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DDO six months on – what have we learnt and what’s next?

On 5 October 2021, the Design and Distribution Obligations (DDO) went live across the Australian financial services industry. The regime introduced targeted and principles-based obligations in relation to the design and sale of financial products. DDO has led organisations to re-think the way products are developed, distributed, governed and monitored. Six months post go-live, it is important for organisations to now consider post-implementation reviews to support ongoing compliance with DDO.

On 3 March ASIC Chair, Joe Longo, addressed ASIC’s corporate governance priorities and the year ahead at the Australian Institute of Company Directors Australian Governance Summit. He identified that early reviews ASIC had conducted of target market determinations highlighted a disappointing approach but flagged some positive improvements across the industry in response to ASIC’s observations.

Mr Longo reiterated that the purpose of DDO was to help consumers obtain appropriate financial products by requiring organisations to design products that meet the needs of consumers and direct distribution towards the intended target market. Mr Longo noted that ASIC wanted to see long-term benefits of DDO realised for consumers.Mr Longo concluded that ASIC considers the industry is reaching a point where it has had sufficient time to bed down its implementation of the DDO regime. He outlined that ASIC will be expecting compliance with the regime and will be pursuing a targeted surveillance approach across 2022, warning it will move to enforce the obligations where necessary. As such, organisations should now consider how they have implemented DDO and ensure they have prepared adequately for the inevitable scrutiny that is coming.

At the end of last year, Deloitte conducted a post-implementation survey across the financial services industry. The purpose of the survey was to see how the industry had implemented DDO, how it embedded arrangements into BAU, and whether it is continuing to enhance and improve processes post go-live.

Importantly, all respondents rated themselves as being compliant with DDO, with the majority of responses identifying either a ‘Strong’ or ‘Exceptional’ compliance level (see below graph).

Acknowledging, as the regulator has, that continual uplift is an expectation under the DDO regime, respondents provided meaningful feedback in relation to further work they were planning to progress post go-live. Please refer to our report for detailed results gathered from the survey, with industry insights and suggested post-implementation activities for each sector.

Based on the nature of the industry, and what we have observed both in the run up to implementation and from survey results, we believe the critical activities in the aftermath for DDO, for the various sectors, are post-implementation reviews that cover:

  • Monitoring and reporting evaluation;
  • Distributor practices and oversight;
  • Reasonable steps assessment;
  • Review of DDO integration;Review trigger thresholds assessment; and
  • Significant dealings.

Preparing for what comes next, and how to address ongoing challenges relating to DDO, is the next phase of the regime’s journey. Attached to this blog is a report we have developed to aid organisations in deciding where to focus and what to consider now, expanding on the activities set out above.

While we are still in the early stages of DDO-in-BAU, it is the long-term benefits for the consumer that organisations now need to consider and measure. We acknowledge that the sprint to go-live was intense, but the need to maintain a good pace in BAU is also essential. Investing in ongoing reviews and incremental improvements will support organisations to stay competitive in-market, remain compliant and avoid any potential handicapping from the regulator.