This article was originally authored by Toby Blyth. For further details or assistance, please reach out to Michael Bracken.

Note: This article first appeared in the August 2021 edition of the Financial Services newsletter

The new Design and Distribution Obligations (DDO) will have far reaching effects on the design and more importantly the distribution of consumer financial products.

No longer set, forget and wait for profitability, issuers need to determine the need and utility of the product, and the target market for which it is designed. They must also regularly monitor suitability and incorporate real time data into their decisions to continue issuing.

Importantly, issuers are not able to merely rely on distributors complying with their DDO and contractual obligations.

Issuers must implement monitoring and reporting procedures that enable the issuer to ascertain whether:

  • the distributor is complying with its obligations, and

  • importantly whether the lived experience of the product matches the issuer’s initial and updated assessments

The legislative framework

The new obligations are imposed by the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019 (Cth) which has the effect of amending s 994 of the Corporations Act 2001 (Cth).

From 5 October 2021, s 994 will include:

  • s 994B — requires a target market determination (TMD) to be made

  • s 994C — requires TMDs to be reviewed

  • s 994D — prevents distribution unless a TMD is made

  • s 994E — reasonable steps provision, and

  • s 994F — imposes record keeping and notification obligations

The intention of the new legislation, as set out by the Australian Securities and Investments Commission (ASIC), is to help consumers obtain appropriate financial products by requiring issuers and distributors to adopt a  consumer-centric approach to the design and distribution of products.

Importantly, there is no requirement to ensure that individual consumers meet the TMD criteria. Instead, products need to meet the likely objectives, financial situation and needs of the target class of consumers, across the life cycle of a financial product. Given that the needs of a class of consumers are likely to change over time, the obligation of both issuers and distributors is to develop and maintain effective product governance arrangements, which is reflected by the regime’s new review and reporting requirements.

What is required is that the issuer set up sufficient reporting requirements with the distributor such that the issuer can comply with its ongoing suitability monitoring requirements with real world data.

ASIC published Regulatory Guide RG 274: Product design and distribution obligations in December 2020 which provides specific guidance to both issuers and distributors.


In summary, the obligations of both an issuer and distributor are almost 100% coterminous.

With respect to issuers, RG 274.9 specifies distribution conditions:

To ensure that distribution of the financial product is directed towards its target market, an issuer must specify distribution conditions and restrictions (distribution conditions) that make it likely that the consumers who acquire the product are in the target market. An issuer must, at the outset, plan how the product and its distribution will be monitored and reviewed, including by setting out the circumstances in which a review will be required.

ASIC further states that both issuers and distributors are required to take reasonable steps to ensure that distribution occur consistent with the relevant TMD.1

With respect to monitoring and reviewing, the Regulatory Guide provides:

Further, an issuer must monitor and review the outcomes produced by the design and distribution of its financial products and consider whether changes are required to the product, to the way it is sold or to whom it is being sold. In particular, an issuer will need to consider:

(a) whether the product reached the consumers in its target market or was sold to consumers outside the target market;

(b) how the product performed in the hands of the consumers in the target market;

(c) whether the product delivered what was promised; and

(d) whether the product resulted in poor outcomes for consumers in the target market [emphasis added].2

On a strict reading of these sections, the issuer would be responsible for demonstrating that reasonable steps have been taken.

However, these sections are not to be read in isolation  and when read in the context of the document as a whole, it becomes apparent that distributors also carry a similar responsibility.

For instance, paras 48 and 49 relevantly provide as follows:

RG 274.48 In order for issuers and distributors to meet their obligation to take reasonable steps, prod- uct governance arrangements must include appropri ate processes and controls at the product distribution stage.

. . .

RG 274.49 Product governance arrangements must also include a process for effective communication between those responsible for designing the financial product and those responsible for marketing and distributing the product, particularly in relation to the intended consumer outcomes associated with the product. This will help issuers and distributors meet their obligations to:

(a) take reasonable steps in relation to distribution;

. . . [emphasis added]

Any differences in obligations need to be expressed in terms which are objectively clear:

The issuer’s distribution conditions are one component of the controls that it will need to implement to comply with its obligation to take reasonable steps in the distribution of its product. Distribution conditions should be specified in the TMD with tangible parameters so that these conditions are objectively clear (e.g. restricted to branch sales or through a dedicated customer contact centre). This clarity will assist distributors in complying with those conditions as part of distributors’ reasonable steps obligation.3


Turning to the specific requirements of a distributor, ASIC notes the following: “In addition, a distributor must take reasonable steps that will, or are reasonably likely to, result in distribution of a product being consistent with the TMD[.]”4

Having regard to this, the issuer does not need to advise the distributor on what its duties are or what it  should turn its mind to. This is a task the distributor is required to undertake independently and with due care. Practically, the distributor achieves this through its product governance arrangements: “A distributor must  have robust product governance arrangements in place  to help ensure that it complies with its obligations,including the reasonable steps obligation[.]”5 

The obligations are comparable to that of an issuer:

Like an issuer, a distributor must take into account all relevant factors in assessing what reasonable steps need to be taken in the circumstances. These factors include:

(a) risk — the likelihood of the distribution being inconsistent with the TMD;

(b) harm — the nature and degree of harm that might result from the financial product being issued other- wise than in accordance with the TMD; and

(c) mitigation steps — steps that can be taken to eliminate or minimise the likelihood of the distribution being inconsistent with the TMD and the harm that might result[.]6

The Regulatory Guide goes on to note at para 172 that merely complying with distribution conditions will not satisfy a distributor’s reasonable steps obligation. They are still required to consider what steps are reasonable in the circumstances.

Again, this is an autonomous task and not something the issuer is responsible for guiding. The distributor must undertake it independently.

In these circumstances, the distributor is responsible for demonstrating the reasonableness of its steps.

An issuer is responsible, noting paras 9 and 13 of the Regulatory Guide, for monitoring the outcomes of the distribution and informing itself whether any changes are needed to be made (ie, to the way it is sold or to whom it is sold).

Naturally if compliance obligations are not met, it is the issuer’s role to make changes affecting the distributor.


Looking at the Regulatory Guide, the obligation to demonstrate reasonable steps falls on both the issuer and  distributor.

It is the issuer’s responsibility to monitor compliance with conditions and then impose changes where necessary to ensure distribution is made in line with TMD. The distributor must then comply with those changes, both under the Regulatory Guide and also contractually vis-a-vis the issuer (issuers will need to review distribution contracts but presumably they have boiler- plate obligations to comply with the law — this should be operationalised via relevant steering/executive committee agendas).

While it is legally correct to say that the distributor must take reasonable steps to comply with the TMD and  distribution conditions, the issuer must also engage in effective communication, monitoring and review.

Given that, functionally an issuer must monitor what  the distributor is doing.

Issuers must establish guidelines to prevent obvious misselling (which was always the law) and distributors must do likewise.

Both issuers and distributors share the same duty to take reasonable steps in carrying out their obligations and to demonstrate that those steps have been taken. The  monitoring that issuers are required to do is a post-duty step which takes place after distributors (and issuers) have discharged their obligations at first instance.


1. ASIC Regulatory Guide RG 274: Product design and distri bution obligations (December 2020) at [RG 274.11]

2. Above, at [RG 274.13].

3. Above n 1, at [RG 274.97].

4. Above n 1, at [RG 274.169].

5. Above n 1, at [RG 274.170].

6. Above n 1, at [RG 274.141]

This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2024.

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