2 Mar. 2023
People discussing the project

Beyond disclosure: how to prepare for the next phase of the Design and Distribution Obligations (DDO)

Alina Humphreys

Partner, Financial Services

Jamie Kelly

Associate Partner, Financial Services

Brooke Pietsch
2 Mar. 2023

The DDO regime is a game changer for Australia’s financial firms – even if they don’t realise it yet

In brief

  • ASIC has shifted its DDO focus from implementation to enforcement, commencing its first DDO civil penalty proceedings and issuing stop orders on a number of products.
  • ASIC has shifted the target of its DDO focus, from Target Market Determinations (TMDs) to governance controls and ongoing product monitoring and review.
  • One year on, financial services firms should step back and review their DDO compliance to understand the further embedding required.

ASIC has repeatedly communicated the importance of DDO in its 2023 surveillance and enforcement agenda. This is a clear call to action for firms to review their ongoing compliance with the regime.

Heightened focus on consumer outcomes

The DDO regime was introduced following the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, which detailed the consumer harm caused by a range of product governance and sales practice failures across the industry.

Rather than relying on disclosure to protect consumers when they buy financial products, the DDO regime instead requires firms to take a consumer-centric approach to designing and distributing financial products. The regime reinforces the importance of strong product governance linked to distribution processes to ensure products reach their intended target market. Its intent is to break the cycle of consumer harm that historically came from weak product governance and poor alignment with consumer outcomes.

Moving beyond disclosure to outcomes-based regulation is a game changer for the industry. This approach recognises that disclosure documents for financial products are often confusing or overwhelming, hindering rather than assisting consumers to make an informed decision. DDO also recognises that what really matters is consumer outcomes. This is the regime’s ultimate goal: to focus the industry on improving the financial wellbeing of its consumers.

The design and distribution obligations will overcome gaps in the current regulatory regime - and promote better, fairer outcomes for consumers.
ASIC DDO Submission, 2018

One year on: what have we learnt?

More than a year after launch, some firms are only just beginning to understand the scale of the work required to shift from a sales-oriented to a consumer-centric product process. But this shift must occur if firms are to comply with the regime. Complex regulatory change of this nature typically begins with initial latitude, allowing firms to adjust and adapt. But the regulatory enforcement stance can then swiftly tighten – as is happening now.

In ASIC’s view, a year is sufficient time to bed down DDO obligations and the regulator has already shifted its focus to enforcement. In the second half of the 2022 calendar year, ASIC exercised its enforcement powers more often than expected, issuing stop orders and beginning civil penalty proceedings.

People discussing the project
(Chapter breaker)

Chapter 1

What can we learn from the first round of stop orders?

DDO is now a key enforcement priority for ASIC, with an initial focus on TMDs.

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.
Karen Chester
Deputy Chair, ASIC

Initially, ASIC has been focused on relatively obvious areas, such as defective TMDs and issuers who haven’t made TMDs publicly available.

The table below summarises the most common TMD issues ASIC has found to date, along with actions for financial firms to consider as a result. As the regulator continues to review sample TMDs from other firms, this list is likely to grow.

How can EY help?

EY can assist with practical remediation activities to address ASIC concerns

Examples Action
Reading like marketing documents

Not meeting the “information requirements” or “appropriateness requirements” of the TMD

Not appropriately considering the features and risks of the product in determining their target markets

Review TMDs against the requirements of RG274: Product design and distribution obligations to ensure alignment with regulatory expectations
Target market not properly identified or suited to the product

Identifying consumers through preferences or those who have bought the product before

Omitting important product attributes, such as high annual fees or interest

Covering multiple products but not suitably delineating target markets

Describing investment sub-markets in ways that are too broad or not using numerical timeframes, or documenting information that is not consistent with other documents such as the PDS

Use objective and tangible parameters to describe the class/es of consumers in the target market

Explain all product attributes and how these align with objectives, financial situations and needs of the consumer class/es within the TMD

Distribution parameters missing or inappropriate

Relying solely on self-certification of being in the target market

Not specifying any distribution conditions to direct appropriate distribution to the target market

Not setting sufficiently specific distribution conditions

Clearly document distribution conditions and how issuers plan to regularly monitor product distribution
Distribution reporting Not obtaining distributor complaint reporting in a timely manner

Be clear about what data is required, at what frequency, and how and when this will be monitored

Ensure ongoing monitoring is performed and considered in product governance processes and decisions

Not stipulating appropriate review triggers

Not documenting mandatory review triggers

Setting review triggers that are too broad or using subjective language (i.e., “persistent” level of complaints or “significant” member movement)

Not consistently considering Superannuation Member Outcomes obligations in review triggers

Not setting review periods at an appropriate level of frequency

Document specific, objective review triggers and the rationale behind selection

Consider moving to annual review cycles, as advised by ASIC, if not already inbuilt into TMDs

ASIC is also reviewing how product issuers interact with their distributors to confirm they are not straying beyond their target market. Over time, this is likely to be a critical area of focus. Product data and monitoring will be vital to ensure firms can demonstrate compliance with their obligations. Subsequent deep dives of consumer segments against product attributes may, in hindsight, reveal exposures created by disconnects between distribution and TMDs. Firms should therefore understand their profile in advance by proactively monitoring the most high-risk areas, effectively placing consumer outcomes at the centre of their analysis.

People discussing the project
(Chapter breaker)

Chapter 2

Where will the regulator look next?

Issuers and distributors need to broaden their understanding of what DDO compliance looks like.

Although ASIC’s initial focus has been on TMDs, the regulator has announced it will prioritise its future efforts on areas with the highest risk of consumer harm. This will include managed funds, credit cards, small amount credit and buy now pay later products. To avoid becoming the subject of enforcement action, product issuers and distributors should focus on:

How can EY help?

EY can conduct a post-implementation review of processes, systems and controls in place to support compliance with the regime

1. Product governance controls

ASIC requires product governance frameworks to document the end-to-end product lifecycle, clearly linking to DDO obligations and providing a centralised view of product management. Common issues are that reasonable steps are not clearly defined and documented. Financial firms should document how controls and processes are mapped to risks within each distribution channel for each product. Firms should also document:

  • How content requirements have been satisfied
  • How product features and attributes are consistent with target clients’ objectives, financial situations and needs
  • The appropriateness of review triggers and timeframes

2. Ongoing monitoring and review

In RG 274, ASIC is explicit that compliance with DDO requires robust and effective product governance arrangements, including a strong control environment. Issuers and distributors should ensure adequate coverage around day-to-day operational risks, controls and processes, including clear traceability of controls against DDO obligations. In particular, firms should:

  • Clearly define and document product governance risks and controls
  • Regularly assess control effectiveness, feeding product use monitoring and oversight directly back to TMDs and any product decisions

3. Good consumer outcomes

Eventually, ASIC will begin challenging firms to provide evidence that the legislation has achieved its purpose by achieving good consumer outcomes. In preparation, issuers and distributors must consider how to measure this. They will also need to demonstrate data-driven decisions to adapt products and distribution strategies to improve consumer outcomes. ASIC will be looking for evidence of how insights from a firm’s DDO monitoring have been fed back into the product design and distribution to measurably improve consumer outcomes.

Companies must monitor consumer outcomes to improve and refine the design and distribution of their financial products over time.
Karen Chester
Deputy Chair, ASIC

This is already happening in the UK, where the Financial Conduct Authority requires firms to foster financial wellbeing by putting consumers at the heart of their businesses. To comply, firms have to demonstrate how they are meeting their “consumer duty”. This requires attesting to how firms use consumer data and insights to define, measure and deliver good consumer outcomes.

EY teams working with UK clients have discovered that, by using data to consider issues from a consumer (not a commercial) perspective, and bringing together different data sources, it is possible to significantly enhance product governance and create better outcomes for consumers.

In Australia, financial firms should be considering:

  • How they are collecting and understanding outcomes of product distribution and who their products are being sold to
  • What data and metrics are being used, whether measurement is sufficiently timely, and how issuers and distributors are demonstrating reasonable steps
  • How they are collecting, assessing and responding to data relating to consumer outcomes from their products


As DDO moves into its second full year of operation, issuers and distributors should review whether the processes instituted in October 2021 are working as intended. Audit and second-line teams should consider scheduling comprehensive reviews to demonstrate appropriate oversight. First-line teams should also keep DDO firmly on their radar. It is certainly not a set and forget regime and requires constant vigilance.

About this article

Alina Humphreys

Partner, Financial Services

Jamie Kelly

Associate Partner, Financial Services

Brooke Pietsch