The Australian Securities and Investments Commission (ASIC ) has published a new regulatory guide on the administration of its product intervention powers, 10 months after the regulator issued its consultation on restrictions against CFDs and binary options.
In particular, the new guide covers the scope of the power, including which products are applicable, how the regulator might exercise the power and how it may determine consumer detriment, among other clarifications.
Under the powers granted by the Australian Government, ASIC can implement product intervention measures if it is satisfied that a product (or class of products) has resulted, will result or is likely to result in significant consumer detriment.
What is consumer detriment?
According to the Revised Explanatory Memorandum to the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2019: “The meaning of detriment is intended to take its ordinary meaning in the context of the new provision.
“However, it is intended to cover a broad range of harm or damage that may flow from a product. The harm or damage may arise from any number of sources associated with the product, including the product’s features, defective disclosure, poor design, or inappropriate distribution.”
Under the measures, ASIC can intervene in relation to products and activities under its regulatory permit:
(a) financial products regulated under the Corporations Act;
(b) credit products regulated under the National Credit Act; and
(c) financial products, as defined by the Australian Securities and Investments Commission Act 2001 (ASIC Act).
For financial products regulated by the Corporations Act, the power applies to products that are or are likely to be available to retail clients, including securities, interests in managed investment schemes, derivatives, insurance products, superannuation products and deposit-taking facilities.
Furthermore, ASIC elaborated on consumer detriment: "This could include harm that is financial in nature, such as actual or potential financial loss to consumers resulting from a product. It could also include harm that is non-financial in nature (e.g. the effect on a person’s credit rating).
"Detriment can also arise when consumers are sold a product that is misaligned with their needs, understanding or expectations, and that detriment arises even before that misalignment crystallises into some financial or other loss."
Clarification of consumer detriment needed
The clarification of what is consumer detriment comes a couple of months after the Federal Court of Australia in New South Wales upheld the regulator's judgement against Cigno Pty Ltd, a payday lender, in April.
In particular, ASIC placed a product intervention order in respect of short term credit against Cigno. However, the company sought to challenge the regulator's product intervention order, claiming that the regulator wrongly focused on the detriment having been caused by the overall business model of the company, and not by the actual financial product. Whether the guidance issued today is a result of this ambiguity is clearly speculation.
ASIC: measures can last for an initial 18 months
According to the guidelines, the Aussie watchdog can make a product intervention order for an initial period of up to 18 months. After this initial period, the order can be extended by declaration after receiving approval from the Minister.
“We can extend a product intervention order for a set period of time or make the intervention permanent. We can extend an order multiple times, but each extension requires the approval of the Minister, after considering a report on the matter from us,” the regulator said today.
