The latest review of distribution practices in the Australian financial industry finds firms should do more to design and distribute products that meet clients’ needs.
In 2021, the Australian Securities and Investments Commission (ASIC) introduced obligations that require financial product issuers and distributors to take a consumer-centric approach to the design and distribution of products.
On Tuesday, the regulator detailed the results of its latest compliance review and issued revised guidance in an effort to improve the industry’s adherence to those obligations.
“Poor product design and distribution puts consumers at risk of financial harm as they can end up with products that don’t meet their needs,” the regulator noted.
The new requirements require firms to “take reasonable steps” to support effective distribution.
ASIC’s review examined issuers of high-risk investments, insurance and credit products, and found that firms must do more to comply with the reasonable steps obligation.
Among other things, ASIC found that firms are relying on know-your-client questionnaires that didn’t properly seek to understand clients’ needs and were designed to prompt certain responses.
The regulator noted that poorly designed questionnaires resulted in recent enforcement actions involving high-risk investment products.
The review also found there was limited monitoring of product performance and client outcomes to inform future product governance and distribution practices, and that issuers carried out limited due diligence to monitor third-party distribution.
ASIC’s report called for a variety of improvements to firms’ distribution practices, including issuers’ selection and supervision of distributors, the development of marketing materials and client questionnaires, staff training, and firms’ monitoring of client and product outcomes.
“Where there are opportunities to improve, we expect product issuers and distributors to reflect on the report’s findings and improve their distribution practices,” said ASIC commissioner Alan Kirkland in a release.
Kirkland added that compliance with the design and distribution obligations remains a key focus for ASIC.