The Australian Securities & Investments Commission (ASIC ) issued a notice on Wednesday, calling out investment product issuers and ordering them to ‘lift their game’ around design and distribution obligations (DDO).

ASIC Finds Lapses in Financial Products’ DDO

It came as the Aussie regulator found target market deficiencies in the offerings of several investment product issuers. The regulator highlighted that it issued 15 stop orders for target markets defined too broadly, 21 stop orders for the usage of unsuitable investor risk profiles, ten stop orders for inappropriate levels of portfolio allocation, and 18 stop orders for unsuitable investment timeframes or withdrawal features.

Earlier this year, ASIC even halted the stock lending products of Interactive Brokers to retail traders for deficiencies in its target market determination (TMD) and product disclosure statement (PDS).

“Closer scrutiny of DDO is coming,” said ASIC’s Deputy Chair, Karen Chester. “All investment product issuers should read our report, assess their practices, and address any gaps informed by our findings.”

“We won’t hesitate to take further action, from stop orders through to court proceedings, especially where we see egregious failures. We have already commenced civil penalty proceedings for alleged DDO breaches against a distributor of an investment product and an issuer of a credit product.”

Rules to Safeguard Retail Investors’ Interests

ASIC introduced DDO in October 2021, mandating product issuers and distributors to place consumers at the center of product and distribution. It requires the design and distribution of financial products with “clear and contemporary consideration of the objectives, financial situation and needs of the consumers and retail investors being targeted.”

“The design and distribution obligations are a ‘game changer’ for consumers and retail investors. Companies need to take a consumer-centric mindset across a financial product’s lifecycle,” Chester added. “The DDO interim stop orders have become a ‘go-to regulatory tool’ for ASIC to quickly disrupt and stem poor consumer outcomes.”

“It is disappointing to see DDO deficiencies across the board, and by large and small product issuers alike… The fact that we have issued 26 stop orders on investment products in just nine months shows that product issuers need to ‘lift their game’ – and now.”

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