Reforms to the ban on peddling for financial products – Finance and Banking

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Australia: Reforms to the ban on peddling for financial products

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In what is the latest in a series of compliance changes starting in October 2021 and due to be finalized, ASIC has now released its guidance on the revised anti-hawking regime. Anti-hawking reforms aim to give retail customers greater control over their financial product purchasing decisions. This includes allowing retail customers to determine how they can be contacted by a financial service provider and the types of financial products available to them.

What are the requirements?

As of October 5, 2021, AFS licensees are not permitted to offer, sell or issue any financial product to a retail customer if the offering, sale or issue is made during or by reason of unsolicited contact with the retail customer. This conduct is prohibited under the Corporations Act and is known as the general prohibition on the peddling of financial products.

Unsolicited contact includes any contact with a retail client regarding a financial product that is made over the phone, face to face, or other real-time interaction, when:

  • the retail customer has not consented to the contact; Where
  • the retail customer did consent to the contact, but the stringent requirements imposed by the general consent ban were not met.

Who does the scheme apply to?

The general ban only applies to retail customers. In particular, it does not apply when an offer, request or invitation is made to a retail client in connection with the provision of advice to that retail client on personal financial products.

The Companies Regulations also exclude certain financial products and situations from the general prohibition, including, but not limited to:

  • an offer to issue or sell listed securities or an interest in a listed managed investment body that is made by telephone by an AFS license holder;
  • an offer to issue or sell securities or an interest in a managed investment system that is made by an AFS licensee through which the retail client has acquired or transferred a securities product securities or an interest in an investment system managed in the previous (12) months;
  • a crowdfunding offer;
  • low value non-cash payment facilities;
  • real estate rental programs;
  • managed discretionary account (“MDA “) suppliers; and
  • mortgage investments with no more than twenty (20) investors.

The general prohibition is not limited to the supplier of the financial product but extends to the actions of all employees, agents and representatives of an AFS licensee.

Remedies

Violation of the general prohibition is a strict liability criminal offense, and violators may face financial penalties (for companies) and imprisonment and financial penalties (for individuals).

In addition, when a retail customer receives or sells a financial product in violation of the general prohibition, the retail customer has a right of return and refund. The deadlines and the amount to be reimbursed to a particular customer when exercising their right of return and reimbursement depend on the financial product acquired.

How can Sophie Grace assist?

We have developed a model anti-hawking policy to ensure an AFS licensee’s compliance with the general ban. The Anti-Hawking Policy Template can be purchased from the Sophie Grace store. We can also assist you with your ongoing AFS license compliance obligations. You can find more information on our website or by contacting us.

Fund

The Corporations Act previously contained three separate prohibitions on the peddling of financial products in general, securities products and interests in managed investment programs. The Royal Commission findings indicated that the existing bans did not adequately protect retail customers from harm, particularly in relation to inundating sales calls made to retail customers of pension and insurance products.

On this basis, the Financial Sector Reform (Hayne Royal Commission Response) (Hawking of Financial Products) Regulations 2021was introduced to amend the Corporations Act to prohibit the peddling of financial products to retail customers and to clarify the definition of peddling. ASIC has released an update to Regulatory Guide 38 to provide additional guidance on the anti-hawking regime.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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