ASIC have announced the first enforcement action it has taken in relation to the Design and Distribution Obligations (DDO), which were introduced late last year. The enforcement action shows that, as described by ASIC deputy chair Karen Chester, “ASIC’s focus has now shifted to compliance. Industry has had sufficient time to bed down its implementation of the DDO regime.“
The DDO are a set of obligations which took effect on 5 October 2021. The DDO intends to improve consumer experience by requiring product issuers to design financial products to meet the needs of consumers and distribute their products only to consumers they are suitable for.
Under the DDO, product issuers are required to create Target Market Determinations (TMDs) in relation to their financial products. In creating a TMD, issuers must consider the design of their products (including its key attributes) and determine an appropriate target market for the product by ensuring that the key attributes of the product are likely to be consistent with the with the likely objectives, financial situation and needs of the target market.
On 28 July ASIC announced that it had put in place interim stop orders in relation to financial products issued by three financial firms. ASIC alleges that two of the businesses failed to have a TMD in place and that the third business had a TMD which did not show how the product was consistent with the likely financial situation of its target market.
This recent enforcement action shows the importance of having appropriate TMDs in place prior to distributing financial products.
ASIC’s media release can be found here: DDO Stop Orders.