ASIC Brokers Identify Target Markets as New DDO Rules Come into Effect

The new Design and Distribution Obligations rules in the Australian financial services market came into effect on October 5, mandating product issuers and distributors to place consumers at the center of product and distribution.

The Australian Securities and Exchange Commission (ASIC) first issued guidelines on the design and distribution obligations for financial products last December, giving enough time to the market players to properly integrate them into their business processes.

“The design and distribution obligations are intended to help consumers obtain appropriate financial products by requiring issuers and distributors to have a consumer-centric approach to the design and distribution of products,” ASIC stated in its guidelines.

The new rules require financial product issuers to provide a target market determination for all the issued products to retail customers. The regulator further defined the target market as the class of consumers that are suitable for the products under some distribution conditions.

Apparently, these types of rules are already in place in the United Kingdom and Europe.

Sophie Gerber of Sophie Grace and TRAction Fintech

“An interesting difference between the two regimes is that ASIC’s regime requires the publication of a Target Market Determination (TMD) (which many brokers have been emailing out to their existing client base over the past week) whereas the FCA and ESMA regime does not require this document to be published,” explained Sophie Gerber, a Director at Sophie Grace and TRAction Fintech.

Brokers Defining Client Base

As the obligations are mandatory for all Australian financial services firms, forex and CFDs brokers are aligning their services with the guidelines. But, interestingly the TMD documents issued by each broker are a bit different, as reviewed by Finance Magnates. The critical difference is in the definition of client base.

“This furthers the shift away from reliance on a “disclosure regime” which has underpinned the major regulatory systems for financial services over recent decades, and shifts ASIC along the global theme of implementing a higher level of obligations on financial product issuers and distributors to have a consumer-centric approach to designing and distributing products,” Gerber added.

ASIC’s Focus on Retail Investments

ASIC, which regulates the Aussie financial markets, has brought several obligatory rules in recent months to make the financial markets safe for retail investors. Most recently, it decided to ban the retail sale of unsolicited financial products to curb misconduct in the banking, superannuation and financial services industry.

Earlier, the Aussie regulator also imposed heavy restrictions on the distribution and marketing of CFDs products and temporarily banned the controversial binary options for retail traders.

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