New product Design and Distribution Obligations (DDO) will come into force on October 5 requiring firms to design financial products to meet the needs of consumers and to distribute their products in a more targeted manner.
Financial services companies will be required under the DDO to identify a target market for their product and design the product for that market. Appropriate distribution channels must also be selected and arrangements periodically reviewed.
Under the changes, issuers must notify the Australian Security and Investments Commission of a significant dealing in a financial product that is not consistent with the product’s target market determination (TMD) and distributors must also notify issuers when they identify a significant dealing that is not consistent with the TMD.
Financial services companies will be required to identify the target market for their product and 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.
The obligations apply to most financial products regulated by the Corporations Act 2001 and the Australian Securities and Investments Commissions Act 2001.
In an update on the changes, product issuer Fidante Partner said the DDO was intended to help consumers obtain appropriate financial products by requiring Issuers and Advisers to have a “consumer-centric” approach to designing and distributing products.
Three ways the obligations help consumers:
- Product issuers need to design financial products that are consistent with the likely objectives, financial situation and needs of the consumer for whom they are intended.
- Product Issuers and Distributors, need to take ‘reasonable steps’ to ensure the financial products reach consumers in the target market; and
- Product Issuers need to monitor consumer outcomes and review their financial products to ensure that consumers are receiving financial products that are likely to be consistent with their likely objectives, financial situation, and needs.
ASIC has said it will take a “reasonable approach” in the early stages of the reforms provided industry participants are using their best efforts to comply.
For more information, visit ASIC’s info page.
