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ASIC Focusing on Compliance

Thursday 28 July 2022

 

When it comes to design and distribution obligations(DDO) the securities and investments regulator will be focusing on compliance.

This week saw the (DDO) in action with an interim order preventing the issuance of the managed investment scheme  interests and shares to retail investors from Responsible Entity Services (RES), UGC Global Alpha Limited and UGC Global Alpha Fund Limited.

According to ASIC  RES DDO is specifically around the issuance of PPM Units and for the two UGC Global companies  it was ‘from dealing in shares in relation to retail investors, providing a disclosure document or providing financial product advice in relation to the shares to retail investors.’

The Australian Securities and Investments Commission (ASIC) deputy chair Karen Chester,” ASIC’s focus has now shifted to compliance. Industry has had sufficient time to bed down its implementation of the DDO regime. We have targeted surveillances underway to check whether product issuers and distributors are complying with their design and distribution obligations.”

The ASIC deputy chair continued, ”We will continue to look at defective TMDs, as well as issuers who have not made TMDs 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.”
 
The Design and Distribution Obligations
The DDO was based on recommendation made by the Financial  System Inquiry in 2014 that the found that disclosure alone can still lead to poor consumer outcomes.

According to the Financial System Inquiry Final Report:
The current framework is not sufficient to deliver fair treatment to consumers. The most significant problems relate to shortcomings in disclosure and financial advice, which means some consumers are sold financial products that are not suited to their needs and circumstances. Although the regime should not be expected to prevent all consumer losses, self-regulatory and regulatory changes are needed to strengthen financial firms’ accountability.
 
Deputy chair Karen Chester said, “Financial firms need to be consumer-centric in how they design their products. Issuers need to have clearly defined target markets, especially for high-risk products, that take into account the risk that investors could lose some or all of their capital. We expect this to flow through to similarly clear distribution arrangements. Where firms are not meeting their obligations, ASIC can and will respond, from stop orders to court action, to prevent consumer harm and deter non-compliance.”