ASIC proposes 5-year DDO extension

The Australian Securities and Investments Commission (ASIC) has called for industry feedback on its proposed extension to the operation of the ASIC Corporations (Design and Distribution Obligations Interim Measures) 2021/784 instrument for a further five years.

According to ASIC, the design and distribution obligations (DDO) “require firms to design financial products to meet the needs of consumers, and to distribute their products in a more targeted manner”.

Following a recommendation of the Financial System Inquiry, Parliament passed the obligations in 2019 and firms were required to comply from 5 October 2021.

ASIC Instrument 2021/784 was initially made for a period of two years and implements measures announced by Treasury, including “relief for distributors from the obligation to report to product issuers if they received nil complaints during a reporting period”.

ASIC said it intends to extend the operation of the instrument to retain certainty for industry ahead of any law reform.

The regulator added that ASIC Instrument 2021/784 is operating effectively and efficiently, and “continues to form a necessary and useful part of the legislative framework”.

The only amendments proposed are to extend the expiry of the instrument until the start of 5 October 2028; and to remove an exemption for cashless welfare arrangements. ASIC said the latter is no longer necessary following the making of the Corporations Amendment (Design and Distribution Obligations – Income Management Regimes) Regulations 2023.

In May, ASIC urged investment product issuers to “lift their game” regarding the DDO regime.

In a statement, ASIC said it had prioritised an initial review of how investment product issuers were meeting the DDO requirements due to concerns that investors are being inappropriately exposed to high-risk products.

The review found that a significant number of the product issuers had made deficient target market determinations (TMDs), with poorly defined target markets and unclear or inadequate product governance arrangements.

“Investment product issuers have been on notice to meet the design and distribution obligations since October 2021. It is disappointing to see DDO deficiencies across the board, and by large and small product issuers alike,” said ASIC deputy chair Karen Chester.

“Poor product design or distribution puts retail investors at risk of financial harm, ending up in products that don’t meet their needs. The fact that we have issued 26 stop orders on investment products in just nine months shows that product issuers need to ‘lift their game’ – and now.”