It has been just over a year since the Design and Distribution Obligations ("DDO") commenced on 5 October 2021. While most Australian Financial Services licensees and Australian Credit licensees have their Target Market Determinations ("TMDs") published on their website, ASIC has started identifying deficiencies in many TMDs as well deficiencies in licensees' overall compliance with the DDO regime.
ASIC's Recent Work and Enforcement Actions
In 2022, ASIC issued over 20 interim stop orders on product issuers halting the issuance and distribution of financial/credit products. In December 2022, ASIC commenced the first civil penalty action against American Express Australia as a financial product issuer and the first civil penalty action against Firstmac as a distributor of financial products. Continuing onto 2023, ASIC's first enforcement priority is targeting poor design, pricing and distribution of financial products (including credit products).
ASIC Report 754, released on 13 December 2022, summarised ASIC's work in a targeted review of compliance with the DDO by Australian Credit licensees offering small amount credit contracts ("SACC"). In the report, ASIC indicated that TMDs should be specific and "a broad consumer class is unlikely to be sufficient to define the TMD for such loans". ASIC Commissioner Sean Hughes said that ASIC is focusing on sectors and products that pose the greatest risks of consumer harm, applying a DDO lens when responding to poor consumer outcome that ASIC identifies.
What Should You Do?
The DDO requires product issuers and distributors to have a consumer-first mindset and ongoing commitment to make continued improvements and refinements to their TMDs, product governance arrangements and products when poor consumer outcomes are identified. It is not a box-ticking exercise and a TMD should not just be a static disclosure document published on the website. ASIC will continue to review TMDs, governance documents, and data collected by product issuers from their periodic and trigger reviews, and act where it sees consumer harm that is not being addressed. Where serious compliance failures are identified, the full regulatory toolkit, including court-based enforcement action, disruption, and the DDO stop order power, become available to ASIC.
Now it has been over a year since the commencement of the regime, we encourage licensees to consider:
- Does your TMD contain all the information required to be in a TMD?
- Does your TMD contain information regarding the groups of consumers who should be excluded from the target market?
- Have there been any triggers for review in the past year and what was your response to these triggers?
- Have you conducted a review if the review period is up?
- Do you have effective product governance arrangements in place?
If you have any questions or concerns regarding your compliance with the DDO regime, you are welcome to reach out to us.
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