Design and Distribution Obligations – whose job is it?

New obligations in the Financial Services industry

The news is rife with articles about the coming Design and Distribution Obligations (DDO) for Financial Services and APRA is already calling out areas where it sees challenge and concern.

The fundamental principle of the new rules is simple: the ‘design’ features of the product must meet the needs of those to whom the product is sold (‘distributed’). The test is in how the product is actually used, so not just who might benefit but rather who actually does.

DDOs are holistic and transparent in that they extend over the full lifecycle of a product, from design/development through to sales, servicing and eventually closure. They involve extensive monitoring and reporting, and they also require corrective action. If things do not work as intended there are only three options:

1. Change the product so that those to whom it is being sold do in fact benefit; or
2. Change the distribution, again so that those to whom it is being sold benefit; or
3. Stop selling the product.

All of this sounds fairly straightforward, and it is, which is why it could also be a challenge. We all know that what is straightforward in concept can be complex in execution.

To successfully manage the complexity of execution, one fundamental question that all those who come under the DDO face is – whose job is it?

Let’s explore that with a few more questions:

• Who is best placed to understand the financial dynamics of each and every product, which are key to developing the Target Market Determinations (without which a product can no longer be sold)?
• Who is best placed to understand the demographic and likely product usage profile/s of who the product is/will be sold to?
• Who is best placed to understand these matters together?
• Who has the authority to make decisions that impact product design?
• Who has the authority to make decisions that impact product distribution?
• Who has the bandwidth to be across the detail of these obligations AND has the authority to make decisions about all of the above?

We all know what tends to happen if no one is put in charge – nothing – so who then should be responsible?

The question often asked is – “who is accountable?” but the above table outlines that it may be very challenging for one person to be truly accountable for DDO end to end.

Could a group make all the required decisions and run the activity on an ongoing basis? Quite possibly, and those organisations who have been through BEAR and FAR readiness may well have an advantage here being able to leverage accountability models.

But any organisation should have some form of accountability structure in place and applying these models – be they RACI, RAPID or similar – could help to break down the specific accountabilities required to deliver on DDO.

There is certainly plenty to consider, especially with the due date of October 5th and ASIC publicly jumping at the opportunity to test their new area of oversight (especially if the changes to Responsible Lending take away a substantial portion of their existing scope).

Whilst it is critically important to decide whose job it is, this is just the first step. There is still all the analysis, documentation, communication, change management, training, systems development, data capture, monitoring, reporting, governance etc. that must be designed, developed, and put in place.

There are 5 top issues to consider when preparing to meet DDO, the first being accountability. Read the second issue of designing effective target market determinations here!

If you’d like assistance with your efforts in getting ready to meet DDO, we can help you:

• Make the right choice about whose job it should be
• Help you identify the tasks involved
• Help you make a plan to get them done; and
• Help you wade through some of the more complicated or troublesome aspects with practical actionable recommendations and support.