Quarterly compliance update September 2021

There’s a lot happening in the crazy regulatory world of financial services. Six reforms arising from the Royal Commission into the Banking, Superannuation and Financial Services Industry will commence in October. Below is a summary of the important changes to be aware of so you can continue to meet your compliance obligations. The main ones for financial advisors are Breach Reporting, Internal Dispute Resolution and Design and Distribution.   If you have any questions relating to this update, or any other compliance-related matter, please contact Geoff Byrnes.

Anti Hawking

From 5 October 2021 there are hawking prohibitions applicable to offers of financial products for issue or sale.

There are currently three separate hawking prohibitions.  These reforms will consolidate all of that into a single prohibition covering all financial products.  The ban applies to all forms of real-time communication (not just face-to-face and telephone), and requires that consent given by a consumer is “positive, voluntary and clear”.

If any part of your business involves cold calling, ensure you understand the new law and adjust your practice accordingly.

See ASIC RG38 for more information.

Breach Reporting

The new breach reporting obligations for licensees come into effect on 1 October 2021.

These obligations are much broader than the existing obligations and have implications for everyone in the financial services industry, meaning all licensees, financial advisors and support staff.

See ASIC RG 78 for more information.

Reference Checking and Information Sharing Protocols

From 1 October 2021, licensees must meet requirements regarding reference checking and information sharing for financial advisers and brokers (ASIC protocol).

This has been in response to the Royal Commission finding which identified that licensees were not doing enough to communicate between themselves regarding the backgrounds of prospective employees and Authorised Representatives.

Recruiting licensees must take reasonable steps to obtain a reference about the individual.  They must seek consent to undertake reference checking using a templated form.

Referee licensees must provide a reference that includes all information of which the licensee is aware and considers to be relevant within 10 days.  The reference must be complete, accurate and based on documented facts. If a question cannot be answered, an explanation should be provided.  Licensees must keep records that demonstrate compliance with the ASIC protocol.

The ASIC protocol also applies where a Corporate Authorised Representative (CAR) sub-authorises an individual.

See ASIC RG 257 for more information.

Internal Dispute Resolution

By 5 October 2021, licensees must ensure that their Internal Dispute Resolution (IDR) process complies with ASIC RG 271.

Financial firms must have a dispute resolution system that complies with standards and requirements made or approved by ASIC and is registered with AFCA.

ASIC expects a proactive approach to identifying complaints – whether explicit or implicit.  Definition of complaint – [An expression] of dissatisfaction made to or about an organisation, related to its products, services, staff or the handling of a complaint, where a response or resolution is explicitly or implicitly expected or legally required.

See ASIC RG 271 for more information.

Design and Distribution Obligations (DDO)

The Design and Distribution Obligations Act comes into force 5 October 2021.

In essence, the intent of these new obligations is to make sure products are designed for, and distributed to, the right people. It all comes down to the Target Market Determination (TMD).

Product issuers will need to make a TMD for each product, publicly available.  The TMD will describe the typical objectives, financial situation and needs of consumers in the target market; as well as the product features and why they are likely to meet the consumers needs.

Distributors must take reasonable steps that will, or are reasonably likely to, result in the distribution of a financial product being consistent with the TMD for that product.  They have obligations to report certain information to issuers, including when there is a significant dealing that is not consistent with the TMD. Distributors must also keep records of distribution information.  Note ‘significant’ is not defined in the ASIC RG or in the Corporations Act and is likely to vary between product types and issuers.

See ASIC RG 274 for more information.

Add-on insurance

By 5 October 2021, sellers of add-on insurance must update their processes to ensure a mandatory four-day pause between the sale of the principal product or service and the sale of any add-on insurance.

These reforms to the law were made after ASIC became concerned about sales practices surrounding add-on insurance for cars and for consumer credit.

See ASIC RG 275 for more information.

The above is a brief overview.  The compliance team is busy updating policies and procedures, as well as building registers and templates to accommodate these changes.  We will keep you informed and ensure you are well resourced where needed, but never hesitate to reach out if you have questions.  Also look out for the ramifications of ASIC proceedings against RI Advice Group Pty Ltd in relation to cyber security.  The decision and judgment for this case (when it is delivered) will provide guidance on the expectations around cyber security and the core obligations.  Watch this space!



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