Permissible contact – exceptions to hawking provisions registered


Posted By and on 3/09/21 at 10:23 AM

On 6 August 2021, the Treasury registered the Financial Sector Reform (Hayne Royal Commission Response) (Hawking of Financial Products) Regulations 2021 (Cth) (the “Regulations”) on the Federal Register of Legislation. These Regulations specify exceptions to the prohibition on the hawking of financial products, a prohibition recommended by the Royal Commission and subsequently implemented in the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (Cth). The legislative instruments amend the Corporations Act 2001 (Cth) and Corporations Regulations 2001 (Cth) respectively, and come into effect on 5 October 2021.

The exceptions qualify the broad prohibition against ‘hawking’, which aims to protect consumers from unsolicited offers that may have the potential to induce them into buying a financial product that may not suit their needs. These specific exceptions identify circumstances where the hawking prohibition would be unnecessarily restrictive, because consumers are likely to have adequate knowledge of the products being offered, or are already protected from hawking behaviour through another area of the law.

KHQ Lawyers - exceptions to hawking provisions

What are the changes?

While the offering of financial products to a retail client will continue generally to be prohibited if the offer ‘is made in the course of, or because of, an unsolicited contact’ with the retail client, the Regulations provide an exhaustive list of exceptions.

For example, unsolicited contact to a retail client will not be prohibited if it is in relation to:

  • listed securities or interests in listed managed investment schemes (“MISs”), and is made by telephone;
  • securities or an interest in an unlisted MIS, if the retail client held (through the offeror) an interest in a similar asset to the one being offered in the 12 months before the unsolicited contact;
  • schemes that are deemed not to be MISs (such as particular insolvency litigation funding schemes, litigation funding arrangements and approved benefit funds);
  • crowd-sourced funding schemes;
  • eligible employee share schemes; and
  • renewal offers of a financial product that is substantially similar to one that the retail client currently holds or held at any time during the 30 days before the offer.

Importantly, unsolicited contact is defined as contact that is ‘wholly or partly engaged through a telephone call, face-to-face meeting or any other real-time interaction’. Therefore, it seems quite possible that, in some circumstances, email or text correspondence (for example, at the same time as other direct communication) could also be captured by the prohibition on ‘real-time interaction’.

Further, the burden of establishing that an exception to the hawking prohibition applies, falls on a party seeking to rely on an exception, if their conduct is called into question.

What next?

Given that the legislative changes have already been enacted, relevant entities can utilise this certainty to turn their minds to any need they may have to fit their financial product distribution activities within the exemptions.

In the meantime, the Australian Securities and Investments Commission has released its proposed updated Regulatory Guide 38 (The hawking prohibition), which will likely be issued in final form before the exemptions take effect, on 5 October 2021.

For more information, or to discuss financial services queries in general, please contact Venn King or a member of KHQ’s Corporate & Commercial or Superannuation & Financial Services teams.

KHQ Lawyers - Jordan Diamantopoulos

Jordan Diamantopoulos Lawyer

Jordan is a graduate lawyer and is currently working across our Superannuation & Financial Services and Corporate & Commercial teams. Prior to joining KHQ Lawyers, Jordan worked as a Barrister’s... Read More

Venn King Principal Solicitor

Venn King is a Principal Solicitor in KHQ’s Corporate & Commercial team.

Venn utilises his broad corporate and finance experience in the context of complex investment structuring transactions... Read More