Design and Distribution Obligations

Key requirements and imperatives for financial services

By Bernadette Howlett, Sarah Hofman, Christa Marjoribanks and Jason Collins, PwC

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The requirements

The design and distribution obligations (DDO) will create a fundamental shift in how products are distributed to retail consumers in the Australian market.

The DDO require issuers of retail financial products to:

  • Make a target market determination (TMD) for each retail product, including review triggers that would suggest the TMD is no longer appropriate
  • Take steps that are reasonably likely to result in distribution consistent with the determination
  • Notify ASIC of significant dealings that are inconsistent with the TMD
  • Maintain information relating to the TMD and distribution of the product, and provide to ASIC on request. 

Distributors may only distribute products which have a target market determination that remains appropriate.

As ASIC guidance has yet to be issued, DDO implementation needs to be flexible and dynamic to respond to emerging interpretation and guidance by both industry and ASIC. However, a clear plan needs to be developed on how adherence with the legislation will be achieved by April 2021.

DDO creates a number of imperatives for financial services firms

In the post-Royal Commission environment, with increasing scrutiny on customer fairness and heightened community expectations, it is important for organisations to aim higher than mere compliance.

We believe organisations have an opportunity to derive value from DDO implementation beyond compliance, such as delivery of customer strategy and product simplification. To do this, the development of the DDO framework should be a purpose-driven exercise as opposed to a compliance-led response. DDO is not just a matter for regulatory specialists, but requires collaboration between regulatory, product, customer, legal, tech, and marketing. In order to prepare for the obligations, financial services firms should ensure: 

  • Product design meets all relevant considerations for target customers
  • An increase in distribution controls to make certain target customer needs are consistently met
  • Firms work with their distribution channels to ensure distributors can understand and help discharge the obligations
  • Implementation readiness including clarity of accountabilities, technology and process changes, front line staff readiness and skills, cultural change and so on 
  • Focus on governance and culture to ensure that the DDO implementation is sustainable. 

We have seen differing levels of progress by sector. Though April 2021 appears a long way away, we recommend companies lift the priority of DDO early in the New Year to understand the opportunities for gaining value beyond compliance, as well as identifying implementation issues that may take some time to address. Our experience with similar legislation in the UK was that some products had to be withdrawn from platforms at the last minute because the work had not been completed to achieve compliance.

Why PwC 

PwC can help firms realise the value from DDO by leveraging knowledge and understanding of how DDO can integrate with programs such as product simplification, growth, and technology transformation.

We have done this before
We know what “good” looks like, here and globally. We have a proven methodology, practical experience and tools, and an unmatched depth and breadth of capability. 

We are deep specialists in financial services
We understand financial services. We bring an expert team, and a practical, well-informed industry lens based on working closely with major players across the banking, insurance, superannuation and wealth sectors.

We understand the local regulatory, risk and legal environment
Our team members have significant experience working on both sides of the regulatory divide - particularly with industry bodies. We can resolve questions of detail from different customer, legal and risk angles. 

We deliver value beyond compliance
We understand your strategic priorities, target operating model, product landscape, distribution channels, ways of working, data and technology architecture, risk frameworks and stakeholders.

Lessons from UK experience
We supported a top five UK general insurer in meeting their EU Insurance Distribution Directive obligations, which required demands and needs of customers to be specified. We assisted in identifying and resolving all ‘demands and needs’ issues to the satisfaction of the FCA.

Stay tuned

In a forthcoming PwC publication, we’ll provide additional insights and a set of useful frameworks that can help financial services leaders optimise their implementation of DDO to achieve their strategic outcomes. Register to receive a copy of this upcoming report.

Contact us

Bernadette Howlett

National Insurance Leader, PwC Australia

Tel: +61 (2) 8266 4720

Sarah Hofman

Partner, Financial Services Assurance, PwC Australia

Tel: +61 (2) 8266 2231

Christa Marjoribanks

Partner, PwC Australia

Tel: +61 (2) 8266 5790

Jason Collins

Director, Economics and Policy (Behavioural Economics), PwC Australia

Tel: +61 2 8266 2156

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