The corporate regulator has welcomed the passage of legislation that gives it new powers to regulate buy-now-pay-later providers such as Afterpay and Zip Co.
Highly anticipated laws which give ASIC product intervention powers to intervene in the market on behalf of financial services customers passed parliament last week.
The measures are the first big swathe of new regulation to hit the fast-growing buy-now-pay-later space and will essentially extend the corporate regulator’s ability to protect at-risk customers.
Afterpay and Zip both supported the new powers earlier this year, amid a now-completed Senate inquiry into purported customer harms being generated by their businesses.
ASIC chair James Shipton described the reforms as a “critical factor” in the development of trust in the financial services industry.
“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,” he said in a statement.
“This will be a significant boost for ASIC in achieving its vision of a fair, strong and efficient financial system for all Australians,’ he said.
In a report into the $903 million industry released in November last year, ASIC found one-in-six buy-now-pay-later customers had either become overdrawn, delayed bill payments or borrowed additional money to meet their payments.
Prior to the passage of the new laws, ASIC complained it had “limited ability” to regulate conduct and address lending risks.
The product intervention changes also introduce new obligations for financial services firms in relation to their product design and distribution.
ASIC says this will “bring accountability” to the industry, forcing providers to create products which meet consumer needs.
The reforms will be phased in over two years and will require companies to identify customers they’re products are appropriate for, and subsequently, direct their distribution efforts to that market.
Treasurer Josh Frydenberg said the changes would go some way to restoring trust in Australia’s financial services system.
“These reforms mean consumers will be better protected from being sold financial and credit products that are not suitable for their circumstances,” he said in a statement.