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ASIC takes DDO action after industry put on notice

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The Australian Securities and Investments Commission (ASIC) has used new design and distribution obligation (DDO) regulatory powers for the first time against three firms, after warning the financial services sector that a light touch enforcement period had come to an end.

ASIC placed interim stop orders on the firms as investment product target market determinations were either inadequate or not provided. The determinations, required as part of the DDO regime that took effect on October 5, aim to ensure products meet consumer needs.

“ASIC’s focus has now shifted to compliance. Industry has had sufficient time to bed down its implementation of the DDO regime,” Deputy Chairman Karen Chester said last week.

“We have targeted surveillances underway to check whether product issuers and distributors are complying with their design and distribution obligations.”

The DDO regime was introduced amid a suite of reforms, including anti-hawking rules, a deferred sales model for add-on insurance and updated internal dispute resolution requirements.

ASIC last year recognised the transition challenges and said it would take account of “best efforts” when finding technical or inadvertent breaches in cases where firms have systems changes underway and act quickly to address problems.

But Chairman Joe Longo indicated in March that enough time had passed for financial firms to have introduced changes and ASIC would “therefore be expecting compliance with the regime”.

The first interim stop orders made by the regulator prevent Responsible Entity Services and two companies in the UGC Global Group from issuing relevant managed investment scheme interests or shares to retail investors.

Ms Chester says ASIC will continue to look at defective target market determinations, as well as issuers that have not made determinations or not made them publicly available.

“We will review how product issuers interact with their distributors to confirm they are not straying beyond their target market,” she said.

“We will also review how they monitor and review consumer outcomes to ensure consumers are receiving products that are consistent with their likely objectives, financial situation and needs.”