Design and distribution obligations for financial products
Since October 2021, issuers and distributors of financial products must comply with the design and distribution obligations (DDO) in Part 7.8A of the Corporations Act. The regime requires a target market determination (TMD) for every product and ongoing monitoring of distribution to ensure products reach the right consumers. This guide sets out 10 core obligations.
Coverage
Issuers of financial products (fund managers, insurers, super trustees, deposit product issuers) and distributors (financial advisers, brokers, platform operators, dealers) covered by Part 7.8A. Excludes ordinary shares, some government bonds, and products only available to wholesale clients.
Legal basis
Corporations Act 2001 (Cth), Part 7.8A — Design and distribution obligations (ss 994A–994M). ASIC Regulatory Guide 274 provides detailed guidance.
The obligations
Prepare a target market determination (TMD)
Before making a financial product available, the issuer must prepare a TMD that describes the class of consumers for whom the product is likely to be consistent with their likely objectives, financial situation, and needs.
Specify distribution conditions in the TMD
The TMD must set out any conditions and restrictions on distribution, including permitted distribution channels and the information distributors must provide to consumers.
Include review triggers and review periods
Each TMD must specify events or circumstances that would reasonably suggest the TMD is no longer appropriate and the maximum period between scheduled reviews.
Review the TMD when triggers occur
The issuer must review the TMD when a review trigger is activated or the review period expires and, if necessary, amend or replace it. The first review period must be set to account for the product's novelty and complexity.
Take reasonable steps to distribute consistently with the TMD
Distributors must take reasonable steps to ensure that the product is distributed in a manner consistent with the TMD, including only recommending it to consumers in the target market.
Collect and report distribution information
Distributors must collect information about consumer complaints, significant dealings not consistent with the TMD, and other events specified in the TMD, and report this to the issuer.
Keep the TMD publicly available
Make the current TMD publicly available on the issuer's website free of charge. The TMD must be provided to any person who requests it.
Notify ASIC of significant dealings outside the target market
If the issuer or distributor becomes aware that a significant dealing in the product is not consistent with the TMD, they must notify ASIC in writing as soon as practicable.
Maintain records of TMD processes
Keep records of TMDs, reviews, distribution information received, and any decisions to amend or replace a TMD for at least 7 years.
Apply product governance arrangements
Issuers must have reasonable product governance arrangements to ensure the product's design is consistent with the likely objectives, financial situation, and needs of the target market.
What happens if you do not comply
Civil penalties up to $1.11 million per contravention for individuals and the greater of $11.1 million, three times the benefit gained, or 10% of annual turnover for bodies corporate. ASIC can also issue stop orders preventing a product from being offered.
Reporting requirements
Distributors must report complaints, significant dealings inconsistent with the TMD, and other specified information to the issuer within the timeframe set in the TMD. Issuers must notify ASIC of significant dealings outside the target market as soon as practicable.
What firms should do today
- Audit every product to determine whether a TMD is required
- Draft TMDs with clear, measurable descriptions of the target market
- Set realistic review triggers — product performance, complaints volume, regulatory changes
- Build a data-collection process for distributor reporting obligations
- Train distribution teams on the TMD and their compliance obligations
- Schedule annual TMD reviews and document outcomes
Compliance with Quillio
Quillio helps with DDO compliance by drafting target market determinations, monitoring distribution data for off-target sales, and tracking review triggers. See /resources/security or start a free trial.
This guide is general information about design and distribution obligations — not legal or compliance advice. Always obtain specialist advice when preparing TMDs and implementing DDO processes.
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