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Learn about our 2022 National Healthcare Research ProjectThis is the second topic in a series of articles where we discuss the top 5 issues to consider in relation to the new Financial Services Design and Distribution Obligations (DDO).
As we see it, there are five key issues facing financial institutions in meeting their DDO obligations. We’ve already talked about the importance of Accountability, and this article addresses the second issue we are seeing in building out effective Target Market Determinations (TMDs).
At its core, DDO is about matching product features to the (likely) objectives, circumstances and needs of the recipient customers. Whilst this may sound like something your organisation does already – and hopefully that is the case – what is new is the degree of formality required within the end-to-end processes supporting this crucial activity.
In order to sell a financial services product (including both new and existing products) the matters prescribed by the regulations must be documented in a Target Market Determination.
At a high level, the content of a TMD document must:
Additionally, the TMD must ensure that that the ‘design’ of the above elements is reasonable – i.e. that all of the above are likely to work to ensure that customer outcomes match their objectives, circumstances, and needs.
None of the listed requirements includes whether the product can be easily sold or if it is profitable, which would be the focus of a traditional business case. It is perhaps worth considering how different is this from what your organisation does today.
There are three other matters to keep in mind when planning your DDO activities and resources, for both implementation and ongoing operation and administration of TMDs:
To illustrate the level of detail, here is the list of questions ASIC sees as ‘a starting point’ for items that need consideration:
Source: ASIC RG 274 Table 3: Critical assessment questions
Matters to consider | Questions to answer |
---|---|
Purpose | - What is the purpose of the product? - Is it fit for purpose? - Does the product include features or attributes that are inconsistent with the objectives, financial situation or needs of consumers in the target market? - Does the product (including its key attributes) benefit the consumers in the target market? - Does the product (including its key attributes) fulfil a well-founded needs for consumers in the target market? |
Past outcomes | - Has the product (including its key attributes) resulted in good outcomes for consumers in the target market in the past? - Did it deliver what was promised? - Who has benefited from this product or this type of product in the past? - Did the product meet the needs of those to whom it was distributed? - What does the data show were the ongoing benefits, risks, and outcomes for consumers? |
Likely future outcomes | - How is the product likely to perform in the hands of the consumers in the target market? - Is the product likely to deliver what is promised? |
Refinement of target market and/or product | - Does the product need to be redesigned or changed to be suitable for consumers in the target market? - Does the target market need to be narrowed? |
These matters raise several more important questions about the data and analytical capabilities you will need to meet regulatory obligations:
Historically, if the answer was ‘no’ to the questions above you may have been at risk of a poor decision. Now you are also at risk of non-compliance that carries the obligation of remedial action to either change the product, change the distribution or stop selling the product altogether.
Is your organisation on track to be both compliant and capitalise on the opportunities?
If you have questions about DDO 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.
Insync offers a high-level assessment, in-depth assessments, and assistance in developing roadmaps for business resilience programs so that you can do ‘the doing’ yourself and augment your skillset along the way.
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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