D and D for beginners: Product design and distribution

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Considering the deluge of regulatory reform bearing down on licensees and advisers, it is not surprising that the product design and distribution obligations have largely been overlooked.

That is a mistake, because although they will not be one of the 'most significant reforms of financial services since the Financial Services Reform Act 2001', they will create an environment in which product issuers-and not advisers- will bear primary responsibility for product failures and mis-selling.

That is not to say that licensees and advisers are not also affected, but the best interests duty and related obligations mean that they are spared most of the impact of these changes.

So, although advisers might consider that the design and distribution obligations are largely a matter for the product issuers, they still need to understand their obligations and the scope of the new regime.

In summary, the new regime, which was created by the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019, (the Design and Distribution Act),

  • encompasses design, issue, distribution, intervention and enforcement
  • requires a product issuer to prepare a target market determination (TMD) for each product
  • requires a distributor to take reasonable steps to comply with the TMD
  • requires a distributor to track, record and escalate any breaches or complaints.