FSC builds updated DDO template for fund managers
The Financial Services Council (FSC) has updated its template to help funds comply with the design and distribution obligations (DDO).
Since implementation, the Australian Securities and Investments Commission (ASIC) had issued 41 interim stop orders under DDO regarding firms’ target market determinations (TMDs). Some 33 of these had been lifted and eight remain in place.
Last week, the first interim stop order was made for a superannuation fund that it placed one on Spaceship Super.
In updating the template, the FSC consulted with its members and ASIC to address concerns with the initial DDO regime compliance.
FSC chief executive, Blake Briggs, said: “The design and distribution obligations (DDO) regime, which commenced in October 2021, represented a transformative change in the way the financial services industry approaches the design and distribution of products to consumers.
“This collaborative project has exemplified the FSC’s commitment to initiatives that benefit financial services consumers while also lowering compliance costs for members.”
It complements other FSC guidance on DDO data standards, how to implement DDO in investment portfolios, and an FSC questionnaire for DDO-related due diligence for product distributors.
Earlier this year, ASIC issued a report outlining the main problems it had observed in TMDs under DDO.
- Target markets defined too broadly — a factor in 15 stop orders
- Unsuitable investor risk profiles used — a factor in 21 stop orders
- Inappropriate levels of portfolio allocation used — a factor in 10 stop orders
- Unsuitable investment time frames and/or withdrawal features, not reflecting the product’s risks and liquidity profile — a factor in 18 stop orders
- Inappropriate or no distribution conditions — a factor in 13 stop orders.
Karen Chester, ASIC deputy chair, said: “We won’t hesitate to take further action, from stop orders through to court proceedings, especially where we see egregious failures. We have already commenced civil penalty proceedings for alleged DDO breaches against a distributor of an investment product and an issuer of a credit product. We have further stop orders under consideration and several other DDO-related investigations underway.”
She also indicated ASIC would soon begin reviewing how product issuers interact with their distributors to ensure they are not straying beyond their target market, how they monitor product governance arrangements and reviewing data to ensure retail investors are receiving suitable products on an ongoing basis.
AUTHOR
Laura Dew
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