The Australian Securities and Investments Commission is using its new powers under the Design and Distribution Obligation to set expectations for the sale of a range of consumer finance products, including credit cards, small loans and buy now, pay later products.
ASIC Commissioner Sean Hughes said the regulator is becoming more active in supervision and enforcement, now that the DDO regime is a year old and regulated entities have had time to implement the changes.
Speaking at the Australian Credit Law Conference yesterday, Hughes said: “This month we will be reaching out to credit card providers to let them know that we will collect data from them around problematic debt, including any proactive steps providers are taking to prevent consumers getting into these situations.
“We expect to be able to identify any poor product design leading to poor outcomes. We expect credit card providers to use this material to better inform their design and distribution of credit cards, and improve the quality of outcomes for consumers.”
ASIC is also reviewing the target market determinations of small amount credit contracts and monitoring issuers.
And it is reviewing the product governance arrangements of a number of BNPL providers, including examining how their target market determinations were developed, the data and metrics they use and product performance.
It has wage advance products on its radar.
Under DDO, which took effect in October last year, financial services companies are required to identify the target market for any product that requires a disclosure document and must design the product for that market. They have to select appropriate distribution channels and periodically review those arrangements to ensure they continue to be appropriate.
The scheme is aimed at reducing the harm of mis-selling by requiring issuers to design products for which an appropriate target market can be identified.
Issuers are required to consider the likelihood of a product being appropriate for the retail clients in the target market: that is, whether it is likely to be consistent with the likely objectives, financial situation and needs of retail clients.
Relevant factors in this consideration include a product’s complexity, risk profile and fees, as well as investors’ likely understanding of product features, their capacity to meet their obligations or bear losses.
In July, ASIC used the DDO stop order powers for the first time, when it ordered three firms to stop issuing their investment products. Responsible Entity Services Ltd and two companies in the UGC Global Group were the subjects of the orders.
ASIC said there were deficiencies in their target market determinations. In the case of Responsible Entity Services, the sole asset of its PPM Unit was a loan to a company related to RES for development of a sandstone quarry, which ASIC described as “high-risk, illiquid, unlisted single asset investment”.
The target market determination said the investment would be suitable for investors looking for a “core component in their investment portfolio.” ASIC said this was “a category of retail investors for whom investment in PPM Units would not have been consistent with their likely objectives.”
In the case of the UGC