ASIC moves spotlight to DDO: here’s your compliance checklist

By Sean McMahon and Jeunesse Meldrum

ASIC is showing more interest in practical compliance with the design and distribution obligations (DDO) rather than mere ‘checkbox’ lip service compliance.

It is currently conducting targeted surveillances to ensure product issuers and distributors are complying with DDO. This involves thorough examinations to verify DDO processes within organisations promote a culture of compliance. In our experience, during this next round of surveillance, ASIC is not only requesting target market determinations (TMDs) but also records demonstrating the ‘reasonable steps’ taken to distribute products to the target market and maintain a culture of compliance with DDO generally.

Checklist for DDO compliance

Could your organisation withstand an ASIC surveillance by providing responses and documents to address these questions?

Target markets

  • How did you set the target markets for your products?
  • How do your TMDs meet the content and appropriateness requirements?

Distribution arrangements

  • How did you select distribution channels, methods and conditions to direct distribution of your products to their target markets?
  • What process did you follow and what due diligence was undertaken when selecting distribution arrangements for products?

Reasonable steps

  • What steps do you take to assess whether a retail client is reasonably likely to be in the target market?
  • What steps do you take if a retail client was identified as being outside the target market?
  • Could you explain why these steps are reasonably likely to result in distribution being consistent with TMDs?

Marketing

  • How are your products marketed and promoted to retail clients?
  • Have you assessed and approved all marketing materials, including materials used by third-party distributors?
  • How is your marketing likely to result in distribution to the product’s target market, including details of any research undertaken?

Supervision and monitoring of distributors

  • How do you supervise and monitor distribution of your products by third-party distributors?
  • Could you provide details about any communication, contractual arrangements, or other information collected from third-party distributors used to assess whether distribution is likely to be consistent with TMDs?

Training

  • What are your training arrangements for employees, agents or contractors about the nature of the target market and the distribution conditions for each product?

What should you do next?

ASIC expects product issuers to have appropriate systems and records in place to answer such questions.

If you require assistance reviewing your DDO policies or procedures, please reach out to a member of our HW Funds team.

Contact

Sean McMahon

Sean has more than 25 years’ experience in the funds management and corporate sectors and co-leads the Hall &...

Jeunesse Meldrum

Jeunesse is a senior member of our team with extensive experience spanning funds management, financial services, and financial analysis....

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