Design and Distribution Obligations and Product Intervention Powers

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Design and Distribution Obligations (DDO) and Product Intervention Powers (PIP)

Implications of the new regime

The Design and Distribution Obligations (DDO) and Product Intervention Powers (PIP) legislation was passed in April 2019.

You can get a copy of the legislation here:
https://www.legislation.gov.au/Details/C2019A00050

The fundamentals of the DDO regime

The regime introduces targeted and principles-based design and distribution obligations in relation to financial products. The obligations require issuers and distributors to have an adequate product governance framework to ensure products are targeted at the right people.

Design and Distribution Obligations (DDO) and Product Intervention Powers (PIP)

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The financial products captured under DDO mainly include:

  • Products that require disclosure to investors; and
  • Products that require a Product Disclosure Statement.

There are, however, exceptions for financial products and distribution methods where there are existing similar laws or other competing policy priorities.

DDO is now applicable to credit products because they fall under the umbrella of ‘financial products’. Insurance, asset management, superannuation (except MySuper) and derivatives are the other products captured under the regime.

The design obligations applicable to issuers include requirements to:

  • Make a target market determination and make it publicly available;
  • Review the target market determination for appropriateness;
  • Keep records about the target market determination; and
  • Notify ASIC about significant dealings in respect of the target market determination.

The distribution obligations applicable to distributors include requirements to:

  • Not engage in retail product distribution without a target market determination;
  • Not engage in retail product distribution where a target market determination may no longer be appropriate;
  • Take reasonable steps so that distribution is in accordance with the target market determination;
  • Collect, keep and provide distribution information; and
  • Notify the issuer of any significant dealings inconsistent with the target market determination.

The legislation does not provide guidance on making a target market determination. Firms need to carefully consider what factors they use in determining the target market of their financial products captured under DDO.

ASIC governs DDO and has powers

ASIC now has a number of powers to support its regulatory role, including ability to request necessary information and issue stop orders. PIP can be used when there is a risk of significant consumer detriment. Civil and criminal penalties will be applicable to contraventions of the new obligations.

Are you DDO and PIP ready?

Having a robust product governance framework and product monitoring capability embedded across your orgnanisation are critical. Your organisation needs to assess the implications of DDO and PIP on the end-to-end product lifecycle and the related operational processes.

We can support you so you are ready when DDO is applicable, so please call us if you would like to discuss how Deloitte can assist you.
 

Published: May 2019

Target market determination

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