New Product Design and Distribution Obligations. Are you Ready?

Is your financial services business prepared for the new Product Design and Distribution Obligations?

It has been almost a year since ASIC released Consultation Paper CP 325 Product design and distribution obligations, December 2019 to be exact. The consultation period, in which ASIC sought feedback from the industry on the obligations, concluded in March of this year.

Though the final Regulatory Guide (RG) is yet to be released, there are steps you should start taking today to be ready to meet the new requirements.

At Hall Advisory, we have reviewed the draft RG 000 attached to CP 325 and summarise the key things you should know in this blog.

What is the purpose of the obligations?

The Financial System Inquiry revealed shortcomings of the existing disclosure regime for financial products and recommended that product issuers and distributors take more responsibility for the design and distribution of financial products to improve consumer outcomes.

This prompted the introduction of the design and distribution obligations, to encourage the design of products that are ‘fit for purpose’ and help consumers acquire financial products more appropriate for their needs and circumstances.

ASIC is encouraging a more customer-centric approach to the design and distribution of financial products.

Who do the obligations apply to?

The obligations apply to issuers and distributors of retail financial products.

For issuers, this includes those required to prepare a disclosure document under the Corporations Act and those who issue a product without the requirement of a disclosure document (e.g. issuer of a funeral expenses policy).

For distributors, this includes any regulated persons as defined in section 1011B of the Corporations Act 2001, including Australian financial services licensees and authorised representatives.

Some entities may be subject to distribution requirements but not design requirements.

For example, a financial adviser, as one who interacts with the end consumer, is a distributor and only subject to the distribution requirements. However, when providing personal advice, certain regulatory obligations (e.g. reasonable steps) do not apply. Instead, financial advisers are under legal obligations to consider the consumer’s personal circumstances and advise in the consumer’s best interests.

Not all financial products are subject to the new obligations. The table below shows the products to which the obligations apply: