Second Reading SpeechMr ROBERT (Fadden-Assistant Treasurer)
That this bill be now read a second time.
The Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2018 fulfils the government's commitment to implement two recommendations from the Financial System Inquiry, Improving Australia's Financial System 2015.
The design and distribution obligations and the product intervention power will ensure that financial products are targeted and sold to the right consumers, and, where products are inappropriately targeted or sold, ASIC will be empowered to intervene in the distribution of the product to prevent harm to consumers.
The Morrison government is committed to fostering an environment where businesses adopt and maintain a customer-centric culture and where all Australians have a fair go when dealing in financial products.
Our approach to banking and financial services reform has focused on ensuring that the financial system is resilient, efficient and fair. While the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is continuing, our government is getting on with the job of protecting consumers.
All Australians interact with the financial system in some way-through using basic banking products, buying insurance or engaging in retirement planning. This reform benefits every single one of us. It means that we can approach the financial system with confidence that firms have generally approached product design and distribution with customers in mind.
The design and distribution obligations are designed to ensure that financial products are targeted and sold to the right customers.
This will be achieved by requiring issuers of financial products to identify target markets for their products, having regard to the features of products and consumers in those markets. Issuers will also be required to select appropriate distribution channels and periodically review arrangements to ensure they continue to be appropriate.
In addition, distributors of financial products will need to put in place reasonable controls to ensure products are distributed in accordance with the identified target markets.
The obligations will apply in a scalable and flexible manner, allowing firms to take into account the specific characteristics of products in meeting the requirements of the regime.
As identified by the financial system inquiry, this reform will deliver benefits to industry, including by strengthening internal risk management practices. It lowers the likelihood of there being a need for new, more complex and interventionist regulation in future, promoting efficiency in the financial system overall.
But, most importantly, these obligations will encourage issuers and distributors to have a customer-centric approach to designing, marketing and distributing financial products.
However, the government knows that even the most comprehensive regulatory frameworks cannot prevent issuers or distributors of products from doing the wrong thing if the regulator is not well equipped. That is why the government is ensuring that ASIC is able to proactively address harm to consumers resulting from poorly designed products or inappropriate distribution practices.
Where firms are not operating appropriately, ASIC will have the power to intervene. Specifically, ASIC will be able to use the product intervention power to intervene in relation to a product where it perceives a risk of significant consumer detriment.
In considering whether a product, one of its features or a practice tied to its distribution is causing or is likely to cause harm to a consumer, ASIC will be able to consider a wide range of factors. This will provide ASIC with the flexibility to use the power to address detriment that is relatively straightforward or in circumstances where the detriment being suffered by consumers is unique.
However, this power will not be unfettered. To ensure that ASIC uses its power effectively, it will be required to consult with affected parties prior to making an intervention. Parliament will have the opportunity to scrutinise market-wide and permanent interventions; otherwise, ASIC's orders will be limited to 18 months in duration.
This significant new power will supercharge the way ASIC delivers on its responsibilities to improve the performance of the financial system and to promote confident and informed participation by consumers and investors. It will ensure that ASIC can be one step ahead to protect consumers.
After careful consideration and extensive industry and stakeholder consultation, the government is confident this bill strikes the right balance of addressing the risks associated with the mis-selling of financial products to consumers, whilst not imposing unnecessary and prescriptive regulatory burdens.
Consumers will now be equipped with further protection and confidence when dealing with financial products.
I commend the bill to the House.