ASIC publishes updated guidance on hawking reforms

Welcome guidance for the industry 9 min read

On 23 September 2021, ASIC published its updated Regulatory Guide 38: The hawking prohibition (RG 38) on the new anti-hawking regime, which commenced on 5 October 2021.

Under the new hawking prohibition in sections 992A and 992AA of the Corporations Act 2001 (Cth) (Corporations Act), a person must not offer a financial product to a retail client (consumer) in the course of, or because of unsolicited, real-time contact. A consumer must consent to being contacted, and the consent must be positive, voluntary and clear.

ASIC's updated RG 38 provides welcome guidance to the industry on how they can comply with the regime. Set out below are some of the key areas that ASIC has addressed in RG 38. We anticipate that ASIC will continue to work with the industry to implement the new hawking prohibition during the early transition phase.

Unsolicited contact

What is 'real-time interaction'?

The hawking prohibition applies to any 'real-time interaction in the nature of a conversation or discussion'.¹ In RG 38, ASIC has provided guidance on the meaning of the phrase 'real-time interactions', confirming it will capture communications where there is an expectation of an immediate response. This includes traditional communication methods such as telephone calls and face-to-face meetings, as well as newer technologies such as instant messages and media that uses artificial intelligence such as chat-bots.²

Ultimately, whether a form of contact constitutes a 'real-time interaction' depends on the circumstances. For example, ASIC has noted that some text messages may create an expectation of an immediate response, while others may not.³ It will ultimately be up to the person making the communication to assess whether it is caught by the hawking prohibition, having regard to whether the nature of the communication sets up an expectation that the recipient will respond immediately.

What constitutes an offer, request or invitation to a consumer?

ASIC has provided further clarity on the types of conduct that constitute an offer, request or invitation to a consumer to apply for, or purchase, a financial product, and are hence subject to the new regime:

Consumer consent to be contacted

What is positive and voluntary consent?

An offeror may only rely on a consumer's consent to be contacted if the consent is positive and voluntary.⁶

ASIC has clarified that a consumer's silence or failure to respond does not constitute positive consent. For example, a consumer could make a phone call to their bank to query a transaction on their account and, during the interaction, the bank's customer service representative makes an offer in relation to income protection insurance. According to ASIC, if the consumer does not respond, the consumer's silence does not constitute positive consent to be contacted the next day about income protection insurance.⁷ If the customer service representative does call the consumer the next day to make an offer in relation to income protection insurance, this will be in breach of the hawking prohibition.

Consent will not be voluntary if the consumer was pressured or induced into giving it. ASIC has also confirmed its view that consent elicited from a consumer is not voluntary. Since a breach of the hawking prohibition is an offence of strict liability, an offeror may breach the prohibition even where they do not intend to elicit consent.⁸

For example, this may occur where a consumer calls their bank to ask for information about term deposits and, at the end of the call, unprompted by the consumer, the bank's sales representative asks if they can call the consumer the following day about the bank's superannuation products.⁹ The sales representative's question elicited the consumer's consent for the subsequent call and therefore, in ASIC's view, the consent cannot be relied on. If the sales representative goes ahead and makes the call and invites the consumer to apply for a superannuation product, this will constitute an unsolicited invitation to apply in breach of the hawking prohibition.

When is consent clear and reasonably understood?

A consumer's consent must be clear, and such that a reasonable person would have understood that the consumer consented to the contact.¹⁰ This means the consumer's consent must be such that it demonstrates the consumer's understanding of what they are consenting to.

ASIC has provided some helpful examples of scenarios where there is not a reasonable basis for considering that a consumer has understood what they are consenting to:

• where a consumer begins filling out an online form but does not submit it (ie the partial supply of information);
• where a consumer is handed a pamphlet about a product without any context and asks what it is about and why they have been given it;
• where a consumer is encouraged to consent hastily to contact about a financial product (eg as part of the terms and conditions of entering a competition).¹¹

ASIC also clarified that where an offeror has not personally obtained consent from a consumer because consent has been obtained through a third party (eg a third party promoter or lead generator), the offeror remains responsible for establishing that the consent was positive, voluntary, clear and reasonably understood before making an offer to the consumer.¹²

Overall, offerors will need to ensure that consumer consents are clearly drafted and obtained, and that there are processes in place to demonstrate that any consents, however obtained, were positive, voluntary, clear and reasonably understood. This may require clarifying the scope of a consumer's consent where the consumer uses vague or ambiguous language, or where the consumer may have a misunderstanding about a product's function or purpose, before making an offer.¹³ However, offerors should not use the process of clarifying a consumer's objectives to artificially broaden or elicit consent.

Consent in consumer-initiated interactions

One of the more contentious areas offerors have been grappling with is how to deal with consumer-initiated interactions, particularly where the consumer might want to discuss more than one financial product.

ASIC has now confirmed that where a consumer initiates contact, this should be taken to mean that they understand the nature of the contact they are consenting to.¹⁴

Further, a consumer may raise additional products in the course of a contact, provided this is done entirely of their own initiative and their consent is positive, voluntary, clear and capable of being reasonably understood.¹⁵ For example, this may occur where a consumer calls their bank to ask about credit card options, then remarks that they want the credit card for a holiday and would also like to organise some travel insurance. If the consumer raises the travel insurance of their own accord, in a manner that is positive, clear and voluntary, the offeror will not breach the hawking prohibition if they proceed to generate a quote in relation to travel insurance.¹⁶

As noted above, offerors must be careful not to elicit a consumer's consent in any way during these discussions, eg by asking leading questions.

What is 'reasonably within scope' of the consumer's consent?

An offer, request or invitation to a consumer to apply for or purchase a financial product must be 'reasonably within the scope' of the consumer's consent.

In RG 38, ASIC has expanded on the meaning of 'reasonably within scope'. In ASIC's view, the factors which may indicate that a financial product is 'so closely related to an initial product that a consumer would reasonably expect to be offered it' include:

• if the acquisition of the additional product is appropriately mandated by the terms of the initial product;
• the degree to which utilising the features of the initial product requires acquisition of the additional product;
• if the uses for which the initial product is commonly supplied gives rise to the need for the additional product;
• if and to what extent the additional product manages financial risk arising from acquiring the initial product; and
• how prevalent it is for consumers who acquire the initial product to acquire the additional product.¹⁷

For example, if a consumer visits a mortgage broker to organise a home loan for a new property, the mortgage broker may remind the consumer during the interaction that they will require home building insurance over the property as a term of the loan and offer to organise quotes for home building insurance over the property. This contact is not unsolicited because the offer of home building insurance is reasonably within scope of the consumer's consent to discuss financing the purchase of the property. Home building insurance is so closely related to the home loan that the consumer consented to being contacted about, that a reasonable person would have expected to be offered it.¹⁸

Consent in the context of multi-policy discounts

Where an offeror provides a discount to a consumer for acquiring multiple products, the offeror must ensure that any products raised in the context of the discount conversation are within the scope of the consumer's consent. ASIC has stated that offerors cannot rely on any consent elicited from the consumer in the course of explaining the discount as a basis for making an offer, request or invitation in relation to additional products.¹⁹ However, an offeror may provide information about the additional products and give the consumer the opportunity to consider if they wish to recontact the offeror.

Interaction with other regulatory regimes

ASIC has provided some additional guidance on the interaction of the anti-hawking regime with the product design and distribution obligations regime:

• Consent for bundled products: ASIC has confirmed that regardless of whether bundled products are contained in a single target market determination (TMD) or separate TMDs, the consumer's consent must be sufficiently broad to reasonably apply to each of the products offered. Consent given by a consumer does not automatically extend to the whole bundle of products, even if the bundle is dealt with in a single TMD.²⁰
• Consent for products with multiple features: If a product has multiple features, the consumer's consent covers all of the product's features. If a feature of the product is not within the scope of the consumer’s consent, the consumer must not be offered that product.²¹

The hawking prohibition does not apply to offers, requests or invitations relating to an 'add-on insurance' product during the deferral period introduced under the deferred sales model for add-on insurance.²² However, some add-on insurance products are exempt from the deferred sales model. ASIC has clarified that where the product is exempt from the deferred sales model, the hawking prohibition will apply.²³