ASIC notes in its Corporate Plan that the implementation of DDO required ‘significant changes’ to systems and processes, and reshaped what was expected of financial services firms, including the increasing demand from consumers for transparency.

Our take

 While the regulator considered the significance of these changes alongside other reforms (such as breach reporting), in our experience DDO did not always necessitate significant changes to the way products were designed, distributed or monitored. This is because many organisations invested in uplifting product governance arrangements prior to the introduction of DDO. As such, discrete activities were performed to comply with DDO (such as the drafting of Target Market Determinations (‘TMDs’), and documentation of Reasonable Steps), with existing product governance frameworks and processes being subjected to simple changes incorporating the requirements under DDO. It will be important for organisations in this situation to appropriately communicate the full product governance uplift journey when engaging with the regulator, or risk facing into feedback as to the adequacy of implementation approach for DDO.

ASIC notes in its Corporate Plan that it will be focusing on sectors and products that pose the greatest risks of consumer harm and apply a DDO lens when responding to poor consumer outcomes identified. This includes:

• Surveillance of choice superannuation products, and the role of financial advisers;
• Surveillance of a sample of TMDs in superannuation and managed fund sectors;
• Collecting data from credit card issuers, reviewing TMDs and assessing consumer outcomes;
• Reviewing product governance arrangements of credit and buy now pay later providers;
• Engaging with major supervised institutions on how DDO is improving consumer outcomes;
• Taking enforcement action to address poor design and distribution across insurance, superannuation, credit and other financial products. 

Our take

There are a few noteworthy outtakes here:

(a) It is unsurprising to see the focus on credit products. ASIC has consistently pursued enforcement action in relation to short term and continuing credit products, and previously acknowledged that buy now pay later firms will be the ‘first near-term cab off the rank’ in relation to DDO. 

(b) The surveillance of superannuation products and managed fund sectors aligns with the regulator’s approach in targeting higher risk, higher harm products. However, the focus on the role of financial advisers suggests that other existing regulatory frameworks may not be performing as intended.

(c) Across the industry more broadly, there has been increasing interest in assessing consumer outcomes and outcome testing. It is expected that as the regulator turns its attention to consumer outcomes, even in relation to specific regulatory reform, the attention will be reflected by industry participants.

 (d) The approach in reviewing TMDs is consistent with ASIC’s recent issuing of stop orders. This enforcement action commenced through surveillance into the marketing of managed fund performance and risk. As such, organisations should be on-notice that the regulator will take a marketing/promotion-led approach to reviewing compliance with DDO.

 (e) While insurers are referenced broadly in relation to ‘taking enforcement action’, there is a notable lack focus on this sector. This may reflect the regulator’s view that insurance products are lower risk, lower harm – or recognition that the sector is facing other regulatory interest as a matter of priority.

 For those organisations that are operating in these priority sectors, focus should be had to ensure product governance arrangements are appropriately documented and embedded, including the rationale for any decisions made.
 

ASIC notes in its Corporate Plan that ‘product design and distribution’ is an ‘external priority’ for FAR.

Our take

While end-to-end product management was previously listed in Treasury’s ‘policy paper on list of prescribed responsibilities and positions’, there has since been discussion across the industry as to whether this will remain. Much of the commentary in relation to this is the juxtaposition between DDO and having an end-to-end product management responsibility under FAR. That is, DDO acknowledges that those that ‘design’ a product and those that ‘distribute’ a product may be different individuals or organisations with their own separate set of obligations – however, FAR intends for only one Accountable Person to take on end-to-end product management accountability.  

Whether the alignment of ‘product design and distribution’ as an ‘external priority’ for FAR in the Corporate Plan should be taken as an indicator of where the regulator and Treasury has landed, or an acknowledgement of current state, remains unknown.

Overall, it is clear that ASIC intends to continue its focus on DDO through targeted enforcement action, which seeks to protect consumers. For the industry, while the implementation of DDO has concluded, ongoing BAU compliance and monitoring should remain as high priority as it is for the regulator. Given we are coming up to the one-year anniversary of go-live, industry participants may like to turn their minds towards post-implementation or product governance reviews, as well deep dives into specific areas and incremental uplift as required. For example, organisations are focussing on the effectiveness of review triggers and other reporting, as well as the extent to which DDO principles have been embedded in the product governance framework and other processes.