ASIC sharpens enforcement focus on DDO

ASIC intends to keep its focus on deficiencies in target market determinations (TMD), the regulator’s executive director confirmed a little over a year since design and distribution obligations (DDO) first came in place.

Speaking at the ASIC annual forum last week, Greg Kirk said, “one year on, a big focus for industry has been to get the TMDs in place”.

“I think the power of this regime is not just the initial cultural shift, but that it will be an iterative process,” Mr Kirk said while moderating a DDO-focused panel discussion.

“You have to monitor the outcomes, find out what is going well or going badly and then you can do something about that. I think the standard, over all, will go up over time.”

To date, ASIC has issued 11 DDO interim stop orders and six remain in place. Five interim stop orders have been lifted following actions taken by the entities to address ASIC’s concerns.

Currently, Mr Kirk confirmed that the regulator is working on targeted, risk-based surveillances and enforcement action, including issuing stop orders, and other regulatory action focusing on sectors and products that pose the greatest risks of consumer harm.

Its expectation of financial services firms is the speedy implementation of “robust and effective” product governance arrangements to operationalise their TMDs, and compliance with other aspects of the DDO, such as the distribution and review requirements.

Joining Mr Kirk on the DDO panel, Professor Lauren E. Willis, Associate Dean for research at Loyola Law School in California said: “What we really need is consumer financial protection that will align firm incentives with consumer welfare, shift responsibility for achieving regulatory goals onto firms that are designing, selling and marketing products to consumers day in and day out, and place actual consumers at the centre of product design and distribution”.

“The design and distribution obligations have the potential to involve all of those things.”

To date, the DDO laws are considered to have lifted the game of everyone in the industry.

Moving forward, industry stakeholders expect the DDO to generate a wealth of data for issuers and distributors, while allowing for a more data and outcomes-informed approach to the review and enhancement of TMDs and products.

“The data needs to go a lot further than measuring complaints,” Professor Susan Thorp, from The University of Sydney Business School, said.

“We want to understand when a product is being used for a purpose other than which it was intended, and the question of which consumers are using it.”

The DDO came into effect on 5 October 2021, with the aim to shift the focus of financial services regulation away from a disclosure mindset to a consumer-centric and outcomes-focused approach to designing and distributing products.