Posted August 16, 2021
Posted By Meghann Cannon
Update on the Design and Distribution Obligations (DDOs) – Amendments and enforcement
Prepared by Rosie Jervis.
The DDO obligations for financial product issuers and distributors commence on 5 October 2021 following a two-year transition period and a six month deferral of commencement due to Covid-19.
· The purpose of the DDOs is to improve consumer outcomes for retail financial products by requiring issuers and distributors to have a more consumer-centric approach to the design and distribution of financial products. The regime applies to most financial and credit products regulated by ASIC with some specific exemptions.
The DDOs impose separate ‘design’ obligations for product issuers, and ‘distribution’ obligations on the distributors of financial products.
If you are one of our clients you will soon be receiving detailed advice on how to comply with your DDO obligations and we will also be implementing changes to your policies and procedures in the Digital Compliance Platform (DCP) to reflect your obligations.
Amendments to DDOs
Treasury has now announced further amendments to the DDOS and confirmed that the following products are also exempt from the DDO obligations:
- non-cash payment facilities (excluding credit and debit card facilities and stored value facilities).
- Foreign cash settled immediately
- Margin lending to corporates (consistent with the intention that all margin lending is exempt from DDO)
This means that if you are issuing these products you will not be required to comply with the product ‘design’ obligations set out in the DDOs.
Treasury’s statement has also confirmed that:
- 31-day term deposits do fall within the DDO regime (consistent with the intention that all basic deposit products are caught).
- Employees of licensees are not subject to their own separate set of DDO obligations.
When will these changes be made?
Treasury will not have time to make formal changes to the DDO laws before the October 2021 commencement date. However, Treasury has stated that it will work with ASIC to ensure that the planned legislative changes are implemented in ASIC policy until the laws are formally changed.
Enforcement of the DDO regime – reasonable approach during transition period
ASIC has issued a press release in relation to the DDOs and other regulatory reforms of the financial services sector in which it recognises the regulatory burden these new laws create. In particular ASIC notes that many business will need to make significant changes to systems and processes and implement additional compliance measures which it says will be more challenging in light of the ongoing Covid-19 lockdowns.
As a result ASIC has confirmed that it will take a reasonable approach to enforcement during a ‘transition period’, provided that firms are using their best efforts to comply.
However, ASIC cautions that it will not hesitate to enforce the laws if firms are not acting in good faith or where conduct causes actual consumer harm.