With new powers for regulators to intervene to protect consumers, in addition to new obligations for industry, policymakers in Australia are aiming to restore trust in its financial sector.

Australian lawmakers have passed a set of reforms that create new obligations for financial firms to design and distribute products that meet clients’ needs. They have also given the Australian Securities and Investments Commission (ASIC) new product intervention powers.

The reforms follow a 2014 inquiry into the country’s financial system, which recommended taking a more proactive approach to consumer protection, and shifting away from a reliance on disclosure.

In proposing the amendments, policymakers noted that traditional rules that rely primarily on disclosure can be ineffective for a variety of reasons, “including consumer disengagement, complexity of documents and products, behavioural biases, misaligned interests and low financial literacy. The availability of financial advice may not be sufficient to overcome these issues.”

The new industry obligations, which will be phased in over the next two years, “will require issuers to identify in advance the consumers for whom their products are appropriate, and direct distribution to that target market.”

ASIC says its new powers, which take effect immediately, will strengthen its ability to protect investors by giving it the ability to intervene where it sees a risk of significant consumer detriment.

“These new powers will enable ASIC to take broader, more proactive action to improve standards and achieve fairer consumer outcomes in the financial services sector. This will be a significant boost for ASIC in achieving its vision of a fair, strong and efficient financial system,” ASIC chair James Shipton said in a statement.

“This will also provide invaluable assistance to ASIC as we all seek to rebuild the community’s trust in our banking and broader wealth management industries,” he added.