The Financial Services Council (FSC) has released an updated target market determination (TMD) template.
FSC chief executive Blake Briggs said the design and distribution obligations (DDO) regime, which commenced in October 2021, represented a “transformative” change in the way the financial services industry approaches the design and distribution of products to consumers.
The DDO regime requires financial products to be designed and distributed with clear and contemporary consideration of the objectives, financial situation, and needs of the consumers and retail investors being targeted.
“The FSC’s updated TMD template, a key part of the DDO regime, provides an important step up in industry capabilities and compliance, building on the first version that was released in 2021,” Mr Briggs said.
“This collaborative project has exemplified the FSC’s commitment to initiatives that benefit financial services consumers whilst also lowering compliance costs for members.”
Moreover, the revised template complements other products the FSC has developed to assist with DDO compliance and reduce industry costs, according to the body. This includes DDO data standards, FSC guidance on how to implement the DDO in investment portfolios, and an FSC standard questionnaire for DDO-related due diligence for product distributors.
Mr Briggs confirmed that the FSC has consulted with members and the Australian Securities and Investments Commission (ASIC) during development of the new template, with the aim of helping industry address ASIC’s concerns with DDO regime compliance.
Changes in the new template are aimed at helping fund managers address the issues raised by ASIC through DDO enforcement actions and Report 762: Design and distribution obligations: Investment products.
In May, ASIC said that it had prioritised an initial review of how investment product issuers were meeting the DDO requirements due to concerns that investors are being inappropriately exposed to high-risk products.
The review found that a significant number of the product issuers had made deficient TMDs, with poorly defined target markets and unclear or inadequate product governance arrangements.
In a statement last month, the regulator said that many of the deficiencies identified appeared when issuers relied on TMD templates without customising them appropriately.
Moreover, ASIC has placed interim stop orders on 26 investment products from 18 issuers since 1 July last year, representing $6.6 billion in funds invested by retail investors. These actions resulted in 12 issuers amending 18 TMDs to address the deficiencies and five issuers withdrawing seven products.
Mr Briggs earlier discussed version two of the FSC’s target market determination template on an InvestorDaily podcast.
At the time, he said that ASIC’s recent activity in the DDO space had informed the development of the upcoming template version, noting that the FSC was staying on top of the stop orders that the regulator had issued to better gauge where the industry stands.
“These stop orders are a way of communicating with the industry about the sort of changes ASIC feels is appropriate. We are looking at that information so that we can improve on version two,” he told InvestorDaily.
“The FSC is consulting with a broad range of stakeholders, and ASIC is one of those, but the contributions from the FSC members themselves is crucially important to getting continual improvement in what DDO compliance looks like,” Mr Briggs added.