Legacy products are financial products that are well past their “use by” date, as they are no longer issued to new retail customers and over time the number of remaining few customers gradually decreases. 

Typically, the few remaining customers do not voluntarily change to other financial products because of significant financial disincentives such as adverse social services or tax consequences (e.g., unwanted imposition of Capital Gains Tax (CGT)). 

These legacy products, especially with minimal residual number of investors, impose an unnecessary cost and compliance burden generally because of the need to retain applicable law/regulation as well as issuers maintaining relevant infrastructure. It would be highly preferable to remove any such obstacles to expedite removal of redundant laws and issuer’s infrastructure. Also, investors affected could transfer to more current “equivalent” financial products with better returns and lower fees. 

This issue was raised in a recent blog by Sally Loane, FSC CEO, where she noted that support for this initiative had been expressed as far back as the Cooper Review and subsequently by the Productivity Commission, APRA and ASIC. Also, she noted the FSC’s practical solution:

 …urging the Government to set up a mechanism, like a special legal tribunal, where independent experts can make swift and binding decisions so consumers can transfer into modern products without financial penalty.” 

This issue was raised at a meeting held last week between representatives of the FSC and the FSC Legal Compliance Expert Group (LCEG) members, who met with representatives of the Australian Law Reform Commission (ALRC) as part of the Commission’s review of the Legislative Framework for Corporations and Financial Services Regulation (Review). Legacy product rationalisation  or product modernisation - was submitted by the FSC and its members as one of the most important simplification initiatives for ALRC consideration.  

In addition, the Commonwealth Deregulation Taskforce, under the leadership of Assistant Minister to Department of the Prime Minister and Cabinet (PM&C), the Hon Ben Morton, has been tasked to address over-regulation and removal of red tape. Legacy product rationalisation, or product modernisation is a good illustration of how red tape could be removed to great effect for the benefit of consumers, legislators and industry. With the groundswell of support and public review, now is a window of opportunity for this long overdue simplification to be implemented. 


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