After months of deliberations in the Australian parliament, a new bill that is going to materially change the local regulatory environment for retail brokers is only pending formal approval before becoming law. The Treasury Laws Amendment, also called the Design and Distribution Obligations and Product Intervention Powers Bill, enables ASIC to change the face of the local retail market.
Product intervention powers will relate to financial products offered to retail clients and are likely to be implemented from early 2021. The ASIC is now free to deliberate what kind of limitations it will introduce into the market.
Considering Australia’s commitment to the G-20 financial regulatory synchronization regime after the Great Financial Crisis of 2008, the changes are likely to be similar to those already in place in the EU, Japan, and the US. Considering the flow of retail forex traders to Australia from Europe, the likelihood of regulatory harmonization is significant.
Product Intervention Powers
The amendment is pending a so-called Royal Assent procedure. The bill will be sent to the governor-general's residence by the house in which it originated, who will then sign it and forward it to the president of the Senate and the speaker of the House of Representatives.
The goal of the bill is to enable the Australian regulator, ASIC, to intervene in cases when the distribution of certain products is harmful to consumers. According to the document, Financial products in Australia are supposed to be sold to the “right consumers.”
The commitment to this bill has originated from a Financial System Enquiry which concluded in 2015. The product intervention power of ASIC takes effect on the day after the Royal Assent which is merely a formality.
Aside from retail brokers, the Australia financial regulator is also likely to have a look at credit practices. According to the legislation, ASIC's consideration on whether the use its newly minted product intervention powers is going to take into account any potential financial harm to consumers from using certain products.
While the harmonization with other regulatory frameworks is likely, to date there is no official position on the part of the ASIC about how it will use its new powers. As it is widely known, the ESMA in Europe took the initiative pretty far, both banning some products and limiting leverage on others.
Implementation Term
According to some sources with knowledge of the legislation, firms might have about two years to implement the measures. A spokesperson for industry think-tank, The CFD Trading & Compliance Forum in London said: “The new product intervention powers is a defining response by the authorities and will shift the landscape for Australia’s growing financial services sector."
The reason for the changes is once more a long list of clients that complained to the local regulator. "Too many complex and risky products have been mis-sold to consumers where there is a discrepancy & imbalance in their risk profile and requirements," elaborated the top industry professional.
In the views of the spokesperson for the CFD Trading & Compliance Forum in London, the new legislation that supports an enhanced suitability and appropriateness framework will strengthen the operating environment and reduce the potential detriment that most vulnerable consumers face.
"The measures will mean that Australia is no longer viewed as an easy target for global providers that aim to circumvent or bypass the Leverage restrictions in other locations," the spokesperson concluded.
