Aussie firms ordered to comply with design and distribution obligations

The Australian Securities and Investments Commission (ASIC) has issued a notice to companies issuing investment products. The regulatory body has called upon investment product issuers to “lift their game” on design and distribution obligations (DDO).

Aussie firms to comply with design and distribution obligations

The notice sent by the ASIC comes after the regulator found deficiencies in the market. These deficiencies were present in the offerings of a wide range of investment product issuers.

The ASIC has also said it sent out 15 stop orders for target markets that were otherwise defined in broader terms. The ASIC also issued 21 stop orders to use investor risk profiles that would otherwise be unsuitable for investors.

The regulator has issued other stop orders for inappropriate levels of portfolio allocation and 18 stop orders for unsuitable investment timeframes and withdrawal features. Earlier this year, the ASIC paused the stock lending products for Interactive Brokers for retail traders because of deficiencies in the target market determination (TMD) and product disclosure statement (PDS).

The Deputy Chair for the ASIC, Karen Chester, commented on the development saying, “Closer scrutiny of DDO is coming. All investment product issuers should read our report, assess their practices, and address any gaps informed by our findings.”

The regulator said it would not hesitate to take further action against those who failed to meet these obligations. It said it would also consider court proceedings in cases with massive failures in the industry.

The regulator said it had already started conducting civil penalty proceedings for those alleged to have violated the design and distribution obligations. According to Chester, charges have already been filed against one distributor of an investment product and another that issues a credit product.

Protecting the interests of retail investors

The ASIC introduced design and distribution obligations in October 2021. The regulator has urged that product issuers and distributors put consumers in the middle of the product and distribution process.

The ASIC has also mandated that the design and distribution of financial products come with a clear and contemporary consideration of the goals, financial situation, and the consumer and retail investors’ needs, how these needs will be met, and how the company will target investors.

Chester further said that the design and distribution needs were a game-changer for retail investors and consumers. Moreover, companies need to have a consumer-centric mindset across the entire lifecycle of a financial product. The design and distribution obligations interim stop orders have also become a preferred regulatory tool for the ASIC to disrupt and come out of poor consumer outcomes.

Chester also said he was disappointed at the design and distribution deficiencies across the market. Moreover, these deficiencies were seen by both small and large product issuers. He also said that it was concerning that 26 stop orders on investment products were issued in just nine months, indicating that product issuers needed to be more cautious.