The DDO applies to a range of financial products under the Corporations Act 2001 (“Corporations Act”), ASIC Act 2001(“ASIC Act”) and National Consumer Credit Protection Act 2009 (“NCCP Act”).
| Products for which a Product Disclosure Statement (“PDS”) must be prepared under Part 7.9 of the Corporations Act |
Note: generally, the requirement to provide a PDS relates only to products which are issued to retail clients, however if you are unsure whether this applies to you, we suggest contacting your lawyer. |
| Securities for which a disclosure document must be prepared under Part 6D.2 of the Corporations Act |
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| Financial products under Division 2 of Part 2 of the ASIC Act |
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| Credit facilities under the ASIC Act | Short-term credit exempt from the NCCP Act |
| Products specifically prescribed by the Corporations Regulations as requiring a Target Market Determination (“TMD”) |
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There are some product exemptions, including:
There are also exemptions for certain conduct, including:
Life insurance product issuers are eligible for some relief under the DDO regime when reissuing life insurance policies in limited circumstances. You can read more here.
Product Governance Arrangements
Issuers and distributors need to implement and maintain robust product governance arrangements. These arrangements need to consider each stage of product design and development – including design, distribution, monitoring and review. ASIC expects that product governance arrangements be client-centric and include appropriate steps to ensure:
Target Market Determination (TMD)
Issuers must develop a TMD for each of their financial products and make it publicly available prior to distributing financial products. TMDs must:
Reasonable Steps
Issuers and distributors have an obligation to take reasonable steps that will or are reasonably likely to, result in the distribution of the financial products being consistent with the TMD.
Record Keeping
Issuers are required to keep specific records about the TMD it prepares, and distributors are required to keep records of distribution information as specified in the TMD.
Significant Dealings
Issuers are required to notify ASIC of significant dealings in relation to the TMD within 10 business days of becoming aware of the dealing. RG274 prescribes certain information which must be included in the notification to ASIC. Distributors have an obligation to notify issuers regarding significant dealings in order to facilitate the issuer’s notification to ASIC.
Issuers:
Distributors:
Since its inception, DDO has been a major focus for ASIC. Sophie Grace can assist in reviewing DDO documentation, including DDO Policies and TMDs.
Sophie Grace also has templates which can be used as a starting point for implementing the DDO regime within your business. There are a number of options available according to your business type – if you are unsure which is relevant for you, please do not hesitate to contact us.
The origin of the DDO regime is well-articulated in ASIC’s Regulatory Guide 274. Similar provisions have been implemented in other major jurisdictions around the world such as the United Kingdom (by the Financial Conduct Authority) and Europe (by the European Securities and Markets Authority).
In Australia, the Financial System Inquiry’s (FSI) recommendation for the introduction of DDO in 2014 was based on its view of the limitations of a framework for consumer protection in financial services that relies heavily on disclosure, financial advice and financial literacy. In particular, the FSI concluded that ‘disclosure can be ineffective for a number of reasons’ and that ‘disclosure alone is unlikely to correct the effect of broader market structures and conflicts that drive product development or distribution practices’ that result in poor consumer outcomes.
The FSI further concluded that poor design and distribution practices played a significant role in contributing to consumer detriment. It is in this context that the FSI recommended the introduction of DDO as a supply-side intervention that places additional responsibility for consumer outcomes on issuers and distributors.
DDO is intended to help consumers obtain appropriate financial products by requiring issuers and distributors to have a consumer-centric approach to designing and distributing products.
The Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2019 received Royal Assent on 5 April 2019 which amended the Corporations Act, the NCCP Act and the ASIC Act.
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