ASIC has published updated regulatory guidance on the prohibition of hawking financial products.
ASIC’s updated regulatory guide (RG 38) reflects the reforms to the anti-hawking regime under the Financial Sector Reform (Hayne Royal Commission Response) Act 2020, which commence on 5 October 2021.
These reforms flow from recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and are designed to tackle consumer harms arising from consumers being approached with unwanted products through cold-calls or other unsolicited contact.
Under the prohibition a person must not offer a financial product to a retail client in the course of or because of unsolicited, real-time contact. A consumer must consent to being contacted, and that consent must be positive, voluntary and clear.
ASIC Deputy Chair Karen Chester said, ‘These changes put in place fairness protections, so consumers are not sold products they don’t want or don’t need. The restrictions mean consumer needs will be central to how firms offer products.’
‘The new hawking prohibition addresses long held concerns about poor consumer outcomes from unsolicited sales of financial products. ASIC’s 2018 review of unsolicited life insurance sales calls revealed poor sales conduct and poor consumer outcomes, with 40% of consumers feeling under pressure to buy a product. This led to recent criminal proceedings for the hawking of life insurance, and to date ASIC has helped secure over $250 million in consumer remediation for consumer credit insurance and life insurance.’
‘The reforms introduced by the Government mean that consumers will be able to control how and when they are offered products, rather than being caught unawares or feeling pressured to make quick decisions.’
‘Under the new laws, ASIC will be better able to tackle poor conduct by firms where consumers are pressured into products that are not right for them.’
The guidance provides further clarity to industry on how they can comply with the regime and how the reforms affect commercial practices. ASIC’s guidance was enhanced by the constructive submissions received from industry and other stakeholders through the consultation. ASIC added an additional 12 examples in response to the feedback received.
ASIC recently stated it will take a reasonable approach in the initial stages of the range of new obligations which commence in the first week of October, provided industry participants are using their best efforts to comply (21-213MR).
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The reforms implement Recommendations 3.4 and 4.1 of the Financial Services Royal Commission, and are set out in Schedule 5 of the Financial Sector Reform (Hayne Royal Commission Response) Act 2020.
Key features of the reforms include:
- application to all financial products (as defined in the Corporations Act 2001);
- a definition of ‘unsolicited contact’ that extends the prohibition from in-person meetings and telephone calls, to any ‘real-time interaction in the nature of a conversation or discussion’ without consumer consent;
- that consumer consent to contact must be positive, voluntary, clear and capable of being reasonably understood;
- that consent only be valid for six weeks from the date it is given and may be withdrawn by the consumer at any time; and
- a statutory right of return for consumers where the hawking prohibition has been breached.
ASIC has previously highlighted the harm and poor consumer outcomes that can occur when consumers are offered products in situations where they are not engaged or have not considered a purchase.
Report 587 The sale of direct life insurance (REP 587) found a link between outbound telephone sales and poor sales conduct including pressure selling, and an increased risk of poor consumer outcomes such as lapsed policies and declined claims.
ASIC has taken enforcement action and secured significant remediation for consumers in respect of direct life insurance. This includes criminal proceedings against CommInsure for hawking of life insurance (19-313MR), and civil penalty proceedings commenced against Select AFSL (19-244MR). OnePath paid $35 million remediation to life insurance customers who were sold life insurance over the phone, while CommInsure refunded $12 million for unfair life insurance telephone sales (19-314MR). There are other remediations ongoing.
Report 622 Consumer credit insurance: Poor value products and harmful sales practices (REP 622) found the design and sale of consumer credit insurance (CCI) had consistently failed consumers, especially in unsolicited telephone sales contexts. For CCI sold with credit cards, consumers received only 11 cents in claims for every dollar paid in premiums. ASIC has since secured over $250 million in remediation for poor sales of CCI from the entities who were the subject of REP622, including in respect of outbound sales practices(21-066MR).
In 2019, ASIC made a legislative instrument banning unsolicited sales of direct life insurance and consumer credit insurance.
In July 2021, ASIC issued Consultation Paper 346 Updates to RG 38 The hawking prohibition seeking stakeholder feedback on proposed updates to RG 38 (21‑181MR). ASIC received 19 written submissions and attended numerous meetings with industry and consumer groups.
Since ASIC published its consultation, the Treasurer has made regulations exempting certain products from the hawking regime, see Financial Sector Reform (Hayne Royal Commission Response) (Hawking of Financial Products) Regulations 2021. RG 38 includes a summary of products that are exempt from the hawking prohibition under the Corporations Regulations.
ASIC recently made a legislative instrument to make consequential amendments to its existing instruments to reflect the new hawking prohibition: see ASIC Corporations (Amendment and Repeal) Instrument 2021/799
© Australian Securities & Investments Commission. Reproduced with permission.