection focus of the prohibition.
Exceptions to the revised prohibition
5.91 The hawking prohibition will not apply to offers to sell or issue financial products if the offer is made in the course of giving financial advice to a client by a financial adviser who is required to act in the client's best interests under Division 2 of Part 7.7A of the Corporations Act. [Schedule 5, item 2, section 992A(2)(a) of the Corporations Act]
5.92 This exception is appropriate because the best interests duty already provides the consumer with adequate protection in relation to such offers. Division 2 of Part 7.7A of the Corporations Act provides that a person giving personal financial advice to a consumer must act in the best interests of that consumer. This duty to act in the consumer's best interests protects consumers from being sold financial products which they do not need or that are not fit for purpose.
Regulation making power
5.93 A regulation making power has also been inserted to allow further kinds of offers, requests and invitations to be prescribed as exempt from the hawking prohibition. [Schedule 5, item 2, section 992A(2)(b of the Corporations Act)]
5.94 Allowing the regulations to exempt certain offers, requests or invitations will provide the Government with the necessary flexibility to respond to changes in the way that industry deals in financial products and will ensure that the hawking prohibition only imposes obligations in appropriate circumstances.
5.95 Any such regulations would be subject to appropriate parliamentary scrutiny through the disallowance process.
Right of return
5.96 In the event that a person breaches the revised hawking prohibition, the consumer who was sold or issued the product will have the right to return the financial product and obtain a refund for any amounts paid. Where the financial product has a cooling-off period under section 1019B of the Corporations Act, then the right of return will expire one month after the end of the cooling-off period. For all other products the right of return will expire one month and 14 days after the financial product was issued or sold. [Schedule 5, item 2, section 992AA of the Corporations Act]
5.97 If a financial product is returned under these provisions, any legal relationship between the consumer and issuer is terminated. Similarly, any contract for the acquisition of the product by the consumer is also terminated. Such terminations occur at the time of the return and without any penalty to the consumer. [Schedule 5, item 2, sections 992AA(2)(a) and (b) of the Corporations Act]
5.98 The right of return is a consumer remedy and applies in addition to the applicable civil penalties for breaching the revised hawking prohibition. This means that a person who breaches section 992A may be liable to pay civil penalties as well as being required to refund the amount paid by a consumer for the financial product. [Schedule 5, item 2, section 992AA(4) of the Corporations Act]
Regulation making power
5.99 A further regulation making power has also been inserted to allow additional consequences (such as additional obligations on the product issuer) to be specified in relation to financial products returned under these provisions. [Schedule 5, item 2, section 992AA(2)(c) of the Corporations Act]
5.100 The regulations also allow for certain classes of financial products to be excluded from the right of return provisions, subject to any conditions specified in the regulations. [Schedule 5, item 2, section 992AA(3) of the Corporations Act]
5.101 Any such regulations would be subject to appropriate parliamentary scrutiny through the disallowance process.
5.102 To ensure the hawking rules apply consistently to all financial products the existing rules which prohibit the hawking of securities in sections 736 and 738 of the Corporations Act are repealed. [Schedule 5, item 1]
5.103 References to the existing hawking provisions in section 1200F of the Corporations Act is updated to reflect the new provisions. This ensures that the application of the rules for recognised offers in the hawking prohibition will be maintained in respect of the revised prohibition. [Schedule 5, items 7 and 8, section 1200F of the Corporations Act]
5.104 The civil penalty table in Schedule 3 to the Corporations Act is also amended to remove the reference to the existing securities prohibition in section 736. [Schedule 5, item 9, Schedule 3 of the Corporations Act]
5.105 The Competition and Consumer Act 2010 is also amended to ensure that the references to the hawking prohibition are accurate. [Schedule 5, items 3, 4, 5, and 6, Schedule 2 to the Competition and Consumer Act 2010]
Application and transitional provisions
5.106 The amendments commence on the later of 5 October 2021 and the day after Royal Assent. [Clause 2]
5.107 ASIC has provided exemptions from the hawking prohibition in existing sections 736, 992A and 992AA of the Corporations Act in a number of specific circumstances. ASIC will retain the power to provide such exemptions on a class or individual basis.