ASIC releases regulatory guide on product design and distribution obligations
ASIC has released a new regulatory guide on the product design and distribution obligations (RG 274), following extensive consultation.
The design and distribution obligations require firms to design financial products to meet the needs of consumers, and to distribute their products in a more targeted manner. The obligations were passed by Parliament in 2019 following a recommendation of the Financial System Inquiry.
RG 274 addresses demand from industry for ASIC guidance as they prepare for the obligations to take effect on 5 October 2021. This follows a two year transition period and a six month deferral of commencement provided by ASIC due to the impacts of COVID-19.
ASIC Acting Chair Karen Chester said ‘the design and distribution obligations are a game changer. They are designed to embed a consumer-centric approach and assist industry to deliver better outcomes for consumers while managing non-financial risks and avoiding costly remediation.’
‘ASIC’s guidance was greatly enhanced by the valuable input received from industry through an extensive consultation process. Engagement with industry was particularly important as the obligations require firms to set their own boundaries to suit their business, products and customers. If they stay within these boundaries this will mean less enforcement action from ASIC and the opportunity for deregulatory initiatives over time.’
The guidance in RG 274 is principles-based, reflecting Parliament’s intent that industry is best placed to implement the obligations in the context of their existing operations and product offerings. It also reflects the fact that the design and distribution obligations cover most financial products across all sectors of the financial services market.
Regulatory Guide 274 Product design and distribution obligations (RG 274) sets out:
- the financial products to which the design and distribution obligations apply
- ASIC’s interpretation of the obligations, and
- ASIC’s administration of the obligations.
ASIC will continue to support industry’s implementation of the obligations. In many cases firms are already well progressed in considering and implementing the reforms in the context of their businesses and product offerings.
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Background
ASIC welcomed the passage of reforms introducing the design and distribution obligations (19-079MR). The obligations reflect similar obligations placed on financial product issuers in the United Kingdom, the Netherlands and the European Union.
ASIC sought submissions on draft regulatory guidance in December 2019 (19-369MR). Consultation was open for 12 weeks, and a number of late submissions were accepted due to the disruption caused by COVID-19.
In May 2020, ASIC announced that it would defer the commencement of the design and distribution obligations by six months due to the serious impact of COVID-19 on the Australian economy (20-109MR).
In finalising guidance, ASIC undertook further targeted consultation on the application of the obligations to exchange traded products (ETPs) due to the unique circumstances of these products. ASIC has made a legislative instrument to modify the law in relation to ETPs to achieve the legislative intent and to provide industry with certainty as to how the obligations apply: see ASIC Corporations (Design and Distribution Obligations—Exchange Traded Products) Instrument 2020/1090.
© Australian Securities & Investments Commission. Reproduced with permission.