ASIC has put financial institutions on notice that they must be compliant with new design and distribution obligations when they take effect next year. For that to happen system changes need to start now, the regulator says.
Under DDO, financial services companies will be required to identify the target market for their product and will need to design the product for that market. They will have to select appropriate distribution channels and periodically review those arrangements to ensure they continue to be appropriate.
Legislation introducing DDO was passed in April last year. The law was to take effect from 5 April 2021 but was pushed back to 5 October as part of a number of COVID-related regulatory relief measures.
In a speech at the Annual Credit Law Conference this week, ASIC commissioner Sean Hughes said DDO was a “step change” in regulation, placing greater responsibility on issuers and distributors of financial products to appropriately design and distribute their products.
Hughes said the scheme is aimed at reducing the harm of mis-selling and he warned that ASIC expects compliance “from day one”.
“Not in a ‘tick-a-box’ way but compliance in a way that meaningfully improves outcomes for consumers,” he said.
“Firms will need to understand their products and the outcomes they are delivering to consumers. In order to do this, industry needs to invest in the data systems now and ensure they are properly able to monitor the outcomes of their products come 5 October next year.”
Under DDO, A “target market determination” must describe the class of retail clients that comprise the target market for the product, specify any conditions or restrictions on sale, specify events and circumstances that would suggest that the determination is no longer appropriate, and specify review periods.
A product cannot be distributed until a target market determination has been made. Groups with a large number of products may face some deadline pressure.
Distributors of financial products will be required to take reasonable steps to ensure that products are distributed in accordance with the identified target markets. They will have to keep specified information for monitoring purposes.
Distributors will be prohibited from distributing a product unless a current target market determination is in place.
And distributors will have to notify a product’s offeror, and the offeror will have to notify ASIC, of “significant dealing in a product that is not consistent with the product’s target market determination”.
The new law gives ASIC power to enforce the new arrangements, including stop orders and exemption powers.
The chief executive of regtech provider Skyjed, Leica Ison, said: “The step change stance from ASIC signals to financial institutions that are behind on investing in or developing appropriate data systems that time is running out to ensure they’re able to monitor outcomes of their products.”