Design and Distribution Obligations (DDO)
by Leica Ison
A new product benchmark: Design and Distribution Obligations (DDO)
The Design and Distribution Obligations (DDO) and Product Intervention Powers (PIP) legislation was passed on 3 April 2019. The DDO specification applies to financial and credit products that are issued and distributed to retail customers. If you are proactively looking to enhance your product governance, it’s worth reviewing as it sets a straight-forward customer-centric governance framework.
The Design Distribution Obligations (DDO) - What is it?
The design and distribution obligations are intended to help consumers obtain appropriate financial products by requiring issuers and distributors to have a customer-centric approach to designing, distributing and reviewing products.
If you are designing and/or issuing financial products, you are now required to have an appropriate product governance framework to ensure that you are targeting the right people.
Any product for which a prospectus, product disclosure statement (PDS) or disclosure to investors is required under the Corporation Act must adhere to DDO. This most commonly applies to financial products consumed by retail customers. DDO is now applicable to credit products as they fall under the category of ‘financial products’. It is also applicable to insurance, superannuation, asset management and derivatives.
Essentially, DDO aims to make sure the right people are targeted for a financial solution and that the product matches their circumstances. Read on for DDO compliance and how Distributors should meet their Obligations.
The Design obligations
When creating a product for the financial market, there are four essential product areas to address to conform to the DDO requirements:
- Make a target market determination
The product must have a defined target market, outlining any conditions and restrictions for its distribution. This determination must be publicly available, and in writing.
- Review the target market determination for appropriateness
Prompt identification and review of triggers or other events which suggest the target market determination is no longer appropriate. The determination must identify defined triggers which show any events or circumstances where the product is no longer appropriate for the consumer
- Set a product review cadence
The governance framework must be put into practice and integrated into the day-to-day business operations. This includes regular monitoring and post-sales review of product performance.
- Notify ASIC of significant dealings
Notify ASIC of any significant dealings in relation to a retail client that is not consistent with the relevant target market determination.
- Keep records of decisions made
The product issuer must keep accurate records relating to the Design Obligations for up to seven years.
The Distribution obligations
The distributor selling the financial product to the end-user must also conform to the following requirements:
- Target Market:
A distributor may not sell or provide advice on any product without a target market determination.
- Appropriateness of target market:
A distributor must not engage in retail sales of a product in which the target market has been deemed to not be appropriate.
- Distribution alignment:
The distributor must take reasonable steps to ensure the distribution is consistent with the target market determination.
- Product monitoring and post-sales review:
The distributor must collect, and keep information pertaining to the product and its target market appropriateness and report this information back to the product issuer.
- Notify on inappropriate dealings:
The distributor must notify the product issuer of any significant dealings of the product which do not match the target market determination within 10 days of identifying such dealings. This includes reporting on whether customer complaints have occurred and if so, the number of complaints received.
ASIC requires a financial product issuer to determine their target market prior to distributing or selling a product. The expectation includes a product governance framework to identify the target market in the early stage of the product lifecycle.
If the product issuer becomes aware of significant dealings in a product that are not consistent with the target market, ASIC requires notification in writing within 10 business days of becoming aware.
ASIC may use their regulatory powers to intervene in a product if they find that a product has resulted or will result in significant detriment to retail consumers: they can request information and issue a “stop order” for breaches of target market determination requirements.
Are you DDO compliant?
Skyjed provides you with a cost effective software tool for product lifecycle, risk and governance. As a SaaS software platform Skyjed helps you manage and monitor your product portfolio across the five areas or domains as we call them of product health that give you a wholistic view of your product’s health from both a financial and non financial point of view. A software platform that gives you a 360 degree view of your product portfolio's health and risk profile including:
- Continuous product monitoring audit cycle
- Effortless cross team collaboration – remotely
- Automated reporting
- Full audit trail & compliant record keeping
- Ongoing DDO compliance built in:
- Target Market Determination (TMD), negative TMD & ongoing assessment
- Significant dealing trigger notifications
- Distributor integration & Regulator forms A&B
- ESG including modern slavery & climate-related risk
The platform enables you to capture, monitor and share your product governance requirements in one place:
- Determination of target market:
Skyjed automates the setting and monitoring enables of target market for each of your products.
- Identify review triggers:
Skyjed includes a simple to use feature to set triggers and notifications and helps you to collaboratively identify and share triggers which could indicate if your product is the best fit for a consumer.
- Record keeping:
Skyjed’s sophisticated reporting system allows you to create and auto-generate regular reports on the state of your product health and governance.
- Trigger monitoring:
Skyjed’s audit publishing allows for product monitoring and reviews which is mandated by ASIC to ensure your product continues to meet the needs of your target market.
The Skyjed product lifecycle management and governance platform provides organisations with a 360-degree view of their product portfolios health and risk status while facilitating collaboration, transparency and product trust in the day to day operations of the organisation.