Design and Distribution Obligations

You can now find our Target Market Determinations at onepathinsurance.com.au/tmd.

About the changes

From 5 October 2021, product issuers and distributors across many financial product categories - including life insurance and managed funds - will be subject to a new ‘Design and Distribution Obligations’ (DDO) regime.

The essence of the DDO regime is to ensure financial products are designed for, and distributed to, the right people.

The regime imposes a range of new and significant obligations on both product issuers and distributors. Platform providers, as both product issuers and distributors, will have obligations on both fronts.

Introducing the Target Market Determination (TMD)

The central concept underpinning DDO is that of the target market.

Product issuers are obliged to:

  • identify a target market of consumers, and design products suitable for that target market, and
  • monitor consumer outcomes and review products to ensure that consumers are receiving products that are likely to align to their likely objectives, financial situation and needs.

Issuers and distributors must take ‘reasonable steps’ to ensure those products reach consumers in that target market.

Distributor (licensees, advisers, platforms) obligations at a glance

Obligation Key Issues More Details

Not engage in retail product distribution without a TMD

  • What is a TMD?
  • Availability of TMDs

TMDs explained

Not engage in retail product distribution where a TMD may no longer be appropriate

  • TMD reviews

TMDs explained

Take reasonable steps so that distribution is in accordance with the TMD

  • Definition of reasonable steps
  • Personal advice exemption

ASIC Regulatory Guide RG 274

 

Collect, keep and provide distribution information

  • Type of information
  • Format
  • Frequency

ASIC Regulatory Guide RG 274

Report on complaints

  • Type of information
  • Format
  • Frequency

Complaints reporting 

Notify the issuer of any significant dealings inconsistent with the TMD

  • Definition of significant dealings
  • Format and frequency

Significant dealings reporting

TMDs explained

The Target Market Determination (TMD)

One of the key instruments in reinforcing suitability of products for specific classes of customers is the Target Market Determination (TMD).

Under DDO, product issuers will be required to make publicly available a TMD for each product.  Depending on the type of product, a TMD may be issued for an overall product (more likely for direct-sold life insurance) or for each individual cover type, for example TPD cover or Income protection cover.

The TMD will describe the typical objectives, financial situation and needs of consumers in the target market, describe the product features, and explain why those features are likely to meet consumers’ needs. The TMD will generally also articulate time horizon, risk level, and other relevant suitability criteria. In some cases, a TMD may identify the ‘negative target market’ - those consumers for whom the product is not deemed suitable, although this is not mandatory.

TMD Format

While ASIC does not specify the exact format of a TMD, many insurers, including OnePath, will be reasonably aligned with the standardised templates developed by the Financial Services Council (FSC). Such standardisation should help advisers become more familiar with TMDs more quickly and will help streamline the product comparison process.

OnePath TMDs

OnePath TMDs will be publicly available on the OnePath website and on other online locations. These links will be available in the product PDSs.

Significant dealings

Distributors will be obliged to report any ‘significant dealings’ in the product to consumers falling outside the defined Target Market. RG 274 - the applicable ASIC Regulatory Guide - does not define ‘significant’ (nor does the Corporations Act) and recognises that its meaning is likely to vary between product types and issuers, depending on:

  1. the proportion of consumers who are not in the target market acquiring the financial product.
  2. The actual or potential risk of harm to a consumer including any financial loss;
  3. The nature and extent of inconsistency
  4. With insurance products, some consideration of premiums or gross income; and
  5. The time period during which these dealings took place.

TMD appropriateness

The TMD will also specify any events that suggest the TMD is no longer appropriate - known as ‘review triggers’ - along with the normal schedule of TMD reviews.

Distribution Information

Importantly for distributors, the TMD will also specify when the distributor should provide information about the numbers of complaints to the issuer; and what information distributors must report to the issuer and how frequently, in order to enable the issuer to identify whether the TMD may no longer be appropriate.

What information does OnePath require around significant dealings, complaints, and other distribution events?

While every product provider is likely to have their own requirements, we are committed to standardising processes wherever possible. To this end we are in consultation with a range of industry stakeholders about informational requirements and will provide more clarity once available.

Complaints reporting

Distributors are required to provide information regarding complaints received by the distributor in relation to the product during the reporting period specified in the TMD.  This information needs to be provided within 10 business days after the end of the relevant reporting period.

The relevant reporting period is specified in the TMD.  The general reporting periods are outlined below:

TMD

Reporting frequency

First report due

OnePath OneCare TMDs

Half-yearly (end of March and September)

For the period ending March 2022

OnePath OneCare Super TMD

Half-yearly (end of March and September)

For the period ending March 2022

OnePath Group Life Insurance TMD

Half-yearly (end of March and September)

For the period ending March 2022

ANZ Home Loan Protection TMD

Half-yearly (end of June and December)

For the period ending June 2022

Zurich Financial Services Australia (Zurich) has signed onto Iress’ blockchain-based industry solution for managing its obligations under the Design and Distribution Obligations (DDO) legislation.  Reports may be submitted using the chatbot here

Significant dealings reporting

Distributors must notify a product issuer of a significant dealing that is not consistent with the product’s TMD within 10 business days after becoming aware. Distributors should consult with their compliance team whether a dealing is significant. 

Zurich Financial Services Australia (Zurich) has signed onto Iress’ blockchain-based industry solution for managing its obligations under the Design and Distribution Obligations (DDO) legislation.  Reports may be submitted using the chatbot here