As flagged recently, ASIC released Report 762 Design and distribution obligations:
Investment products (REP 762) outlining ASIC's findings in
response to its initial risk-based review of how product issuers
are meeting their design and distribution obligations (DDO).
In addition to reviewing target market determinations (TMDs) for
compliance with DDO, ASIC reviewed the product design arrangements
of 12 issuers of managed investment schemes to check how they met
the 'reasonable steps' and TMD review obligations.
KEY FINDINGS
In the report, ASIC identifies good practices being adopted by issuers as well as areas for improvement, focusing on the following:
- Product design, including keeping the consumer in mind, board oversight, stress testing, and engaging with distributors.
- Appropriateness of the TMD, including defining the target market for risk profile and withdrawal needs, and inclusion of distribution conditions.
- Distribution and oversight arrangements, including monitoring and supervisory arrangements for third party distributors.
- Monitoring and review arrangements, including review triggers and conducting reviews.
While ASIC's initial review focussed on non-compliance with the TMD requirements, ASIC has made clear it plans to 'look behind the curtain'. That is, beyond publicly available TMDs, and carry out surveillance work that focusses on issuer's compliance with the 'reasonable steps' obligation. ASIC says it will consider regulatory action where necessary.
WHAT DOES IT MEAN FOR YOU?
Based on ASIC's comments and key findings, we have prepared this DDO Health Check to help you assess your TMDs and product governance arrangements against ASIC's current view of DDO good practice.
SOME NEW LESSONS FOR OUR CLIENTS
DDO has been operational for the last 18 months or so and issuers now have the benefit of further guidance from ASIC to make improvements and adjustments to TMDs and product governance arrangements to reflect good practice. Based on ASIC's latest report we have identified minor improvements around the following which we would like to share with our clients:
- TMDs-'risk' and 'withdrawal/access to capital needs'.
- DDO policy and plans-'fund distribution' and 'TMD review process'.
Reach out to our team to discuss and incorporate these improvements into your TMDs and DDO policy and plans.
HOW WE CAN HELP
We offer a full spectrum of DDO services, from advice on documents you prepare to a comprehensive in-house review of the implementation of DDO into the operations of your business. Our services are tailored to your business needs and include the following-
- preparing and reviewing the TMD
- preparing or reviewing DDO policy and plans
- developing or reviewing additional DDO processes and templates
which may include-
- distributor due diligence questionnaires and communications
- reports on filtering questions
- training program outlines (e.g., who is trained, on what, and how often?)
- TMD review checklists and processes
- training, including-
- board DDO sessions
- responsible manager and distribution staff training series
- comprehensive review of DDO infrastructure.