Design and distribution obligations – are you ready?
Although the pandemic means ASIC has delayed the commencement date for compliance with the new financial product design and distribution obligations (DDOs) until 5 October 2021, the experience of product issuers in Europe when similar rules were introduced shows there is more work involved in getting ready than initially meets the eye.
Back in February this year, we wrote about proposed guidance from ASIC on how it plans to administer the DDOs. That final guidance is yet to be issued. Here, special counsel Matt Moses explains in practical terms what product issuers need to do to prepare.
- Properly planning for the DDO regime and putting into place the systems and processes needed will take time, effort and thinking.
- There is a fair bit involved. Whilst there is still over a year to go, it would be wise to start soon.
- Taking the time to develop your own implementation plan will help crystallise the different tasks needed and also help those within your business start to focus on how they will be involved.
The legal obligations – a reminder
The law underlying the DDO regime sets out obligations for product issuers and obligations for distributors.
An issuer's obligations under the new regime drive what needs to happen in practice, so it is worth revisiting what the key obligations are. They are to—
- make a target market determination (TMD) for each fund being offered
- take reasonable steps that will, or are reasonably likely to, result in the product being distributed consistently with the TMD
- notify ASIC of 'significant dealings' that are not consistent with the TMD, and
- conduct reviews of the TMD.
Translating these into practice
As we noted in our earlier article, an important part of the new regime is developing an appropriate 'Product Governance Framework' around your DDO obligations.
Fund managers should develop an implementation plan, documenting the steps needed to comply with the DDO regime in the context of their own business and their distribution channels.
We are already working with clients to help them understand and develop what is needed.
Examples of some of the key steps and considerations include:
- Working out the appropriate class of investor for each of your funds. So, for example, ask yourself—
- Is your fund maybe only suitable for an informed investor?
- Is your fund suitable for an investor who cannot afford to bear any loss?
- Preparing the TMD
- The TMD needs to include certain information, such as the distribution conditions and restrictions for your fund.
- Engaging with your distribution network
- Particularly if you use several different distribution channels, this part of the process could end up taking some time and resources.
- For example, controls need to be included in your distribution arrangements, as well as reporting obligations, and this could mean negotiations over existing or new agreements.
Your next steps
Although ASIC has delayed the commencement date for compliance with the new DDO regime, fund managers need to be on the front foot and develop an implementation plan. Our Funds Management lawyers are working closely with clients to ensure they understand what is required and are available to assist with developing your plan.
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