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

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

Implications of the proposed legislation

The consultation process and public hearings on Design and Distribution Obligations (DDO) and Product Intervention Powers (PIP) are now complete. After an 18 month consultation process, it has been recommended the legislation be passed.

You can get copies of the draft legislation here:
https://treasury.gov.au/consultation/c2017-t247556/

The fundamentals of the proposed DDO regime

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

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 could be applied to credit products as well because they fall under the umbrella of ‘financial products’. On the other hand, the responsible lending rules capture credit products.

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 draft legislation does not provide guidance on making a target market determination. Firms will need to carefully consider what factors they use in determining the target market of their financial products captured under DDO.
 
ASIC will govern DDO and have powers

ASIC will have a number of powers to support its regulatory role, including ability to request necessary information and issue stop orders. PIP will 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 will need 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 the legislation is passed, so please call us if you would like to discuss how Deloitte can assist you.

Published: February 2019

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

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