Hawking

The Corporations Act contains anti-hawking provisions for:

(a)    Managed investment products; and

(b)    Other financial products.

Each are discussed as follows:

Managed investment products

Section 992AA prohibits licensees from offering interests in unlisted managed investment products to retail clients by way of an unsolicited meeting or telephone call (this is known as “hawking”), unless offers were made to a client for which the licensee has acquired or disposed of an interest in a managed investment product in the previous 12 months. Therefore, practices such as “cold-calling” are prohibited.

Other financial products

Section 992A contains a general prohibition against the hawking of financial products (other than managed investment products, for example, insurance products). It provides that a person must not offer financial products for issue or sale in the course of, or because of, an unsolicited meeting or personal contact with another person.

Unsolicited contact is to be restricted to contact between 8am and 7pm on business days with people whose names are not on a “No Contact/No Call” List and who have been contacted already, during hours permitted by ASIC, to be given the opportunity to request that their names be placed on that list and to specify the time and frequency of any future contacts. The person contacted also has to be informed of the importance of the PDS and be given a chance to have the PDS contents read out to them.

This prohibition does not apply to the offering of securities as these will be covered by the specific prohibition against securities hawking contained in section 736 of the Corporations Act.

Extension Hawking Prohibition

The FSR prohibition on hawking financial products by telephone under s 992A of the Corporations Act has been extended.  Hawking of financial products regulated by the FSR regime is now prohibited on all national public holidays, Boxing Day and Sundays; Corporations Regulations 2001 (Cth) reg 7.8.22, as amended by Corporations Amendment Regulations 2003 (No 1) reg 3 and sch 1 item 17.  Previously this prohibition only applied on Sundays and on Good Friday, Easter Sunday and Christmas Day.

Prohibition on hawking by meetings

Companies are prohibited from offering financial products regulated under FSR to retail clients in the course of, or because of an unsolicited meeting: Corporations Act s 992A(1) and (3A).

Regulation of hawking by telephone calls

Companies are also prohibited from offering financial products regulated under FSR to retail clients in the course of, or because of an unsolicited telephone call unless the following conditions are met: Corporations Act s 992A (3) and (3A).

The Company must contact the person between 8.00am and 9.00pm.  The company must not contact the person on a Sunday or any of the following public holidays:

    (a)    New Year Day

    (b)    Australia Day

    (c)    Good Friday

    (d)    Easter Sunday

    (e)    Easter Monday

    (f)    Christmas Day

    (g)    Boxing Day

The company must maintain a register of people who have requested that the company not contact them.  The company must not contact anyone on the register.

The company must give each person an opportunity to request that they be listed on the register, or nominate the timing and frequency of any future unsolicited contact from the company.

 *The company must give the person a Product Disclosure Statement before the person becomes bound to acquire the financial product, and clearly inform them that it is important to consider the information in the Product Disclosure Statement when deciding whether to acquire the financial product.

 *The company must give the person the option of having the information in the Product Disclosure Statement read out to them.

    *Conditions 4 and 5 involve a Product Disclosure Statement.  Companies do not have to comply with these conditions until they are required to provide a Product Disclosure Statement for the financial product under the FSR regime generally: Corporations Regulation 10.2.198.  ASICs Guide to the Hawking Prohibitions states that where there is no Product Disclosure Statement for a particular financial product, the pre-FSR disclosure document (if any) will be a substitute for the purposes of conditions 4 and 5 (at paragraph A7.3).

Consequences of breaching the hawking prohibition

There are three legal consequences of breaching the hawking prohibition:

(a)    Intentionally or recklessly breaching the hawing prohibition is a criminal offence: Corporations Act s 1311(1) and Chapter 2 of the federal Criminal Code.

(b)    The company must allow the person to return the financial product and give them a refund: Corporations Act s 992A(4).

(c)    The person (and ASIC) can commence civil proceedings against the company: Corporations Act s 1324.

ASICs Guide to the Hawking Prohibitions

ASICs Guide to the Hawking Prohibitions provides some guidance as to how ASIC interprets s 992A, including the circumstances in which a request from a person that the company contact them means that the contact is not “unsolicited” and how ASIC will decide whether a company offered a financial product “because of” an unsolicited meeting or telephone call.