Design and Distribution Obligations
New regulations in the financial services industry
The financial services industry shake up continues apace. Next up is the Design and Distribution Obligations (DDO) regime, and this is one of the biggest of the many big new things for the financial services industry in 2020.
Under the DDO, consumers are no longer left to determine if a policy is suitable based on disclosure statements. Now, according to ASIC, this onus is on the insurer or offeror to design the policies that meet the needs of relevant consumers. The regime will apply to issuers of most types of financial products and distributors. But, the obligations differ between the two.
What must product issuers and distributors do?
Product issuers must:
- make a 'target market determination' for each product covered by the regime;
- take reasonable steps that will, or are reasonably likely to, result in 'retail product distribution conduct' (other than certain excluded conduct) being consistent with the determination;
- notify ASIC of 'significant dealings' in a product in relation to a retail client that are inconsistent with the determination; and
- review the determination regularly and keep records.
- not engage in 'retail product distribution conduct' unless all reasonable enquiries and determination have been made for the product (or that it is not required);
- take reasonable steps that will, or are reasonably likely to, result in retail product distribution conduct in relation to the product being consistent with the determination;
- notify the issuer of 'significant dealings' that are inconsistent with the determination; and
- keep records.
But things get complicated. Exclusions come into effect, breaking down the traditional parameters and putting in place complex systems. Responsible lending obligations now put a lot of onus on lenders to form a view if a customer falls within the class of person who is suitable for a loan, added to the fact that this may be different information that would otherwise be obtained for reasonable enquiries and verification obligations.
New sets of rules are coming into play. The DDO needs to be properly understood and acted on before the looming deadline of 5 April 2021.
What's to come
We will be taking a close look at the DDO regime over the next few months and how it will apply to different parts of the financial services industry because, while the obligations apply broadly, they play out differently for different products.