Design and distribution obligations for schemes
The design and distribution obligations require issuers and distributors of financial products to ensure that consumers obtain products that are likely to be consistent with consumers’ objectives, financial situation and needs. An example of a financial product that the design and distribution obligations generally apply to is a registered managed investment scheme for which a Product Disclosure Statement (PDS) must be prepared under Part 7.9 of the Corporations Act.
The design and distribution obligations commence on 5 October 2021. A responsible entity must develop a target market determination (TMD) for a registered managed investment scheme. They should provide, well in advance of 5 October 2021, the TMD to all distributors of the product.
The design and distribution obligations are set out in Part 7.8A of the Corporations Act. The obligations were introduced by the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019 and the Corporations Amendment (Design and Distribution Obligations) Regulations 2019. Industry must comply with the obligations from 5 October 2021.
We published Regulatory Guide 274 Product design and distribution obligations (RG 274) to help industry comply with their obligations. The guidance sets out our interpretation of the design and distribution obligations, our expectations for compliance, and our general administrative approach.
Note: We have also provided additional guidance on our regulatory approach to the design and distribution obligations in 21-213MR.
We have summarised the design and distribution obligations below. For more information, see RG 274.
To comply with the obligations, issuers must:
- prepare a publicly available target market determination (TMD)
- take reasonable steps so that products are distributed consistently with the TMD
- review the TMD to ensure it remains appropriate
- notify ASIC of any significant dealings in a product that are not consistent with the TMD
- keep records.
To comply with the obligations, distributors must:
- not distribute a financial product unless a TMD for the product has been made
- take reasonable steps so that distribution is consistent with the TMD
- notify the issuer of any significant dealings in the financial product that are not consistent with the TMD
- keep records.
We have issued ASIC Corporations (Design and Distribution Obligation – Exchange Traded Products) Instrument 2020/1090 to provide certainty for issuers and distributors of exchange traded products (ETPs) about the application of the obligations.
The instrument clarifies that:
- while issuers of ETPs must review their TMDs as necessary to ensure they remain appropriate, they will not be required to cease distributing while they carry out that review – this recognises that there are practical difficulties in reviewing the TMD for a product is continually issued on a financial market
- distributors of ETPs must comply with certain record-keeping and reporting obligations – this recognises the need for issuers to have information that will help them comply with their review obligations.
For more information, see the instrument and the Corporations Amendment (Design and Distribution Obligations) Regulations 2019.