On 5 October 2021, the revamped statutory prohibition on the ‘hawking’ of financial products will come into effect. The reforms follow the Royal Commission’s 2019 report on Misconduct in the Banking, Superannuation and Financial Services Industry, which stated that changes to the anti-hawking provisions were necessary to protect consumers from being sold financial products they did not need or want.
The new anti-hawking provisions – which in a nutshell ban pressure selling of financial products to retail clients – consolidate three existing hawking prohibitions into one prohibition that applies to:
- any financial product, whereas it previously applied only to shares/securities, interests in managed investment schemes and certain life insurance and consumer credit insurance products; and
- any method of unsolicited real-time contact with a retail client in the nature of a discussion or conversation (regardless of the technology used), not just the traditional interfaces of the telephone and face-to-face meetings. Examples of real time interaction include video-conferencing (e.g. Teams, Skype, FaceTime), instant messaging and AI sales tools (e.g. chat bots). Examples of non-real time interaction include email, brochures, and television/radio advertising.
The new law aims to give consumers greater control over the circumstances in which they are offered products, and prevent consumers being approached with unwanted products on cold-calls or through other unsolicited contacts. They also prevent businesses from relying indefinitely on consents from consumers.
What has ASIC said about the new anti-hawking provisions?
ASIC has released draft guidance on how the new anti-hawking provisions will be applied in practice, and is currently seeking feedback from industry players and the public.
The new law and ASIC guidance reinforce the concept that before making a proposed contact, businesses must have obtained the clear, positive and voluntary consent of the client to contact them for the specific purpose of making an offer of the relevant financial product to them, using a form of non-real-time communication (e.g. mail or email).
One new and interesting aspect of ASIC’s draft guidance relates to what offerors are expected to pay if a consumer has a legitimate right to return a financial product sold to them in breach of the anti-hawking provisions. In particular, ASIC states:
“It is possible for the value of the consumer’s interest to have changed between the date of issue of the product and the date of refund. In such cases consumers will be entitled to receive a refund of the amount they contributed or transferred into the account. If the value of the account has decreased (excluding through distributions to the consumer), the refund must include the amount of any shortfall.”1 (emphasis added)
This begs the question, what if the value of the consumer’s interest has increased since the time of receiving the financial product and the date of refund? ASIC’s draft guidance is silent on this, presumably because ASIC is assuming a consumer would not want to return a financial product that has appreciated in value.
The issue however is that a consumer’s right to a refund is only exercisable within 1½ months after the date of acquiring the relevant financial product (or 1 month after any applicable cooling off period). And it is not uncommon to see the value of a financial product spike and then drop to a level more reflective of market conditions after a period of time (e.g. following an IPO). So, a consumer may not see the true value of a financial product until after the time for exercising their right of refund has expired. This dilemma however is more a matter for the legislators, rather than ASIC2.
A flowchart to guide you through the new law
Overall, ASIC’s updated guidance looks sensible to us and we suspect will largely be adopted in its current form. With this in mind, we have developed a flowchart to guide you through how to apply the new anti-hawking provisions (including ASIC’s proposed guidance) from 5 October onwards, and explain some of the technical terms used in the new law. We will be updating our flowchart when ASIC finalises its regulatory guide. Please subscribe to our Corporate Insights if you would be interested to receive the updated flowchart.
The new set of ‘product design and distribution obligations’ (DDO) is also scheduled to commence on 5 October, which all issuers and distributors of financial products to retail clients will need to comply with. For the key features of the new DDO regime, please see our earlier article.
1 ASIC Consultation Paper 346: “The hawking prohibition: Update to RG 38” (July 2021), .
2 Other scenarios that ASIC has identified as being potentially difficult in responding to a consumer’s request for a refund include, in the case of an insurance product, when (1) a claim is made (or has been made and paid) against a policy prior to it being returned and refunded; or (2) a discount was applied for the purchase of multiple bundled products, and part of the bundle is returned. ASIC notes also that when a consumer is sold a new insurance product in breach of the anti-hawking provisions, they may lose coverage they had under an existing policy. This means that even if they are provided a refund after return of a product, they may be unable to regain the same coverage they had before, or only at significantly higher cost, e.g. for medical conditions that would now be considered pre-existing.