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A recap on Design and Distribution Obligations

Risk and compliance consulting

A recap of the 5 issues to consider in relation to DDO

Here is a brief recap of our series on the Design and Distribution Obligations (DDO) where we took a look at 5 key issues regarding what is required to be compliant and highlighted how these ‘issues’ can be leveraged to drive product growth and improved performance 

Issue #1 – Whose job is it?

Given the consequences of many of the decisions that need to be made to meet DDO requirements, who is best placed to make them? Answering that question requires consideration of – who has sufficient understanding of the detail of both the obligations and their practical implications as well as gravitas within the organisation to ‘make the calls’ and ensure the changes require are carried out. Read more…

Issue #2 – Target Market Determinations – Product Design 

The key here is ensuring there is a clear and evidence-based match between the features of the product and the ‘likely’ objectives, financial situation and needs of those in the target market. Additionally, if a product (existing or new) sees a cross-subsidy situation, where one subset of the target market pays disproportionally for benefits received for another segment, it is likely that will be an issue that needs to be addressed. Bundled products need special attention as well. Read more…

Issue #3 – Target Market Determinations – Distribution 

Critical here is ensuring that the distribution is ‘controlled’ (restricted) to the extent needed to ensure that only those that are within the target market are sold the product. These restrictions should also be evidence-based. Specification of what information those who distribute your products must capture and report back to you must be specified and align with ensuring only those in the target market are sold the product. Read more…

Issue #4 – Data – Record keeping, monitoring, reporting and notification 

Over the years ASIC’s reviews have regularly pointed to ‘gaps’ in this area. In short, you need to be able to prove you are compliant, and that relies heavily on capturing the data, including the reasoning behind decisions and who made them. Processes to collect data from those who distribute products (which includes brokers and financial advisors) need to be well sorted given the very short timeframes for notification in the event a situation occurs that requires letting ASIC know. Read more…

Issue #5 – Governance, oversight, change management 

Compliance is a key executive and board accountability. Having robust processes for approving TMD, assessing results ongoing, making decisions about performance, and ensuring that actions required are take will be important to ensure that accountability is met. Read more…

Putting DDO in the big picture

We see DDO as part of a broader set of regulations that are becoming increasingly interrelated to form something of a Consumer Financial Services Regulatory ‘ecosystem’ – a continuous loop. Here is how we seeing it start to fit together: 

 

Ecosystem

 

Of these, DDO is new and BR, IDR and REM are updates. All four become operational in October this year. Changes to RL are sitting before the government awaiting passage. Having been recommended by committees and having had their first and second readings, it seems likely to pass ‘soon’ which could see changes due early in 2022. 

Common across the ecosystem are data capture and storage along with workflow to help guide consistency of process.  

Similar to the comments made throughout our insights on DDO, the work needed to meet compliance can also be leveraged to facilitates growth and improve performance (reduce costs and increase revenue) dependent on how effectively they are enabled. 

To achieve that broader outcome requires intent, and an understanding of the whole picture – what is common and different across the regulation – so that duplication and complexity can be minimised. 

As an example: 

Consider, who is accountable for each of these – in many institutions, it will not be one person or even one function or one project team, so what means will be used to synchronise this work? 

Stay Tuned

Our next series of insights will address the ecosystem and how to make the most of it in more detail. 

If you have questions about DDO or any of the rest of the Consumer Financial Services Regulatory ecosystem or need assistance in working out what needs to be done or how you are travelling in your preparations, we are here to help. 

Complete our free Design and Distribution Assessment here.

Michael Hartman

Senior Manager Risk & Compliance

A dedicated practitioner who is always across the detail, Michael applies a structured approach to risk assessment, assurance information gathering, decision making and implementation to ensure execution matches intention.

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