A legal perspective on DDO

October 5 marks the most significant regulatory change to impact the Australian financial services industry in years: the RG274 Product design and distribution obligations (DDO).

At the end of September, we brought together almost 200 people across the financial services industry at a forum along with Corey McHattan, regulatory lawyer and partner at Ashurst Australia. At the forum, Corey shared a legal perspective on DDO - including some last-minute relief measures - and we discussed how the industry-designed Iress DDO solution can support the new requirements.

Corey did a great job of explaining some of the less clear aspects of the DDO legislation in relation to significant dealings and some of the proposed new DDO relief measures, which we’ve summarised below.

The challenge

While DDO is a ‘one size fits all’ regime, the considerations are very different for superannuation, versus insurance, versus managed funds, versus FX. The legislation sets a framework, and while ASIC sets some limited guidance for the industry, it’s up to product issuers and product distributors to determine the specifics themselves.

Notifying ASIC of significant dealings

Both product issuers and product distributors have reporting obligations if there are significant dealings in a product that are not consistent with a target market determination (TMD).

‘Significant dealing’ is not defined in the Corporations Act and whether or not a dealing is significant is a matter to be determined in the circumstances of each case.

ASIC expects that the following factors will be relevant for issuers when determining whether a significant dealing has occurred:

  • of those consumers who acquire the product, the proportion of consumers who are not in the target market
  • the actual or potential harm to consumers
  • the nature and extent of the inconsistency of distribution with the TMD
  • the proportion of gross income or premium obtained from the product in respect of consumers who are not in the target market
  • the time period in which these acquisitions outside the target market have occurred.

Proposed new relief

A number of DDO relief measures have been introduced at the last minute. Some of the proposed refinements include:

  • exempting all margin lending (including margin lending to corporates)
  • exempting foreign cash settled immediately (as risk to consumers is low)
  • exempting non-cash-payment facilities (except for certain facilities, specifically credit, debit and stored value facilities)
  • exempting cashless welfare arrangements
  • ensuring that where a product disclosure statement (PDS) is given in the course of providing personal advice as required by law it is within the scope of excluded conduct
  • expanding employer exemption when employers provide employees with a PDS for their default fund product
  • confirming employees of licensees are not subject to their own set of DDO obligations
  • capturing 31 day term deposits in the DDO regime (as a basic deposit product)
  • ensuring consistency of retail/wholesale investor definitions between the Corporations Act and the DDO Regime; and
  • removing the requirement for distributors to report whether they have received a complaint of acquired information requested by the issuers, where there are nil complaints or nil information.

How we can help

Whether you're a product issuer, platform provider, licensee or financial adviser - we can help.

Iress’ solution brings together financial product TMD publishing and reporting capabilities across the industry as well as connectivity with distributors. Via the DDO messaging service, issuers and distributors are connected and able to manage their reporting obligations by creating and sharing complaints and significant-dealing reports across a complex network.

Simply by publishing TMDs to the Iress Blockchain, you automatically meet your first regulatory obligation, and at no cost.

Our solution today has become the most broadly adopted infrastructure for DDO and we’ve seen a lot of support from the industry, with over 1,500 TMDs already uploaded to the blockchain and 75 fund managers, four platform providers, and eight insurers onboard, along with superannuation funds, ETF providers and more.

Speak to your Iress account manager for more information or to access the full recording of the recent industry forum. You can also visit our web page for more information.