ASIC flags advice checks among DDO failures

According to the Australian Securities and Investments Commission (ASIC), product issuers are not doing enough to minimise consumers’ risk from inappropriate distribution.

The regulator released a report this week on the back of its design and distribution obligations (DDO) surveillance, which assessed whether product issuers are taking reasonable steps to support appropriate distribution of their products.

Report 795 Design and distribution obligations: Compliance with the reasonable steps obligation looked at 19 issuers of high-risk investment, insurance and credit products between October 2023 and August 2024.

It found that, despite issuers making a number of improvements, there is still a lot of work to be done to ensure consumers can feel confident that the products they purchase suit their needs.

“This review provides a snapshot of compliance with the design and distribution obligations across multiple industries and products. Where there are opportunities to improve, we expect product issuers and distributors to reflect on the report’s findings and improve their distribution practices,” ASIC commissioner Alan Kirkland said.

The review found that many issuers had limited due diligence arrangements to assess and monitor third-party distributors, while some issuers of high-risk products were also relying on broad search terms in online marketing.

It also highlighted the use of poor-quality consumer questionnaires, as well as few issuers monitoring consumer outcomes and product performance.

The regulator’s concerns over product issuer behaviour also extended to financial advice, with ASIC noting that very little has been done to verify that advice was actually received.

“Where personal advice was a selected distribution method, we observed that issuers took minimal steps to check customers actually received the advice before acquiring the product,” ASIC said in the report.

“We acknowledge that in some circumstances an issuer will be unable to review the personal advice (e.g. if there are privacy concerns).”

This is despite issuers having clear guidance under Regulatory Guide 274 Product design and distribution obligations, ASIC added, that they can rely on a certification from the adviser that the client received current advice.

“However, we did not observe any issuers seeking such certification, although one issuer sought the adviser’s contact and AFS licensee details,” the regulator said.

The report recommended that issuers need to improve distribution practises regarding the selection and supervision of distributors, training staff, marketing materials, consumer questionnaires, and information and monitoring outcomes.

ASIC also released minor updates to RG 274, with Kirkland stressing that DDO compliance remains a key focus for the regulator.