The Australian Securities and Investments Commission (ASIC) has released draft guidance and a consultation paper on new product design and distribution obligations aimed at boosting consumer protections.

ASIC Deputy Chairman Karen Chester says Hayne royal commission case studies involving mis-selling and offering products representing extremely poor value would have failed the new obligations.

“The obligations should drive better business and consumer outcomes,” she said. “They simply require business to design products that meet genuine consumer needs and use distribution channels that will likely get them to the right consumers.”

The guide says a policy renewal will be viewed as a new “issue” of a product and providers will have to consider whether they need more information to ensure consumers are still in the target market.

“A distributor could prompt consumers to consider if they remain in the target market, for the financial product. However, relying solely on warnings and disclosures to consumers is unlikely to be sufficient.”

A product can be sold to someone outside the target market if reasonable steps are taken to ensure it is appropriate, while situations must be assessed “in totality”.

As an example, it says an insurance product that offers lower upfront costs through more affordable premiums will be unsuitable if the excess is so high that consumers in the target market are unlikely to be able to pay the excess when a loss happens.

ASIC says products should be consistent with the likely objectives, financial situation and needs of consumers in a specified market.

“For those businesses with good practices that are already taking a consumer-centric approach to designing and selling products, the design and distribution obligations will require only minimal changes,” it says.

The new rules take effect in April 2021 following a two-year transition.

Submissions on the guidance proposals are due by March 11. The consultation paper is available here.