Posted: 15 May 2020 10 min. read

Design & Distribution Obligations – Implementation challenges

On 8 May 2020, ASIC announced that it will defer the commencement date of the Design and Distribution Obligations (DDO) by six months until 5 October 2021. The draft Regulatory Guide (RG) on DDO and ASIC’s Consultation Paper 325 (CP) released on 19 December 2019, set out ASIC’s proposal for guidance on DDO, including how the regulator intends to administer the regime. ASIC has also announced that it is working towards releasing the final RG on DDO by mid-2020. With less than 18 months until the new regime goes live, we look at what some of the implementation challenges have been to-date, how the industry has progressed and where to from here.

Challenges of implementation

Determining the scope – what’s in and what’s out?

The obligations under DDO apply to financial products offered to retail clients for which a prospectus, product disclosure statement or disclosure to investors is required under the Corporations Act. This also includes financial products not caught under the Corporations Act. ASIC’s CP further clarified that closed or legacy products are out of scope.

While the scope of DDO is seemingly well defined, the application has presented some challenges. As organisations begin to determine those products considered out of scope, questions are often raised around outlying circumstances that may cause these to be caught under DDO.

For example, where a product that is typically sold to commercial clients is occasionally sold to retail clients – or where a product that is considered ‘closed’ can actually be sold due to limitations in controls for closed products.

To mitigate the risk of selling in those above outlying circumstances, it is expected that organisations will have appropriately robust controls in place to prohibit this. These controls may include system restrictions to lock the sale of certain products, or increased monitoring and reporting to escalate cases of likely misselling.

Although determining the scope of DDO may appear simple conceptually, it is often the first hurdle organisations need to overcome in implementing DDO.

Defining the target market – how granular?

Once the scoping question is answered, organisations are then required to determine how granular the description of the class of customers, a key component of the Target Market Determination (TMD), should be. ASIC’s draft guidance notes that an issuer would breach its obligations if it were to define the target market too broadly. By doing so, the product would not likely be consistent with the objectives, financial situation and needs of customers in that target market.

In determining the level of detail required, regard must be had to the product itself. Even products with broad objectives or basic propositions may vary in their terms, features and complexities. In addition, product variations often present trade-offs for customers in selecting one product over another and will sometimes mean that the target market for the product variations will differ. If this is the case, a more detailed target market description or multiple TMDs might be required for one product that has variations.

For example, is it reasonable to define one target market for both interest-only and principal and interest loans, or are the objectives, financial situation and needs of customers seeking these products different, and therefore require separate TMDs? The answer requires analysis of the existing product customer base, and a critical assessment of similarities and differences in the target market for the product variations.

The more granular the target market, the greater the operational challenges. This directly impacts both the reasonable steps that an issuer and distributor must take to distribute the product in accordance with the TMD and the ongoing monitoring and review of the product to ensure that it is being sold to the intended target market. For example:

  • Sales processes and systems may need to change to capture additional customer information at the point-of-sale.
  • Frontline staff may need new or additional training on target markets for products.
  • Process and supporting tools may need to be developed to support ongoing product monitoring.

Availability and quality of product data - timely, accurate and complete?

Having determined the granularity of the TMDs, organisations will often turn to their data capability. There are two core considerations here:

  1. The availability and quality of the data; and
  2. The creation of new processes or systems to collect and use data.

Firstly, an organisation’s ability to meet the monitoring obligations will depend on the availability and quality of data. ASIC expects organisations to ensure that data used to meet the product monitoring obligations is timely, accurate, adequate and complete. If that underlying data is not fit for purpose, the ability to effectively monitor products and outcomes for customers will be severely hampered.  For issuers with multiple distributors, data will need to be collected in a uniform way to sustainably and collectively monitor various products.

For example, a review trigger for a product might be the nature, number and outcomes of complaints recorded and complaint trends.  For this to be an effective review trigger, it is important that:

  • All complaints are recorded, including those complaints that might be resolved on the spot.  This will provide a more complete data set.
  • Complaint categories include categories such as “Product” and appropriate sub-categories that allow the root causes of complaints to be monitored.
  • Complaints are appropriately categorised by frontline staff to allow for a meaningful analysis of complaints data in the context of the target market.

Secondly, organisations may need to create new processes or systems to collect and use data required for review triggers.  When determining what review triggers will support the ongoing review of the TMD, ASIC has noted that it expects that the approach taken will evolve over time and that supporting systems and processes will continue to be refined. Now is the time to think broader than what data you currently have in the short term, and think about data that could be collected longer term.

For example, at this point in time data might not be collected on the number of requests for information from customers (which could indicate the customer not understanding the product). These data points may require new processes or systems to be developed to enable them to be gathered.

Where to start

Across the sector, organisations are at various points of implementation. While the time required to reach compliance will depend on the size and complexity of the organisation, it is expected that most financial services providers will have already turned their minds towards this.

To get started, we suggest:

  • Establishing a project plan for delivery. This includes defining business requirements, documenting a governance framework, outlining key roles and responsibilities, and creating a stakeholder engagement plan.
  • Developing a TMD framework to support in a consistent rollout across the organisation. This includes identifying and reviewing existing frameworks or policies, hosting workshops or meetings with relevant stakeholders, and drafting the TMD framework.
  • Piloting the TMD framework. This includes determining the products to pilot, undertaking a data validation exercise, socialising the output from the pilot, and making any updates to the TMD framework.
  • Implementing DDO for all in-scope products. This includes the creation of TMDs across all remaining products, determining changes to be made to systems or processes, and preparing the organisation to transition to BAU.


In these unprecedented and uncertain times, organisational priorities will undoubtedly be changing and evolving. In our view, continuing with existing DDO implementation programs or adapting implementation programs in response to resourcing constraints for example, rather than pressing pause, will stand organisations in good stead come October next year.

More about the author

Rosalyn Teskey

Rosalyn Teskey

Partner, Audit & Assurance

Rosalyn is a partner in Deloitte's Melbourne office in the Governance, Regulation and Conduct practice. She specialises in supporting firms to design and assess frameworks to treat customers fairly, including the development of conduct, product governance, sales practices and complaints handling frameworks. Rosalyn co-leads our Accountability practice and leads Deloitte’s Design and Distribution and product governance offering.

Cheryl Fernandes

Cheryl Fernandes

Director, Audit & Assurance

Cheryl is a Director in Deloitte’s Governance, Regulation and Conduct Advisory practice in Melbourne. She has extensive experience of supporting firms in the financial services industry with conduct engagements focused on the design and review of conduct, product governance, sales practices and complaints handling frameworks, as well as supporting firms to implement regulatory change.

Georgia Amery

Georgia Amery

Senior Manager, Audit & Assurance

Georgia is a Senior Manager in the Governance, Regulation and Conduct practice based in Brisbane. She specialises in supporting clients across the financial services sector in designing, implementing and reviewing frameworks, policies and procedures focused on preventative conduct and promoting good customer outcomes.