Product design legislation proposed by the government may reinforce vertically integrated business models and weaken the effectiveness of best interests duty obligations, according to law firm MinterEllison.
Commercial law firm MinterEllison has maintained its opposition to Treasury’s revised exposure draft for the government’s new design and distribution obligations and product intervention power.
In a submission to Treasury, MinterEllison partner Richard Batten (who advises banks, insurers and super funds) took exception to the proposal for product issuers and sellers to ensure the conduct of distributors is “consistent with target market determinations”.
MinterEllison maintained its position in the original round of consultation on the bill that the measure would be likely to “increase vertical integration at the expense of small businesses and the ability to develop innovative solutions catered to client needs”.
The proposed regime would have the effect of making product issuers responsible for the conduct of distributors, which would effectively render the AFSL regime for financial advisers and other distributors “redundant”, said Mr Batten.
“This risks returning the industry to the days when distributors were agents of issuers,” he said.
“It undermines the best interests duties recently imposed on personal advisers by the FOFA regime because it takes the responsibility for determining suitability for clients away from advisers and moves it to the product issues,” Mr Batten said.
“It is also inconsistent with the drive to enhance the financial advice profession – increased professionalism should mean increasing responsibility, not decreasing it.
“We believe that these matters represent serious flaws in the proposed regime.”
MinterEllison also expressed concerns about the impact of the new regime on annually renewing products, such as general insurance and term deposits.
The law firm also argued that permanent intervention into product design should “only occur under full parliamentary oversight”.
“We [do] not believe that the minister should have the ability to make product intervention orders permanent. This should require an act of Parliament,” said the submission.
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