REGULATORY GUIDE 274
Product design and
distribution obligations
December 2020
About this guide
This guide is for issuers and distributors of financial products that must
comply with the design and distribution obligations in Pt 7.8A of the
Corporations Act.
It explains our interpretation of the design and distribution obligations, our
expectations for compliance, and our general approach to administering the
obligations.
REGULATORY GUIDE 274: Product design and distribution obligations
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About ASIC regulatory documents
In administering legislation ASIC issues the following types of regulatory
documents.
Consultation papers: seek feedback from stakeholders on matters ASIC
is considering, such as proposed relief or proposed regulatory guidance.
Regulatory guides: give guidance to regulated entities by:
 explaining when and how ASIC will exercise specific powers under
legislation (primarily the Corporations Act)
 explaining how ASIC interprets the law
 describing the principles underlying ASIC’s approach
 giving practical guidance (e.g. describing the steps of a process such
as applying for a licence or giving practical examples of how
regulated entities may decide to meet their obligations).
Information sheets: provide concise guidance on a specific process or
compliance issue or an overview of detailed guidance.
Reports: describe ASIC compliance or relief activity or the results of a
research project.
Document history
This guide was issued in December 2020 and is based on legislation and
regulations as at the date of issue.
References to provisions of the Corporations Act that have not commenced
are to the provisions that will be inserted by Sch 1 to the Treasury Laws
Amendment (Design and Distribution Obligations and Product Intervention
Powers) Act 2019.
References to provisions of the Corporations Regulations that have not
commenced are to the provisions that will be inserted by Sch 1 to the
Corporations Amendment (Design and Distribution Obligations) Regulations
2019.
In September 2021, we added a note at RG 274.157 explaining how issuers
can notify ASIC of a significant dealing. In June 2022, we amended this note
and RG 274.162 to state that issuers must provide significant dealing
notifications to ASIC through the ASIC Regulatory Portal.
Disclaimer
This guide does not constitute legal advice. We encourage you to seek your
own professional advice to find out how the Corporations Act and other
applicable laws apply to you, as it is your responsibility to determine your
obligations.
Examples in this guide are purely for illustration; they are not exhaustive and
are not intended to impose or imply particular rules or requirements.
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Contents
A Overview ........................................................................................... 4
Purpose of the design and distribution obligations ............................ 4
What this guide is about .................................................................... 7
Who this guide is for .......................................................................... 8
Summary of the obligations for issuers and distributors .................... 8
B Coverage of the design and distribution obligations ................ 10
Coverage at a glance ....................................................................... 10
Meaning of ‘financial product’ .......................................................... 11
Meaning of ‘issuer’ and ‘distributor’ ................................................. 13
Meaning of ‘distribution’ ................................................................... 15
C Product governance arrangements ............................................. 16
The need for effective product governance arrangements .............. 16
Scope of product governance arrangements .................................. 17
Implementing and maintaining effective product governance
arrangements ................................................................................... 22
D Obligations for issuers .................................................................. 24
Preparing a TMD that meets the requirements ............................... 24
Distribution, review and reporting under the TMD ........................... 35
Product-specific issues and the TMD .............................................. 40
Making the TMD publicly available .................................................. 46
Taking reasonable steps in relation to distribution: Issuers ............. 46
Reviewing the TMD ......................................................................... 53
Notifying ASIC of ‘significant dealings’ ............................................ 56
Keeping records of decisions made ................................................ 58
E Obligations for distributors .......................................................... 59
Taking reasonable steps in relation to distribution .......................... 59
Notifying the issuer of ‘significant dealings’ ..................................... 72
Keeping records and reporting information ..................................... 73
F Our administration of the design and distribution obligations 75
Our role ............................................................................................ 75
Remedies for consumers ................................................................. 77
ASIC’s power to give relief............................................................... 78
Appendix: Exchange traded products ................................................ 80
The nature and structure of exchange traded products .................. 80
How the obligations apply ................................................................ 80
Reasonable steps for issuers .......................................................... 81
Key terms ............................................................................................... 84
Related information ............................................................................... 89

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A Overview
Key points
Issuers and distributors of financial products must comply with the design
and distribution obligations in Pt 7.8A of the Corporations Act 2001
(Corporations Act) from 5 October 2021.
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. In particular:
• issuers must design financial products that are likely to be consistent
with the likely objectives, financial situation and needs of the
consumers for whom they are intended;
• issuers and distributors must take ‘reasonable steps’ that are
reasonably likely to result in financial products reaching consumers in
the target market defined by the issuer; and
• issuers must monitor consumer outcomes and review products to
ensure that consumers are receiving products that are likely to be
consistent with their likely objectives, financial situation and needs.
The design and distribution obligations require issuers and distributors to
develop and maintain effective product governance arrangements across
the life cycle of financial products. This will result in improved outcomes for
consumers of these products.
Purpose of the design and distribution obligations
RG 274.1 The Treasury Laws Amendment (Design and Distribution Obligations and
Product Intervention Powers) Act 2019 introduced design and distribution
obligations to Ch 7 of the Corporations Act. Issuers and distributors of
financial products must comply with the obligations from 5 October 2021. A
new objects clause has also been added to Ch 7—that is, the ‘provision of
suitable financial products to consumers of products’: see s760A(aa) of the
Corporations Act.
Note 1: The design and distribution obligations were originally scheduled to commence
on 5 April 2021. Due to the COVID-19 pandemic, ASIC provided a temporary
exemption from the obligations for six months: see ASIC Corporations (Deferral of
Design and Distribution Obligations) Instrument 2020/486.
Note 2: In this guide, references to sections (s), chapters (Ch), divisions (Div) and parts
(Pt) are to the Corporations Act, unless otherwise specified. References to regulations
(reg) are to the Corporations Regulations 2001 (Corporations Regulations), unless
otherwise specified.
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Improving product design and distribution
RG 274.2 The Financial System Inquiry’s (FSI) recommendation for the introduction
of the design and distribution obligations in 2014 was based on an
acknowledgement of the limitations of a framework for consumer protection
in financial services that relies heavily on disclosure, financial advice and
financial literacy.
RG 274.3 In particular, the FSI concluded that ‘disclosure can be ineffective for a
number of reasons’ and that ‘disclosure alone is unlikely to correct the effect
of broader market structures and conflicts that drive product development or
distribution practices’ that result in poor consumer outcomes.
Note 1: See FSI, Financial System Inquiry: Interim report, July 2014, pp. 3–57.
Note 2: ASIC has also, over a number of years, identified limitations to disclosure in
retail financial services markets—see Report 632 Disclosure: Why it shouldn’t be the
default (REP 632); Financial System Inquiry interim report: Submission by the
Australian Securities and Investments Commission, August 2014, pp. 15–17; Financial
System Inquiry: Submission by the Australian Securities and Investments Commission,
April 2014, pp. 12, 80–1; Royal Commission into Misconduct in the Banking,
Superannuation and Financial Services Industry: Submission of the Australian
Securities and Investments Commission—Round 6: Insurance, October 2018; and
Peter Kell, then ASIC Deputy Chairman, ASIC and behavioural economics: Regulating
for real people, speech, Queensland University Behavioural Economics Group
symposium, 18 October 2016.
RG 274.4 The FSI concluded that poor design and distribution practices played a
significant role in contributing to consumer detriment. It is in this context
that the FSI recognised the variable quality of design and distribution
controls and recommended the introduction of the design and distribution
obligations as a supply-side intervention that places additional responsibility
for consumer outcomes on issuers and distributors.
Note: See Financial System Inquiry: Final report (FSI final report), pp. 199–201.
Taking a consumer-centric approach
RG 274.5 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 designing and distributing products.
Note 1: See paragraphs 1.5, 1.7 and 1.12 of the Revised Explanatory Memorandum for
the Treasury Laws Amendment (Design and Distribution Obligations and Product
Intervention Powers) Bill 2019 (Revised Explanatory Memorandum).
Note 2: In this guide, the term ‘consumer’ means a ‘retail client’ for a financial product.
RG 274.6 The design and distribution obligations do not equate to an individualised
product suitability test that requires assessment of each individual’s personal
circumstances at point-of-sale. Instead the obligations require issuers and
distributors to develop and maintain effective product governance
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arrangements across the life cycle of financial products to ensure that
consumers are receiving products that are likely to be consistent with their
likely objectives, financial situation and needs.
RG 274.7 For firms that already have effective product governance arrangements, this
is unlikely to require a significant change to operations. As noted in the FSI
final report (p. 194):
… firms that already invest in customer-focused business practices and
procedures would not be required to change their operations significantly
… [and] costs involved in changing practices should be low … firms would
be likely to benefit from long-term savings through increased customer
retention and avoid further regulatory costs.
RG 274.8 The design and distribution obligations require an issuer of financial
products to consider the design of its product (including its key attributes)
and to determine an appropriate target market for the product, including
whether one exists—that is, whether there is a class of consumers for whom
the product, including its key attributes, would likely be consistent with their
likely objectives, financial situation and needs. If an appropriate target
market cannot be identified for a product, an issuer will not be able to offer
the product.
Note 1: In this guide, the term ‘key attributes’ is used to describe features and attributes
of a product that affect whether it is likely to be consistent with the likely objectives,
financial situation and needs of consumers in the target market. See also RG 274.76–
RG 274.78.
Note 2: See paragraph 1.48 of the Revised Explanatory Memorandum.
RG 274.9 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.
RG 274.10 The target market, distribution conditions, and information related to review
and monitoring must be set out in a document called a ‘target market
determination’ (TMD). The TMD is a written document prepared and made
available before engaging in ‘retail product distribution conduct’.
Note: For the meaning of ‘retail product distribution conduct’, see RG 274.29–
RG 274.31.
RG 274.11 Issuers and distributors must take reasonable steps that will, or are
reasonably likely to, result in distribution being consistent with the TMD
(reasonable steps obligation). They must adopt a risk management approach
and take steps that are reasonably likely to reduce the risk of the product
being distributed in a way that is inconsistent with the product’s TMD.
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RG 274.12 Issuers and distributors also need to consider their distribution methods and
factors that could affect whether consumers receive a financial product that
is likely to be consistent with their likely objectives, financial situation and
needs. This could include factors such as how the product, including its key
attributes, is marketed and the sales practices that are adopted.
RG 274.13 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.
RG 274.14 In this way, the design and distribution obligations require issuers and
distributors to take a consumer-centric approach—placing consumer
outcomes front and centre at the product design, product distribution, and
monitoring and review stages of the product life cycle.
Note: See paragraphs 1.5, 1.7 and 1.12 of the Revised Explanatory Memorandum.
What this guide is about
RG 274.15 This guide explains our interpretation of the design and distribution
obligations, our expectations for compliance, and our general approach to
administering the obligations.
RG 274.16 In particular, it explains:
(a) the coverage of the design and distribution obligations, including the
financial products that are subject to the obligations (see Section B);
(b) the product governance arrangements required by issuers and distributors
to ensure that they comply with the obligations (see Section C);
(c) the specific obligations for issuers (see Section D);
(d) the specific obligations for distributors (see Section E); and
(e) the range of administrative powers we have in relation to the design and
distribution obligations, as well as our approach to the granting of relief
from the obligations (see Section F).
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Who this guide is for
RG 274.17 This guide is for issuers and distributors of financial products that are
available for acquisition by issue or by regulated sale in Australia. For a
detailed explanation of the coverage of the design and distribution
obligations, including who the obligations apply to, see Section B.
Note: ‘Regulated sale’ has the meaning given in s994A(1).
Summary of the obligations for issuers and distributors
RG 274.18 Table 1 summarises the design and distribution obligations for issuers
described in Section D of this guide. Table 2 summarises the obligations for
distributors described in Section E of this guide.
Table 1: Design and distribution obligations relevant to issuers
Obligation Brief description Guidance
Prepare a TMD:
see s994B
An issuer must prepare a TMD for its financial product. A TMD must
meet the content requirements in s994B(5). These are to:
 describe the class of consumers that comprises the target market
for the product (see s994B(5)(b));
 specify any distribution conditions and restrictions on distribution
(see s994B(5)(c));
 specify review triggers (events that reasonably suggest the TMD
is no longer appropriate (see s994B(5)(d));
 specify when the first review of the TMD must occur (see
s994B(5)(e), (6) and (7));
 specify when subsequent reviews of the TMD must occur (see
s994B(5)(f), (6) and (7));
 specify reporting periods for when distributors should provide
information about the number of complaints about the product to
the issuer (see s994B(5)(g), (6) and (7)); and
 specify the kinds of information the distributors must report to the
issuer (and how frequently) to enable the issuer to identify
whether the TMD needs to be reviewed (see s994B(5)(h), (6) and
(7)).
The TMD must also meet the appropriateness requirements in
s994B(8)—that is, the TMD must be such that it would be
reasonable to conclude that, if the product were to be issued, or
sold in a regulated sale:
 to a consumer in accordance with the distribution conditions—it
would be likely that the consumer is in the target market (see
s994B(8)(a)); and
 to a consumer in the target market—it would likely be consistent
with the likely objectives, financial situation and needs of the
consumer (see s994B(8)(b)).
See RG 274.59–
RG 274.135.
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Obligation Brief description Guidance
Make the TMD
publicly available:
see s994B(9)
An issuer must ensure that the TMD is available to the public free of
charge before it distributes a financial product.
See RG 274.136–
RG 274.138.
Take reasonable
steps in relation to
distribution: see
s994E(1)
An issuer must take reasonable steps that will, or are reasonably
likely to, result in a distribution being consistent with the product’s
TMD.
See RG 274.139–
RG 274.147.
Review the TMD
to ensure that it
remains
appropriate: see
s994C
An issuer must review a TMD within 10 business days if it knows, or
ought reasonably to know, that a review trigger, or an event or
circumstance that reasonably suggests that the TMD is no longer
appropriate, has occurred.
An issuer must also review the TMD periodically as set out in the
TMD to ensure that it remains appropriate.
See RG 274.148–
RG 274.156.
Notify ASIC of
‘significant
dealings’: see
s994G
If an issuer becomes aware of a significant dealing in the product
that is not consistent with the TMD, it must notify ASIC as soon as
practicable (within 10 business days).
See RG 274.157–
RG 274.162.
Keep records: see
s994F(1) and (3)
An issuer must keep complete and accurate records of:
 the decisions made in relation to its TMDs, and associated
reviews, including the reasons for those decisions (including the
data underlying those decisions); and
 distribution information (to the extent that the issuer engages in
distribution: see s994F(2)).
See RG 274.164–
RG 274.165.
Table 2: Design and distribution obligations relevant to distributors
Obligation Brief description Guidance
Not to distribute
unless a TMD has
been made: see
s994D
A distributor must not engage in retail product distribution conduct in
relation to a financial product unless it is engaging in excluded
conduct or reasonably believes (after making all reasonable
inquiries) that a TMD has been made, or a TMD is not required.
See RG 274.168.
Take reasonable
steps in relation to
distribution: see
s994E(3)
A distributor must take reasonable steps that will, or are reasonably
likely to, result in distribution being consistent with the most recent
TMD (unless the distribution is excluded conduct).
See RG 274.166–
RG 274.210.
Notify the issuer
of ‘significant
dealings’: see
s994F(6)
If a distributor becomes aware of a significant dealing in the product
that is not consistent with the TMD, it must notify the issuer as soon
as practicable (within 10 business days).
See RG 274.211–
RG 274.215.
Keep records: see
s994F(3)
A distributor must keep complete and accurate records of
distribution information, including:
 the number of complaints received about a product; and
 information specified by the issuer in the TMD.
See RG 274.216–
RG 274.223.
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B Coverage of the design and distribution
obligations
Key points
This section explains the coverage of the design and distribution
obligations, including:
• the ‘financial products’ that are subject to the obligations (see
RG 274.20–RG 274.24); and
• the meaning of ‘issuer’, ‘distributor’ and ‘distribution’ for the purposes
of the obligations (see RG 274.25–RG 274.31).
Coverage at a glance
RG 274.19 Figure 1 summarises the coverage of the design and distribution obligations.
Figure 1: Coverage of the design and distribution obligations

Note: See RG 274.20–RG 274.30 for the information in this figure (accessible version).
Excluded financial products include:
• MySuper products;
• margin lending facilities;
• most ordinary shares;
• securities issued under an employee
share scheme; and
• other products prescribed by the
Corporations Regulations.
Financial products, including:
• products and securities requiring
disclosure under Pts 6D.2 and 7.9 of the
Corporations Act;
• products that are not regulated under
Pts 6D.2 or 7.9 of the Corporations Act,
but are within the scope of the ASIC Act
(e.g. credit contracts and short-term
credit facilities); and
• other products prescribed by the
Corporations Regulations.
What’s covered?
Issuers include persons who:
• issue a financial product; and
• must prepare a disclosure document
under the Corporations Act.
Distributors means regulated persons,
including:
• AFS licensees;
• authorised representatives;
• credit licensees; and
• credit representatives.
Who’s covered?
What’s excluded?
Distribution means ‘retail product
distribution conduct’ in relation to a
consumer, comprising:
• dealing in the financial product;
• giving a disclosure document in relation
to offering a financial product;
• providing a PDS; and
• providing financial product advice.
What’s distribution?
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Meaning of ‘financial product’
RG 274.20 In this guide, ‘financial product’ refers to a product to which the design and
distribution obligations apply: see s994AA and 994B(1). This includes:
(a) products for which a Product Disclosure Statement (PDS) must be
prepared under Pt 7.9 of the Corporations Act (e.g. interests in a
managed investment scheme, general insurance, and interests in a
superannuation fund);
(b) securities for which a disclosure document must be prepared under
Pt 6D.2 of the Corporations Act (e.g. hybrid securities), except for
ordinary shares (unless the company is an investment company or
intends the shares to be converted to preference shares);
(c) products that are not regulated under Pts 6D.2 or 7.9, but that are ‘financial
products’ under Div 2 of Pt 2 of the Australian Securities and Investments
Commission Act 2001 (ASIC Act) (see s994AA(1))—this includes credit
facilities under the ASIC Act, such as credit contracts regulated under
the National Consumer Credit Protection Act 2009 (National Credit Act)
(e.g. credit cards, home loans, funeral expenses policies), and short-term
credit not regulated under the National Credit Act;
(d) products prescribed by the Corporations Regulations as requiring a
TMD, including:
(i) depository interests in simple corporate bonds (see reg 7.8A.05);
(ii) debentures of a body that is an authorised deposit-taking institution
(ADI) or registered under s21 of the Life Insurance Act 1995 (see
reg 7.8A.06);
(iii) basic banking products (as defined in the Corporations Act) (see
reg 7.8A.07);
(iv) investor directed portfolio services (IDPSs) (see reg 7.8A.08);
(v) exchange traded products (ETPs) (see reg 7.8A.09); and
(vi) certain custodial arrangements (see reg 7.8A.10).
Note: We have provided information about how the design and distribution obligations
apply to issuers and distributors of ETPs in the appendix: see RG 274.254–RG 274.263.
Products that are not subject to the obligations
RG 274.21 There are some financial products that are not subject to the design and
distribution obligations: see s994B(3). These include:
(a) MySuper products;
(b) margin lending facilities;
(c) generally, fully paid ordinary shares in a company (including a foreign
company);
(d) securities issued under an employee share scheme; and
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(e) products prescribed by the Corporations Regulations as not requiring a
TMD, including:
(i) interests in eligible rollover funds, as defined in the
Superannuation Industry (Supervision) Act 1993 (SIS Act);
(ii) superannuation interests that are defined benefit interests (as
defined in the SIS Act);
(iii) medical indemnity insurance;
(iv) depository interests in foreign fully paid ordinary shares;
(v) bank drafts and Australia Post money orders;
(vi) credit facilities that are not issued in the course of a business that is
wholly or partly a business of providing credit;
(vii) credit provided for business purposes;
(viii) credit facilities set out in reg 2B(3)(b) of the Australian Securities
and Investments Commission Regulations 2001 (ASIC
Regulations) that do not involve the incurring of a deferred debt or
payment of a deferred debt. This means, currently, the design and
distribution obligations do not apply to consumer leases because
they do not involve the incurring of a deferred debt;
(ix) the provision of a mortgage (as distinct from the credit contract
secured by the mortgage, to which the obligations apply), noting
the mortgage is generally provided by the person taking out the
credit (as opposed to the credit provider); and
(x) the provision of credit by a pawnbroker in the ordinary course of a
pawnbroker’s business (see reg 7.8A.20).
Note 1: For further guidance on the MySuper exemption, see RG 274.132–RG 274.134.
Note 2: ‘Ordinary share’ is not defined in the Corporations Act. According to the
Revised Explanatory Memorandum at paragraph 1.29, consistent with existing practice,
‘ordinary share’ is to take its ordinary meaning having regard to the legislative context
in which it is used and the purpose of the design and distribution obligations. However,
the use of the term ‘ordinary share’ is intended to distinguish such shares from other
types of shares, particularly preference shares.
Note 3: See the definition of ‘employee share scheme’ in s9.
Note 4: If a superannuation fund issues both defined benefit interests and other interests,
the exemption in reg 7.8A.20(3) only applies to the defined benefit interest.
New, continuing and legacy products
RG 274.22 Issuers and distributors must comply with the design and distribution
obligations for financial products that are to be issued to a consumer: see
s994B(1)–(2) and 994E(3). This means the obligations apply to:
(a) products launched after commencement of the regime (new products);
and
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(b) existing products that continue to be issued to consumers after
commencement of the regime (continuing products).
RG 274.23 Closed products for which no further offers or issues are being made after
commencement (legacy products) are not affected by the design and
distribution obligations: see s994B(1) and (2).
Note: Some products are automatically reissued by the issuer after initial acquisition by
consumers. For example, many general insurance policies renew on an annual basis and
consumers enter into new contracts at each renewal. Similarly, many term deposit
products automatically roll over at the end of their term, resulting in a new term deposit
product for the same term. Each renewal or rollover involves the issue of a financial
product. Renewals are discussed further in Section E.
RG 274.24 Issuers and distributors do not have to comply with the design and
distribution obligations for secondary sales of products, unless such sales are
made in circumstances that could otherwise be used to avoid the obligations
(regulated sale).
Note 1: The term ‘secondary sale’ is not defined for the purposes of the design and
distribution obligations. Instead, the legislative intent is to exclude the sale of products
on secondary markets (unless such sales are made in ways that could otherwise be used
to avoid the obligations) by applying the regime to primary or initial offerings and
regulated sales: see also the Revised Explanatory Memorandum at paragraph 1.45. For
the definition of ‘regulated sale’, see s994A(1).
Note 2: The appendix explains how the design and distribution obligations apply to
issuers and distributors of ETPs, which have an open-ended structure that allows the
issuer of an ETP to issue and redeem units on a daily basis resulting in the number of
units on issue fluctuating depending on investor demand.
Meaning of ‘issuer’ and ‘distributor’
RG 274.25 The design and distribution obligations apply to issuers and distributors of
financial products that are available for acquisition by issue or by regulated
sale in Australia.
Note 1: The geographical coverage of the design and distribution obligations is limited
to financial products that are available for acquisition by issue or by regulated sale in
Australia as a result of the jurisdictional limitations that apply to the obligations to
prepare a disclosure document (see s700(4) and 1011A); the jurisdictional limitation
that applies to ‘extended operation financial products’ (see reg 7.8A.20(8)); and the
jurisdictional limitation that applies to persons required by the regulations to make a
TMD (see regs 7.8.03 and 7.8A.04(1)(a) and s994B(1)(c)). Issuers that make a
recognised offer of securities under mutual recognition in Australia are not required to
make a TMD: see reg 7.8A.04.
Note 2: Exempt bodies and exempt public authorities are excluded: see s994B(3).
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Issuers
RG 274.26 For issuers, the design and distribution obligations apply to persons who:
(a) must prepare a disclosure document under the Corporations Act (e.g.
a responsible entity of a managed investment scheme, an insurer, a
superannuation trustee, and an issuer of hybrid securities) (see
s994B(1)(a) and (b));
(b) if they are not covered by (a)—issue or sell under a regulated sale a
financial product within the meaning of Div 2 of Pt 2 of the ASIC Act
(e.g. an issuer of a funeral expenses policy or a credit provider that
issues a credit card (see s994B(1)(ba)); and
(c) are required by the Corporations Regulations to make a TMD (e.g. persons
who issue a simple corporate bonds depository interest under a two-part
simple corporate bonds prospectus (see reg 7.8A.05)) or who issue or offer
to issue basic banking products (see reg 7.8A.07) (see s994B(1)(c)).
Distributors
RG 274.27 For distributors, the design and distribution obligations apply to regulated
persons, as defined in s994A(1), including Australian financial services (AFS)
licensees and authorised representatives, as well as persons who are exempt
from holding an AFS licence.
RG 274.28 The Corporations Regulations extend the meaning of regulated persons to
include:
(a) credit licensees and credit representatives within the meaning of the
National Credit Act (see reg 7.8A.02(4)), including persons who are
exempt from holding a credit licence;
(b) issuers and sellers of extended operation financial products (see
reg 7.8A.02(5)); and
(c) a distributor within the meaning of s910A of the Corporations Act (as
modified by ASIC Corporations (Basic Deposit and General Insurance
Product Distribution) Instrument 2015/682) for the following products:
(i) a basic deposit product;
(ii) a general insurance product; and
(iii) a bundled consumer credit insurance product (within the meaning
of the ASIC instrument) (see reg 7.8A.02(3)).
Note: Persons who refer consumers to another person who engages in financial services
or credit activities (‘referrers’) are regulated persons if they fall under one or more of
the categories listed above, such as persons exempt from holding an AFS licence or a
credit licence: see reg 7.6.01(1)(e) and (ea) of the Corporations Regulations and
reg 25(2), (2A) and (5) of the National Consumer Credit Protection Regulations 2010
(National Credit Regulations). Referrers who are regulated persons are subject to the
reasonable steps obligation if their conduct amounts to retail product distribution
conduct: see RG 274.207–RG 274.209.
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Meaning of ‘distribution’
RG 274.29 For the purposes of this guidance, distribution means ‘retail product
distribution conduct’ as defined in s994A(1) to include:
(a) dealing in the financial product;
(b) giving a disclosure document in relation to offering a financial product;
(c) providing a PDS; and
(d) providing financial product advice.
RG 274.30 The meaning of ‘retail product distribution conduct’ is based on terms
defined in the Corporations Act (for example, dealing in the financial
product has the meaning given by s766C, as amended by s994A(1)). The
extended operation of the design and distribution obligations means that
those terms (as incorporated) also apply to financial products that are not
regulated by the Corporations Act, but are regulated under the ASIC Act:
see paragraph 1.4 of the Supplementary Explanatory Memorandum for the
Treasury Laws Amendment (Design and Distribution Obligations and
Product Intervention Powers) Bill 2019 and s994AA. For example, arranging
for a consumer to apply for a home loan would constitute retail product
distribution conduct.
Note: Guidance on conduct that constitutes ‘dealing’ as defined by s766C is set out in
Regulatory Guide 36 Licensing: Financial product advice and dealing (RG 36). These
terms are relevant to all products covered by the design and distribution obligations. For
the purposes of the obligations, ‘dealing’ has the meaning given by s766C, subject to
some modifications: see s994A(1).
RG 274.31 The provision of personal advice falls under the definition of ‘excluded
conduct’: see s994A(1). Accordingly, certain obligations do not apply when
personal advice is provided: see, for example, s994D (prohibition on
distribution unless TMD made) and 994E(3) (reasonable steps). As a result
of s994AA(2), the definition of personal advice conduct in s766B(3) applies
to products beyond Ch 7 of the Corporations Act for the purposes of the
design and distribution obligations. This means excluded conduct currently
covers conduct in the nature of personal advice that is provided in relation to
products that are regulated under the ASIC Act, as well as those regulated
under the Corporations Act: see s994AA(2), 994A(1) and 766B(3).
RG 274.200–RG 274.206 discuss how the design and distribution
obligations interact with the personal advice obligations.
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C Product governance arrangements
Key points
This section explains:
• the requirement for issuers and distributors to implement effective
product governance arrangements to ensure that they comply with the
design and distribution obligations (see RG 274.32–RG 274.34);
• the scope of the product governance arrangements that should be
implemented, including at the product design stage, at the distribution
stage, and at the monitoring and review stage of the product life cycle
(see RG 274.35–RG 274.51); and
• how to implement and maintain effective product governance
arrangements (see RG 274.52–RG 274.58).
The need for effective product governance arrangements
RG 274.32 Issuers and distributors must implement and maintain robust and effective
product governance arrangements to ensure that they comply with the design
and distribution obligations.
Note: The need for robust and effective arrangements to deliver products to consumers
and comply with legal obligations relating to the provision of financial products was
highlighted in the judgment of Justice Beach in Australian Securities and Investments
Commission v Commonwealth Bank of Australia [2020] FCA 790. Justice Beach found
that the Commonwealth Bank of Australia (CBA) had, for example, contravened
s912A(1)(a) and (c) of the Corporations Act. This was due to CBA’s failure to establish
and maintain systems and processes to ensure that it could provide the benefits of
CBA’s product in accordance with its terms and conditions. In particular, Justice Beach
noted (at [9]) that:
• there was a poor control environment with no adequate system for reporting issues
with the product;
• complaints handling processes were inadequate;
• there was no system to identify complaints about the product, or an appropriate IT
system to administer the product; and
• there was a failure to establish any business unit or team ultimately responsible for
ensuring that the product benefits were being applied to the relevant products.
RG 274.33 Robust product governance arrangements will help issuers and distributors
avoid similar outcomes to those identified by the FSI and the Royal
Commission into Misconduct in the Banking, Superannuation and Financial
Services Industry (Royal Commission) and assist in the management of non-
financial risk. The FSI highlighted that weaknesses in processes for, and
controls on, product distribution to consumers have led to significant
consumer losses.
Note: See FSI final report, pp. 199–201, and the Revised Explanatory Memorandum,
paragraphs 3.1–3.25.
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RG 274.34 The Royal Commission into Misconduct in the Banking, Superannuation and
Financial Services Industry: Final report (Royal Commission final report)
noted that the ‘number and complexity of products, and absence of “end-to-
end” accountability … are issues wholly within the control of every financial
services entity’.
Note: See Royal Commission final report, vol. 1, p. 115.
Scope of product governance arrangements
RG 274.35 The design and distribution obligations impose requirements at each stage of
developing and distributing a financial product. These stages are:
(a) product design (see, for example, s994B);
(b) product distribution (see, for example, s994E(3)); and
(c) monitoring and review (see, for example, s994C).
RG 274.36 These stages are depicted in Figure 2. All of these must be considered when
implementing and maintaining product governance arrangements.
RG 274.37 At the centre of Figure 2 is the target market, which reflects the centrality of
the target market to the design and distribution obligations—specifically,
that at all stages of product design, product distribution, and monitoring and
review, the focus is on consumers in the identified target market receiving
products that are likely to be consistent with the consumers’ likely
objectives, financial situation and needs.
RG 274.38 Figure 2 also depicts possible outcomes from monitoring and review, which
include:
(a) no change to the product or the way it is distributed;
(b) changing the product’s design, target market or distribution; or
(c) ceasing to offer the product.
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Figure 2: Consumer-centric approach to design and distribution

Note: See RG 274.35–RG 274.38 for the information in this figure (accessible version).
Product design stage
RG 274.39 At the product design stage, product governance arrangements must include
a product design and approval system. This system should include an initial
assessment of whether a financial product has been designed in a way that is
likely to be consistent with the likely objectives, financial situation and
needs of the class of consumers for whom the product is intended. As part of
this assessment, issuers should consider information reasonably available to
them on consumer outcomes for past or similar products. The design and
distribution obligations mean that a product development process that does
not consider consumer outcomes will not be feasible.
Note 1: The term ‘product design stage’ is used here to refer to the stage of designing a
new product, as well as reviewing the design of a continuing product.
Note 2: This approach is consistent with paragraph 1.48 of the Revised Explanatory
Memorandum, which sets out that one purpose of the TMD is to ensure that issuers
design products for which an appropriate target market can be defined.
RG 274.40 In carrying out this assessment, it is possible that some issuers will conclude
that a financial product (including its key attributes) is unlikely to be
consistent with the objectives, financial situation and needs of any class of
consumers. This may be due, for example, to risk, or low value.
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RG 274.41 At the product design stage, an issuer should also determine how its financial
product will be distributed, to enable it to meet its obligations to:
(a) specify distribution conditions to ensure that the product is directed
towards the intended target market (see RG 274.95–RG 274.99); and
(b) take reasonable steps to ensure that distribution is consistent with the
TMD (see RG 274.139–RG 274.147).
Note: For an example of a distribution approach that is likely to result in distribution to
consumers for whom the product is not appropriate, and consequently to poor consumer
outcomes, see Report 470 Buying add-on insurance in car yards: Why it can be hard to
say no (REP 470).
New products
RG 274.42 For new financial products, the product design stage will involve:
(a) identifying a class of consumers that are likely to have objectives,
financial situations and needs in common that might be met by a
financial product. The likely objectives, financial situation and needs of
the class of consumers (i.e. the target market) will then drive the design
of the product, including its key attributes. The issuer will ultimately
ensure that the product (including its key attributes) is likely to be
consistent with the likely objectives, financial situation and needs of the
consumers in the target market;
(b) analysing expected distribution methods for the product to determine
whether it is reasonable to conclude that the product will likely be
distributed to its target market and not outside its target market;
(c) robust testing of the product; and
(d) determining how consumer outcomes will be measured and monitored
when the product is being distributed, given the obligation to carry out
reviews (see s994B and 994C, and RG 274.148).
Continuing products
RG 274.43 For existing products that continue to be issued to consumers, the product
design stage will involve:
(a) establishing a target market by assessing the product (including its key
attributes) and the consumer objectives, financial situation and needs
for which the product (including its key attributes) is likely to be
appropriate;
(b) reviewing existing distribution arrangements for the product to
determine whether it is reasonable to conclude that the product is likely
being distributed to its target market;
(c) where the product (including its key attributes) is not likely to be
consistent with the objectives, financial situation and needs of a
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definable target market, or where its method of distribution is likely to
result in sales of the product outside its target market, redesigning the
product and/or the distribution arrangements, or ceasing distribution of
the product; and
(d) determining how consumer outcomes will be measured and monitored
over time, given the obligation to carry out reviews (see s994B and
994C, and RG 274.148).
RG 274.44 Issuers may already have a concept of a ‘target market’ for the product (e.g.
in a marketing or commercial sense). In these cases, issuers must still
critically assess the product (including its key attributes) and identify the
target market by reference to consumers for whom the product is likely to be
consistent with their likely objectives, financial situation and needs. If the
identified target market for the continuing product does not match the class
of consumers who have historically been sold the product, the issuer must:
(a) set distribution conditions and restrictions in line with the identified
narrower target market;
(b) consider modifying the design of the product; or
(c) cease offering the product.
Choice architecture of the product
RG 274.45 The ‘choice architecture’ of a financial product, including choices within the
product itself, as well as the context of the sales process and the presentation
of the product within that context, will be relevant to the issuer in
considering:
(a) the design of its product (e.g. the impact of bundling); and
(b) whether (and how) the product is likely to reach its target market (e.g.
the impact of complexity and frictions in choices, processes and
information).
Note: ‘Choice architecture’ refers to features in an environment that influence consumer
decisions and actions. These features are present at every stage of product design and
distribution. Examples include product bundling, default settings, sales process and
website design.
RG 274.46 For example, the choice architecture of both the design of add-on insurance
products (e.g. bundling with finance) and their distribution (e.g. the timing of
the sale and the use of pressure tactics) in car yards has been shown to
exploit decision fatigue, as well as weakening consumers’ defences to
‘persuasion tactics’. This has led to sales to consumers of products that are
not consistent with the objectives, financial situation and needs of those
consumers, and consequently to poor outcomes: see REP 470.
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Taking a consumer-centric approach in product design
RG 274.47 Taking a consumer-centric approach involves placing consumer outcomes
front and centre: see RG 274.5–RG 274.14. When considering the design of
its financial product and how it will reach consumers in the target market, in
order to take a consumer-centric approach an issuer should:
(a) apply its existing knowledge and experience about how consumers are
influenced in order to achieve the objectives of the design and
distribution obligations—for example, many firms are already adept at
capturing consumers’ attention and influencing their behaviour through
shaping product design, marketing and sales tactics. Issuers should
avoid engaging in conduct that is likely to impede consumers from
obtaining products that are consistent with their likely objectives,
financial situation and needs or that will result in consumers receiving
unsuitable products; and
(b) consider consumer vulnerabilities, and how those vulnerabilities may
increase the risk that consumers are sold products that do not meet their
objectives, financial situation and needs, and will lead to poor consumer
outcomes.
Note 1: Consumers can experience vulnerability as a result of any number of factors,
including:
• personal or social characteristics that can affect a person’s ability to manage
financial interactions (e.g. speaking a language other than English, having different
cultural assumptions or attitudes about money, or experiencing cognitive or
behavioural impairments due to intellectual disability, mental illness, chronic health
problems or age);
• the actions of the market or individual providers (e.g. vulnerabilities created by a
product’s choice architecture); and
• experiencing specific life events or temporary difficulties (e.g. an accident or
sudden illness, family violence, job loss, having a baby, or the death of a family
member).
Note 2: See Productivity Commission Inquiry into competition in the Australian
financial system: Submission by the Australian Securities and Investments Commission,
September 2017.
Product distribution stage
RG 274.48 In order for issuers and distributors to meet their obligation to take
reasonable steps, product governance arrangements must include appropriate
processes and controls at the product distribution stage. These processes and
controls must be designed to reduce the risk that financial products will not
be consistent with the likely objectives, financial situation and needs of the
consumers who acquire them.
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,
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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;
(b) report distribution information, such as complaints information and
information the issuer may need to promptly determine that a TMD may
no longer be appropriate; and
(c) notify issuers of significant dealings outside the target market (see
RG 274.211–RG 274.215).
Note: Issuers and distributors are not taken to have failed their obligations to take
reasonable steps in relation to distribution merely because a consumer outside the target
market acquires the product (see s994E(2)(b) and 994E(4)). Also see RG 274.139.
Monitoring and review stage
RG 274.50 Product governance arrangements must provide for an ongoing, iterative and
responsive design and distribution process. This must allow for regular
monitoring and review of product performance through which issuers
address problems when they arise. This includes carrying out reviews when
circumstances indicate that a TMD may no longer be appropriate, and taking
steps as necessary to redesign products and/or their distribution: see s994C
and s994(8)(b).
RG 274.51 After a financial product has been launched, an issuer should draw on
information reasonably available to it about how consumers in the target
market are using its product or similar products on the market and the actual
consumer outcomes from these products: see RG 274.151–RG 274.153. This
will involve collecting and analysing relevant and reliable consumer, product
performance, value and transaction data. This information should feed back
into the product design and ongoing review processes. In particular, this
information is likely to be useful for the critical assessment and testing of a
product and similar types of products for the purposes of meeting the
appropriateness requirement in s994B(8)(b): see RG 274.87–RG 274.94.
Implementing and maintaining effective product governance
arrangements
RG 274.52 For product governance arrangements to be effective, issuers and distributors
must:
(a) document their product governance arrangements in some form (see
RG 274.53);
(b) fully implement these arrangements, and monitor and report on their use
(see RG 274.54–RG 274.56); and
(c) regularly review the effectiveness of these arrangements and ensure that
they are up to date (see RG 274.57–RG 274.58).
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Documenting product governance arrangements
RG 274.53 Documentation of product governance arrangements is required for issuers
and distributors to demonstrate compliance with the design and distribution
obligations. Documentation should include details of who is responsible, the
timeframes involved, and associated record keeping and reporting.
Note: Issuers and distributors must keep records of their compliance with the design and
distribution obligations: see s994F(1) and (3), RG 274.164–RG 274.165 and
RG 274.216–RG 274.223.
Implementing, monitoring and reporting on product
governance arrangements
RG 274.54 Issuers and distributors must fully implement product governance
arrangements they have documented. This means the arrangements must be
put into practice and integrated into the day-to-day conduct of the business.
RG 274.55 For product governance arrangements to work effectively, issuers and
distributors need staff at all levels, including senior management, to
understand these arrangements and be committed to the success of the
arrangements. Integrating the arrangements into the operation of the
business, and ensuring that they are well resourced and supported, is
necessary to making them effective on an ongoing basis.
RG 274.56 AFS licensees and credit licensees need to monitor their compliance
(including with the design and distribution obligations), and certain breaches
must be reported to ASIC, including under s912D. They must be able to
show ASIC how they are able to monitor compliance with the design and
distribution obligations and appropriately address any compliance breaches.
Note: For guidance on meeting the general AFS licensing obligations, see Regulatory
Guide 104 AFS licensing: Meeting the general obligations (RG 104). For guidance on
meeting the general credit licensing obligations, see Regulatory Guide 205 Credit
licensing: General conduct obligations (RG 205).
Reviewing product governance arrangements
RG 274.57 Regularly reviewing product governance arrangements is necessary for these
arrangements to remain effective. In some cases, such as when compliance
issues have arisen (e.g. major breaches or repeated compliance failures),
issuers and distributors may need to procure an independent external review.
RG 274.58 Issuers and distributors must review their product governance arrangements
when there are material changes to their obligations, their business or the
environment in which they operate. To facilitate this, issuers and distributors
also need a process for identifying changes that may impact on the
effectiveness of their product governance arrangements.
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D Obligations for issuers
Key points
The design and distribution obligations for issuers are to:
• prepare a TMD for the financial product that meets the requirements in
s994B(5) and (8) (the ‘content and appropriateness requirements’) (see
RG 274.59–RG 274.135);
• make the TMD publicly available—this applies to both new and
continuing products (see RG 274.136–RG 274.138);
• take reasonable steps that will, or are reasonably likely to, result in
distribution being consistent with the TMD (see RG 274.139–
RG 274.142);
• review the TMD to ensure that it remains appropriate (see RG 274.148–
RG 274.156);
• notify ASIC of significant dealings that are not consistent with the TMD
(see RG 274.157–RG 274.163); and
• keep records of the decisions made (including the data and analysis
underlying those decisions) in relation to compliance with the design
and distribution obligations (see RG 274.164–RG 274.165).
The law requires a TMD to contain certain information: see s994B(5) and
RG 274.63.The information in the TMD must be specified in sufficient detail
to conclude that the product is appropriate for the target market and that
the distribution conditions appropriately direct distribution of the product to
that market: see s994B(8) and RG 274.64–RG 274.66.
Preparing a TMD that meets the requirements
RG 274.59 A TMD is a written document that describes the class of consumers that
comprises the target market for a financial product and matters relevant to
the product’s distribution and review.
RG 274.60 The purpose of the TMD is to drive discipline in the design of financial
products, to ensure that issuers design products for which an appropriate
target market can be defined, or, conversely, to consider whether the planned
target market for products under development is appropriate: see the Revised
Explanatory Memorandum, paragraph 1.48.
RG 274.61 The TMD also requires issuers to consider and plan how the product will be
distributed so that it reaches consumers in the target market and is unlikely
to be acquired by consumers outside the target market. It also serves as a
reference point for distributors to comply with their distribution obligations.
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RG 274.62 A TMD must meet:
(a) the requirements in s994B(5)—we refer to these requirements as the
‘content requirements’ (see RG 274.63); and
(b) the requirements in s994B(8)—we refer to these requirements as the
‘appropriateness requirements’ (see RG 274.64–RG 274.66).
Content requirements
RG 274.63 To meet the content requirements, a TMD must:
(a) be in writing (see s994B(5)(a));
(b) describe the class of consumers that comprises the target market for the
product (target market) (see s994B(5)(b) and RG 274.67–RG 274.94);
(c) specify any conditions and restrictions on distribution (distribution
conditions) (see s994B(5)(c) and RG 274.95–RG 274.99);
(d) specify events and circumstances that would reasonably suggest the
TMD is no longer appropriate (review triggers) (see s994B(5)(d) and
RG 274.102–RG 274.107);
(e) specify reasonable maximum review periods (review periods) (see
s994B(5)(e)–(f) and RG 274.108–RG 274.111);
(f) specify when the distributor should provide the issuer with information
about the number of complaints about the product (see s994B(5)(g) and
RG 274.116–RG 274.118); and
(g) specify the kinds of information the issuer will need to promptly
identify that a TMD may no longer be appropriate, along with:
(i) which distributors should provide those kinds of information; and
(ii) reporting periods for when that information should be provided to
the issuer (see s994B(5)(h) and RG 274.112–RG 274.115).
Appropriateness requirements
RG 274.64 A TMD must be such that it would also meet the appropriateness
requirements—that is, it must be reasonable to conclude that, if the product
were to be issued or sold in a regulated sale:
(a) to a consumer in accordance with the distribution conditions—it would
be likely that the consumer is in the target market (see s994B(8)(a));
and
(b) to a consumer in the target market—it would likely be consistent with
the likely objectives, financial situation and needs of the consumer (see
s994B(8)(b)).
RG 274.65 The appropriateness requirements are objective requirements. They do not
require an issuer to have knowledge about individual consumers. In contrast,
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personal advice involves consideration of an individual consumer’s
objectives, financial situation and needs (i.e. a consumer’s personal
circumstances).
Note 1: See Regulatory Guide 175 Licensing: Financial product advisers—Conduct and
disclosure (RG 175) for further guidance on providing financial product advice.
Note 2: See Revised Explanatory Memorandum, paragraph 1.54.
RG 274.66 To satisfy the appropriateness requirements, the TMD must include
sufficient information to reasonably conclude that:
(a) the product, including its key attributes, is likely to be consistent with
the likely objectives, financial situation and needs of consumers in the
target market; and
(b) the distribution conditions make it likely that the consumers who
acquire the product will be in the target market.
Note: The TMD does not need to include the complete underlying data and analysis
supporting the TMD and the above conclusions. These will form part of the issuer’s
records.
Requirement to describe the class of consumers that
comprises the target market
RG 274.67 Central to the design and distribution obligations is the requirement to
describe in the TMD a ‘class’ of consumers that comprises the target market
for the product: see s994B(5)(b).
RG 274.68 To meet the appropriateness requirement in s994B(8)(b), explained above at
RG 274.64–RG 274.66, an issuer generally will need to set out in the TMD:
(a) a description of the likely objectives, financial situation and needs of
consumers in the target market (see RG 274.70–RG 274.75);
(b) a description of the product, including its key attributes (see
RG 274.76–RG 274.78); and
(c) an explanation of why the product, including its key attributes, is likely
to be consistent with the likely objectives, financial situation and needs
of consumers in the target market. This will require the issuer to have
critically assessed and tested its product (see RG 274.87–RG 274.94).
Note: See s994B(8)(b), which requires that a TMD must be such that it would be
reasonable to conclude that, if the product were to be sold to a retail client in the target
market, it would likely be consistent with the likely objectives, financial situation and
needs of the retail client. The issuer demonstrates it would be reasonable to conclude
this if the TMD sets out why the product (including its key attributes) is likely to be
consistent with the likely objectives, financial situation and needs of consumers in the
target market.
RG 274.69 Further, the issuer must describe the target market with objective, tangible
parameters and with sufficient granularity: see RG 274.80–RG 274.86.
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Objectives, financial situation and needs
RG 274.70 The language of ‘objectives, financial situation and needs’ is also used in
s766B(3) in the context of personal advice. The Revised Explanatory
Memorandum, at paragraph 1.58, states that ‘this reflects that the factors that
are important to providing good personal advice are also important to good
product design, particularly when determining the hypothetical consumers in
a product’s target market’.
RG 274.71 Unlike personal advice, the design and distribution obligations do not require
an issuer to assess the suitability of products for the circumstances of
individual consumers. Instead, the obligations require issuers to develop
products, such that those products (including their key attributes) are likely
to be consistent with the likely objectives, financial situation and needs of
the class of consumers to whom the products will be distributed.
RG 274.72 Issuers will need to consider each of the likely objectives, financial situation and
needs of consumers in the target market. A product that might be consistent with
the likely objectives of consumers in the target market might not be consistent
with the likely financial situation of the target market, and vice versa. For
example, while common objectives for consumers seeking to acquire an
investment product are likely to include capital growth and/or income
generation, these objectives must be considered with other relevant
circumstances of consumers in the target market. For consumers who have a
low risk tolerance, who are seeking to preserve capital or who are likely to
need access to funds in the next few years, a high-risk investment product
intended to be held for five to ten years that puts a consumer’s invested capital
at moderate or significant risk in the short-term is unlikely to be suitable.
RG 274.73 Similarly, common objectives for consumers seeking to acquire a credit
product are likely to include smoothing spending and/or financing the
purchase of an asset. However, other relevant circumstances are likely to
inform the question of whether a particular product is also likely to be
consistent with the likely financial situation and needs of a class of
consumers: see Example 1.
Example 1: Credit cards
In Report 580 Credit card lending in Australia (REP 580), we found that
1.8 million consumers with a credit card were carrying a balance and being
charged interest on a high-interest-rate credit card, representing 43.2% of
consumers who held a high-interest-rate credit card during 2016–17. These
consumers were over-represented in our problematic debt indicators: see
REP 580, pp. 27 and 34.
High-interest-rate credit cards may often include features such as
complimentary insurance coverage and rewards programs. Although these
features might be consistent with the objectives of many consumers, the
high interest rates—which often exceed 20%—are likely to be inconsistent
with the financial situation and needs of a class of consumers who are
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likely to carry a substantial balance on their card over a prolonged period,
or consumers whose objective is to reduce their credit card debt over a
period of time.
An issuer needs to ensure that the objectives and financial situation and
needs of a class of consumers are consistent with the product. Failure to
do so can result in consumers obtaining unsuitable products, as was the
case in REP 580.
RG 274.74 When identifying common objectives, financial situations and needs of
consumers, issuers could usefully consider characteristics such as likely
common income levels, savings levels or employment status. For example,
employment status will be particularly relevant for some products, such as
life insurance products, where eligibility criteria may apply. Income level
may also be a relevant factor, including for products where taxation
considerations are relevant or for products that may be more suitable for
consumers on low incomes: see Example 3.
RG 274.75 Considering consumers’ life stage may assist the issuer in defining the target
market for the product (including its key attributes). For example, where
products are intended for consumers in certain life stages (e.g. retirement
products such as superannuation pensions) the issuer should consider how
the product (including its key attributes) will likely be consistent with the
likely objectives, financial situation and needs of the consumers in the target
market over time. The issuer should consider both the likely short-term and
long-term objectives, financial situation and needs: see Example 2.
Example 2: Reverse mortgages
Reverse mortgages allow older Australians to borrow against the equity in
their homes through loans that do not require repayment until a later time.
Report 586 Review of reverse mortgage lending in Australia (REP 586)
sets out our findings that reverse mortgages help older Australians with few
other assets (such as superannuation) achieve their immediate financial
objectives, such as enabling borrowers to:
• maintain their current living arrangements with less financial stress;
• obtain short-term finance;
• have a general safety net for living expenses; and
• afford a better quality of life.
However, depending on when borrowers obtain their loans, how much they
borrow, and economic conditions (property prices and interest rates), they
may not have enough equity remaining in their homes at the time of
repayment for longer-term needs (e.g. aged care).
Both short-term and long-term financial situations and needs are likely to
be relevant to identifying the target market for products such as reverse
mortgage products. If a product is not likely to be consistent with the long-
term financial situation and needs of some consumers in the planned target
market, the issuer may need to consider narrowing the target market.
Note: See REP 586, pp. 30–32 and 39–46.
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Key attributes
RG 274.76 Key attributes are product terms, features and attributes that affect whether
the product is likely to be consistent with the likely objectives, financial
situation and needs of consumers in the target market. For example, an
insurance product may contain eligibility criteria, meaning certain
consumers are unable to claim under it making the product unsuitable for
them. The eligibility criteria, therefore, are one of the insurance product’s
key attributes.
RG 274.77 Similarly, a credit product may include a significant balloon payment that a
consumer is required to pay. This may not be suitable for consumers who
can afford higher repayments and have the objective to pay lower amounts in
interest overall; or for consumers whose financial situation means they are
unlikely to be able to afford the balloon payment at the end. Because the
balloon payment affects whether the product might be suitable for some
consumers, the balloon payment is a key attribute.
RG 274.78 Data and outcomes (including data and outcomes from previously issued
products of a similar nature) should drive an issuer’s determination of
whether a product feature or attribute affects the product’s appropriateness
for a target market and thus whether it is a key attribute.
Product variation
RG 274.79 Different products in an issuer’s product line are likely to vary in their key
attributes, and issuers must carefully consider each product (including its key
attributes), taking into account that not all product variations are likely to be
consistent with the likely objectives, financial situations and needs of
consumers in an identified target market. This is the case even when a
product has relatively fewer key attributes, such as a basic banking product:
see Example 3.
Example 3: Basic banking products
Transaction accounts
Banks may offer transaction accounts with differing fee levels according to
the types of features provided, with some basic products offered at a lower
cost. The Royal Commission final report noted that ‘those who are on a low
income, especially those in receipt of certain government benefits or
holding government concession cards, may find that a basic account suits
their needs better than other forms of account’ (vol. 1, p. 91).
Conversely, if sold a fully featured transaction account, consumers may be
required to pay ongoing fees to retain features that may not meet their
objectives, financial situation and needs.
We note that the Australian Banking Association’s Banking Code of
Practice (Banking Code) now contains provisions that address the design
and distribution of basic accounts or other low or no fee transaction
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accounts for particular customer segments, such as concession card
holders and low-income earners (eligible customers). The Banking Code
also commits members to raising awareness of basic, low or no fee
accounts. These provisions will assist issuers of these products in
identifying the target market, as well as in meeting their reasonable steps
obligation. For example, the target market for these products could include
‘eligible customers under the Banking Code’ as a class of consumers.
Informal overdrafts
The Royal Commission also examined informal overdrafts. They found that
the fees associated with overdrawing can be significant when there is
repeated overdrawing, and that these features were being provided to
consumers on an opt-out basis, including to low-income earners.
Commissioner Hayne noted that this conduct was ‘attributable to a culture
that was insufficiently concerned with providing customers with an
appropriate product’ and explained that while these overdrafts may be a
useful tool for some consumers, in undertaking this conduct the bank
prioritised its own position over that of some of its consumers.
The Banking Code now contains provisions that address the design of
basic, low or no fee accounts for particular customer segments, by
ensuring no informal overdraft feature is included except in limited
circumstances and that there are no dishonour or overdrawn fees.
Note: See Royal Commission into Misconduct in the Banking, Superannuation
and Financial Services Industry: Interim report, September 2018, vol. 1,
pp. 259–61 and vol. 2, p. 470 (‘ANZ basic accounts’) and pp. 479–87 (‘ANZ
(Groote Eylandt)’); and Royal Commission final report, vol. 1, p. 91.
Describing the target market with objective parameters
RG 274.80 The class or classes of consumers that comprise the target market for a product
should be defined by an issuer with objective, tangible parameters so that it
is clear which consumers form part of the target market. This will assist the
issuer in meeting its appropriateness requirements: see RG 274.64–RG 274.66.
It will also assist distributors in meeting their distribution obligations.
RG 274.81 Issuers may be assisted in defining the target market by considering eligibility
criteria developed for defined products in industry codes, as noted above in
Example 3.
Note: Issuers may also be assisted by principles in industry codes and guides when
defining target markets for particular products. See, for example, the Insurance Council
of Australia’s Guide for the design and distribution of add-on insurance through motor
dealer intermediaries (PDF 203 KB).
Consumer understanding
RG 274.82 A target market should not be based on consumer understanding of a product
(i.e. a target market should not be all consumers who understand how a
product works). The design and distribution obligations are a deliberate
rebalancing of past over-reliance on the assumption that disclosure produces
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informed consumer decision making. The obligations require an issuer to
consider objectively whether a financial product is likely to be consistent
with the likely objectives, financial situation and needs of a class of consumers.
Describing the target market with sufficient granularity
RG 274.83 An issuer would be in breach of its obligations if it described the target
market too broadly (with insufficient granularity) such that the product
(including its key attributes) would not likely be consistent with the likely
objectives, financial situation and needs of an identifiable class of consumers
included in the target market. That would be the case even if the issuer
attempted to limit distribution to a narrower set of consumers by use of
distribution conditions.
RG 274.84 For example, a broad consumer objective or preference alone is unlikely to be
sufficient to define the target market for a financial product. This is because a
TMD based only on a broad objective or preference is unlikely to contain
sufficient information to reasonably conclude that the product (including its
key attributes) would likely be consistent with the likely objectives, financial
situation and needs of consumers in the target market (see discussion of
appropriateness requirements above).
RG 274.85 In some cases, it will be simpler or even necessary to define the target
market as including some classes of consumers and excluding other classes
of consumers. For example, an issuer may exclude classes of consumers for
whom the product is clearly unsuitable—such as those who are unable to
claim under an insurance product. Similarly, an issuer of a high-risk
investment product might exclude a class of consumers that are likely to
have a low risk tolerance or who do not have the ability to bear loss.
RG 274.86 Specifying classes of consumers that are excluded from the target market
could be useful in setting the distribution conditions and restrictions for the
product. It will also likely be useful for distributors as they implement their
obligations to take reasonable steps.
Critically assessing the product (including its key attributes)
RG 274.87 An issuer will need to critically assess that the product, including its key
attributes, is likely to be consistent with the likely objectives, financial
situation and needs of consumers in the identified target market, in order to
satisfy the appropriateness requirements when preparing a TMD.
Note: See s994B(8)(b) and the information on the appropriateness requirements at
RG 274.64–RG 274.66 and RG 274.68(c), in particular that to meet the appropriateness
requirements the issuer will generally need to explain why the product, including its key
attributes, is likely to be consistent with the likely objectives, financial situation and
needs of consumers in the target market.
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RG 274.88 Questions that issuers could usefully consider as part of this process are
outlined below in Table 3. An issuer may also find it helpful to consider
these questions when developing a product or in reviewing a continuing
product (noting that some questions may be more relevant than others
depending on the circumstances of a product being developed or sold).
Table 3: Critical assessment questions
Purpose  What is the purpose of the product?
 Is it fit for purpose?
 Does the product (including its key attributes) fulfil a well-founded need for
consumers in the target market?
 Does the product include features or attributes that are inconsistent with the
objectives, financial situation or needs of consumers in the target market?
 Does the product (including its key attributes) benefit the consumers in the
target market?
Past outcomes  Has the product (including its key attributes) resulted in good outcomes for
consumers in the target market in the past?
 Did it deliver what was promised?
 Who has benefited from this product or this type of product in the past?
 Did the product meet the needs of those to whom it was distributed?
 What does the data show were the ongoing benefits, risks and outcomes for
consumers?
Likely future outcomes  How is the product likely to perform in the hands of the consumers in the target
market?
 Is the product likely to deliver what is promised?
Refinement of target
market and/or product
 Does the product need to be redesigned or changed to be suitable for
consumers in the target market?
 Does the target market need to be narrowed?
Note: This list of questions is intended to be a starting point for issuers when critically assessing a product; it is not an
exhaustive list of all the questions that an issuer may need to consider.
Testing how the product will perform
RG 274.89 In carrying out the critical assessment mentioned in paragraph RG 274.87,
an issuer will need to consider the way that the financial product (including
its key attributes) is likely to perform, or has performed, in practice in the
hands of consumers of the product, and the likely outcomes for consumers.
RG 274.90 For an investment product, for example, the issuer will need to consider how
the financial product is expected to perform under average market conditions
as well as under market stress, taking into account the impact of costs and
fees. This will involve quantitative and qualitative considerations, such as
how the features or terms and conditions of the product are likely to operate
in practice and how these may influence consumer outcomes. For example,
issuers should consider the expected net investment return that the product
ultimately offers consumers. If fees and costs effectively deplete the return
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that consumers receive, this should be taken into account when critically
assessing if the product is likely to be consistent with the likely objectives,
financial situation and needs of this target market. If the product is not likely
to be appropriate for the target market, the issuer should consider modifying
the target market or the product’s design: see Example 4.
Example 4: Cash options in superannuation
A superannuation trustee plans to introduce a new option as part of its
accumulation choice product. The option seeks to provide capital security
and its return is based on interest on bank deposits. Nonetheless, the fees
are such that even a minor fall in interest rates will lead to erosion of any
member’s capital allocated to this option.
The target market for the choice product may include members who will
access this option for a portion of their investment with a view to ensuring
that all of their capital invested in the option remains intact and not subject
to potential negative investment returns.
In preparing the TMD for its choice product, the superannuation trustee
needs to consider how this investment option is likely to operate in practice.
This would include understanding the impact of a potential fall in interest
rates.
As a result of the initial design and testing, the issuer observes that there is
a significant likelihood that the option will produce negative net returns (i.e.
after the impact of fees) in the first year of operation. The superannuation
trustee should alter its fee structure, elect not to offer the option, or adjust
the TMD or distribution arrangements.
Note: See Royal Commission final report, vol. 2, pp. 116–24.
Products to be held over an extended period
RG 274.91 Particular considerations arise when a product is intended to be held by
consumers over an extended period of time and the cost to the consumer of
retaining that product is likely to rise significantly over that period (for
example due to particular options or features).
RG 274.92 In determining the target market for such products, issuers should avoid
targeting the product towards classes of consumers whose likely financial
situation at the time of obtaining the product is such that it is unlikely they
will be able to meet the increased cost over time and therefore would not
likely be able to retain the product for the period of time it is intended to be
held. When a particular feature or option adds to the cost of the product
significantly over time, the class of consumers who comprise the target
market for the product with those particular features or options is likely to be
narrower than the class of consumers in the target market for a product with
fewer options and a lower increase in cost over time.
Note: For example, in Report 587 The sale of direct life insurance (REP 587), we found
that medium-term lapse rates indicated that some life insurance products became
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unsustainable for consumers as premiums increased. When premiums become
unsustainable for consumers, they may be exposed to the potential for harm where the
significant increase in cost prompts them to discontinue cover or seek replacement
cover, as consumers may be unable to obtain replacement cover or develop a medical
condition that results in replacement cover being offered on altered terms.
Taking into account how the product is likely to perform in practice
RG 274.93 Similarly, it will be important for issuers to consider how their products
(including their key attributes) are likely to perform in practice and the likely
outcomes for consumers in the target market, having regard to these
consumers’ circumstances in totality. For example, an insurance product that
offers lower upfront costs in the form of more affordable premiums will be
inconsistent with the likely objectives and financial situation of the intended
target market, if the excess level is set so high that consumers in the target
market are unlikely to be able to pay the excess necessary to make a claim
on the product, or may be discouraged from making a claim.
RG 274.94 Issuers should not include in the target market consumers who would not
benefit from the product: see Example 5.
Example 5: Low-value products
We agree with the observations of Commissioner Hayne, in the Royal
Commission final report (vol. 1, pp. 293–4), that the design and distribution
obligations will alter ‘the kinds of, and characteristics of, products that may
be sold, including low-value products’.
Funeral insurance is sold to consumers to cover the cost of funerals. It is a
form of life insurance, which has ongoing premiums that are often stepped,
increasing as the consumer ages.
Commissioner Hayne observed, in the 2014 financial year, the amount paid
out in claims was about one-third of the value of premiums collected over
the same period. In the preceding year, the proportion was one-fifth.
Commissioner Hayne also observed that many funeral insurance products
‘carry the potential for consumers to pay more in premiums over the life of
the policy than they will receive as a benefit when they die’.
The final report noted that these statistics indicate that these products are
of little value to consumers. A product with these features is therefore
unlikely to have an identifiable target market of consumers for whom the
product would be consistent with their likely objectives, financial situation
and needs.
Note: See Royal Commission final report, vol.1, pp. 285–6; Report 454 Funeral
insurance: A snapshot (REP 454) and the Revised Explanatory Memorandum,
paragraph 1.12.
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Distribution, review and reporting under the TMD
Requirement to specify distribution conditions
RG 274.95 The design and distribution obligations recognise that designing a product to
be appropriate for a target market is insufficient without appropriate
conditions and restrictions on distribution, such as limiting distribution to
channels that are likely to result in distribution to consumers in the target
market.
RG 274.96 To ensure that distribution of the product is directed towards consumers in
the target market, the issuer must specify the following in its TMD:
(a) appropriate conditions and restrictions on distribution of the financial
product (distribution conditions); and
(b) why these distribution conditions and restrictions will make it more
likely that the consumers who acquire the product are in the target
market.
Note: See s994B(8)(a) and discussion on appropriateness requirements at RG 274.64.
RG 274.97 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.
RG 274.98 The appropriateness of an issuer’s distribution conditions will depend on the
circumstances. For a financial product with a narrow target market, the
distribution conditions will likely be specific and detailed to reflect the
intended distribution method. The strategy could include selectivity
regarding distributors used, targeted advertising, providing specific content
about the product on the entity’s website, use of call centre and advice line
scripts specific to the product, and guidance for distributors. For a financial
product with a comparatively wide target market, fewer distribution
conditions may be needed to ensure that the products are sold in accordance
with the TMD: see s994B(5)(c) and 994B(8)(a).
Note: The Revised Explanatory Memorandum, paragraph 1.56, states:
An issuer must consider a wide range of factors in determining whether its
selected distribution conditions are appropriate. Factors may include known
diligence, capabilities and the integrity of existing and prospective distribution
methods. For example, an issuer may consider previous instances where a product
was issued through a specific distribution method as part of its assessment to
determine the appropriateness of that distribution method.
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RG 274.99 If an issuer becomes aware that the distribution conditions for a product are
inadequate (e.g. significant distribution is occurring outside the target market),
the issuer must:
(a) amend its TMD to set out additional distribution conditions to ensure
that such distribution does not occur; or
(b) cease distribution.
Note 1: If a substantial amount of distribution is occurring outside the target market or if
distribution outside the target market is causing significant consumer harm, it must be
reported to ASIC as a significant dealing: see RG 274.157–RG 274.163. A significant
dealing may also represent a review trigger with consequences for whether the financial
product can continue to be distributed: see RG 274.103–RG 274.105.
Note 2: See the Revised Explanatory Memorandum, paragraphs 1.79–1.81, for further
information on when a dealing may be significant.
Specifying why the distribution conditions are appropriate
RG 274.100 As part of meeting the appropriateness requirements in s994B(8)(a), the
TMD must explain why the distribution conditions will make it likely that
the consumers who acquire the product are in the target market.
Note: The TMD does not need to include the complete underlying data and analysis
supporting the TMD and the above conclusion. These will form part of the issuer’s
records: see RG 274.162–RG 274.163.
RG 274.101 An issuer is unlikely to be able to reasonably conclude that its distribution
conditions will make this outcome likely without meaningful consideration of
how its distribution conditions affect which consumers the product will reach.
Requirement to specify review triggers
RG 274.102 A TMD must specify review triggers: see s994B(5)(d). Review triggers are
events and circumstances that would reasonably suggest that the TMD is no
longer appropriate. They are a prompt to stop distributing the financial
product (and direct the issuer’s distributors to stop distributing) until the
TMD is reviewed.
Note: See s994C(3)–(5) for circumstances when a review trigger requires an issuer to
cease distribution.
RG 274.103 We expect that review triggers are likely to differ based on the nature of the
financial product and its intended target market, including the way in which
it is distributed. In any case, issuers should include events and circumstances
that would reasonably suggest that:
(a) the product, including its key attributes, is no longer consistent with the
likely objectives, financial situation and needs of consumers in the
target market; and
(b) the distribution conditions do not make it likely that the consumers who
acquire the product are in the target market: see RG 274.64–RG 274.66.

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RG 274.104 The Revised Explanatory Memorandum gives the following non-exhaustive
examples of the broad range of possible review triggers (paragraph 1.62):
(a) an event or circumstance that would materially change a factor taken
into account in making the TMD for the product;
(b) whether the product is being distributed and purchased as envisaged by
its TMD; and
(c) the nature and extent of any feedback received from those who
distribute or acquire the product.
RG 274.105 We would expect an issuer’s TMD to include a review trigger relating to the
occurrence of a significant dealing: see RG 274.157–RG 274.160.
RG 274.106 An issuer should consider what information is likely to be required to
promptly identify if a review trigger has occurred and, when necessary,
require distributors to provide such data under s994B(5)(h): see
RG 274.112–RG 274.115.
RG 274.107 An issuer should use its own data along with the data provided by
distributors to review a TMD for appropriateness, or to redesign products
when required: see RG 274.148–RG 274.156.
Example 6: Insurance
Issuers of insurance products could consider the following data when
identifying review triggers that may indicate that the target market is no
longer appropriate or that the product should be redesigned:
• product claim ratios;
• the number, nature and magnitude of paid, denied and withdrawn
claims;
• the number of policies sold, including penetration rates;
• policy lapse or cancellation rates;
• average claim duration; and
• the nature and number of complaints and complaint trends.
To fully understand the implications of the data reviewed, distributors may
need to segment the data by distribution channel and underwritten risk type.
Example 7: Managed fund
An issuer of interests in a managed investment scheme could consider the
following factors when identifying review triggers that may indicate that the
target market is no longer appropriate or that the product should be
redesigned:
• any losses suffered by holders and whether the product is still likely to
achieve its investment objective over time;
• whether the liquidity of the product has changed and whether the
product is able to continue to offer regular withdrawals;
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• the fees of the product compared to similar types of products;
• the taxation implications of the product compared to similar products;
• whether the product remains on approved product lists and menus for
key distributors;
• the performance of the product relative to its investment objective,
appropriate benchmarks (if any) and similar products (e.g. a change in
expected performance in light of significant changes in market
conditions such as an economic downturn);
• a significant increase in fund outflows; and
• the nature, number and outcomes of complaints.
Requirement to specify reasonable review periods
RG 274.108 In addition to carrying out a review in response to a review trigger or when
other events or circumstances reasonably suggest that the TMD is no longer
appropriate, an issuer must also carry out periodic reviews of its TMD: see
s994C(2) and RG 274.148–RG 274.156. A TMD must specify the frequency
of periodic reviews and the review period must be reasonable in the
circumstances: see s994B(5)(e)–(f) and (6).
RG 274.109 Determining a reasonable review period will require an issuer to consider the
risk of detriment to consumers if the TMD is not promptly reviewed: see
s994B(7). In making this decision, the issuer should consider the nature of
its product and the market in which it is sold, including the way in which the
product is distributed.
RG 274.110 Reasonable review periods are likely to be shorter when a product is complex
and higher risk, or when an issuer has limited experience issuing similar
products or is yet to establish a proven distribution network. For example, a
complex and high-risk investment product with a narrow target market that
has the potential to cause consumer harm if it is sold to consumers outside
the target market, would likely be reviewed more frequently.
Note: See paragraph 1.65 of the Revised Explanatory Memorandum.
RG 274.111 An issuer could change its review period for a product over time, for
example when there has been a change in the risk of detriment to consumers
or information demonstrates that the issuer’s controls are adequate.
Requirement to specify the information that must be
reported by distributors
RG 274.112 The issuer must specify in the TMD the kinds of information from
distributors needed to enable the issuer to identify promptly when a TMD
may no longer be appropriate, whether due to the occurrence of a review
trigger or another event or circumstance that would reasonably suggest this
is the case: see s994B(5)(h). The information collected from distributors
must be information that is relevant and necessary for this purpose.
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RG 274.113 The TMD must specify:
(a) which distributors must provide that information; and
(b) reporting periods for when that information must be provided to the
issuer.
Note: The reporting period must be reasonable in the circumstances (see s994B(6) and (7)).
In determining what is reasonable issuers will likely need to take into account factors
such as the risk of consumer harm occurring over the specified reporting period and the
administrative demand placed upon the distributor.
RG 274.114 As with other aspects of the design and distribution obligations, the information
the issuer requires from its distributors and the frequency of the reporting
periods will be product and context specific and may need to be reviewed
over time. The issuer will need to determine what information, in addition to
complaints and significant dealing information (see s994E(4) and (5) and
RG 274.211–RG 274.219), will best assist it in meeting its review obligations.
Note: See s994F(3)(a) and (4) and the Revised Explanatory Memorandum, paragraph 1.66.
RG 274.115 In deciding what information is necessary and reasonable to require
distributors to provide, issuers should consider the information they already
hold or can obtain from other sources. For example, an issuer might seek
further information about complaints and product feedback that a distributor
receives: see RG 274.118.
Requirement to specify when the distributor should
provide the issuer with information about complaints
RG 274.116 The issuer must also specify in the TMD the reporting period in relation to
information the distributor must provide to the issuer about the number of
complaints about the financial product.
Note: See s994B(5)(g) and s994F(4).
RG 274.117 The law recognises that the number of complaints about a financial product
is likely to be a useful indicator that the TMD may no longer be appropriate.
The reporting period must be reasonable in the circumstances to allow the
issuer to identify promptly when this has occurred, having regard to the risk
of detriment to consumers if the TMD is not promptly reviewed: see s994B(7).
A reporting period of a year or greater is unlikely to be appropriate. In
setting reporting periods, issuers should also have regard to the timeframes
within which they are required to respond to complaints.
Note: Regulatory Guide 271 Internal dispute resolution (RG 271) specifies maximum
timeframes for responding to complaints. For example, a financial firm must provide an
internal dispute resolution response to a complainant no later than 30 calendar days after
receiving the complaint: see Section C of RG 271.
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RG 274.118 In setting the information requirements under s994B(5)(h) (see RG 274.112–
RG 274.115) we expect that issuers will find it necessary to require that
distributors provide not only the number, but also the substance of
complaints and general feedback relating to the product and its performance.
RG 271 sets out the data that must be collected, analysed and reported to
senior management for every complaint (see Section E of RG 271 under
‘Data collection, analysis and internal reporting’). Issuers could usefully rely
on the fact that this data is available.
Note: For complaints received prior to 5 October 2021, Regulatory Guide 165 Internal
and external dispute resolution (RG 165) will apply. See RG 165, Table 2 for data that
must be recorded for every complaint.
Product-specific issues and the TMD
RG 274.119 In RG 274.121–RG 274.135 we explain how the TMD obligation applies for
certain products.
RG 274.120 What constitutes a ‘product’ for the purposes of the design and distribution
obligations will be for issuers to determine based on the law relevant to their
product. In some cases, multiple product attributes will constitute separate
products, even if they are sold to consumers as a bundle or package. For
example, as a result of s764A(1A) and (1B), home cover and contents cover
provided by an insurer will be two separate products. In other cases, multiple
product attributes will constitute one product (e.g. an investment facility that
provides exposure to both shares and debentures).
Bundled products
RG 274.121 When an issuer sells multiple products together as a bundle, the issuer can
decide whether they will comply with the TMD content and appropriateness
requirements for each product in the bundle in a single TMD or, alternatively,
prepare separate TMDs for each product within the bundle. Preparing a single
TMD for multiple products does not change the substance of the design and
distribution obligations, which apply to each product (including its key
attributes) in the bundle. For example, the issuer must still comply with the
content and appropriateness requirements for each product, including by
describing in the document the target market for each individual product
(including its key attributes). Similarly, issuers and distributors will still be
required to meet their reasonable steps obligation in relation to each product.
RG 274.122 In complying with the content and appropriateness requirements in relation
to the bundled product, issuers must take into account that products within
the bundle will be sold together rather than separately. This means that in
addition to considering the target market for each product within the bundle
as set out above, issuers must also describe the target market and any
distribution conditions or restrictions for the bundled product.
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RG 274.123 In most cases we expect a target market for a bundled product will be
narrower than the target market for products sold separately. For example, in
relation to home and contents cover sold as a bundle, there may be
identifiable classes of consumers who do not need home cover (e.g. because
they are renting a house that is insured by the landlord or because their
property is part of a strata complex that has strata insurance). Accordingly,
in some cases it will likely be simpler for issuers to meet the appropriateness
requirements by first considering the target market of each individual
product, before defining the target market for the bundled product: see
Example 8.
Example 8: Defining a target market for a bundled product
An issuer chooses to sell a home loan product bundled with a credit card.
In meeting its design and distribution obligations, the issuer chooses to
prepare a single TMD that complies with the content and appropriateness
requirements for each product in the bundle.
The issuer defines the target market for the sale of the home loan and
credit card as a bundle by identifying and defining the target market for the
home loan and the target market for the credit card, and then assessing the
overlap of the target markets for each product.
Figure 3: Overlap of target markets for home loan and credit card

Note: See Example 8 for the information in this figure (accessible version).

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Customisable products
RG 274.124 When a financial product is customisable by the consumer at point-of-sale,
including through choices or options that add, remove or change key
attributes of the product, the issuer must consider these choices and options
in defining the target market for the product.
Note: As explained above at RG 274.8, ‘key attributes’ are the features and attributes of
a product that affect whether it is likely to be consistent with the likely objectives,
financial situation and needs of consumers in the target market.
RG 274.125 When there are different target markets for differing forms of the product (as
a result of particular options or choices), this must be addressed in the TMD
for the product. For example, an issuer could describe the target market for
the relevant choice or describe the target market for different permutations of
the product, including, for example, sub-markets where appropriate. An
issuer does not need to prepare a separate TMD document for each choice or
permutation of the product. Example 9 provides an illustration of this for a
superannuation product.
RG 274.126 We would expect an issuer’s consideration of whether a choice or option
changes the product (including its key attributes) such that it changes the
class of consumers for whom it is likely to be appropriate, to be data and
outcomes driven. If consumers are making choices or selecting options that
are leading to poor outcomes, then issuers should consider these choices or
options as part of defining the target market.
RG 274.127 We do not expect that every choice or option will change the class of
consumers for whom a product (including its key attributes) is likely to be
appropriate (i.e. likely consistent with their likely objectives, financial
situation and needs). When the choices and options do not affect the
product’s key attributes, each choice or option may not change the target
market, but instead be available for consumers within a target market to
tailor the product to their individual circumstances (e.g. making incremental
changes to the excess level for an insurance product or choosing a
personalised level of cover for certain contents items as part of acquiring
home and contents insurance).
RG 274.128 Issuers should also consider their reasonable steps obligation in relation to
distribution when developing the choice architecture for these choices and
options (e.g. when an insurer asks the consumer to make a choice or select
an option, the insurer should consider how the consumer could be assisted to
make this decision): see RG 274.139–RG 274.146. An issuer will be able to
determine whether choice architecture is appropriate over time, based on its
review of consumer outcomes.
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Investment products and diversification
RG 274.129 In defining a target market for an investment product, an issuer should not
assume that consumers will hold the product as part of a diversified
portfolio.
RG 274.130 If an issuer of an investment product chooses to target consumers who are
likely to hold the product as part of a diversified portfolio, it will need to:
(a) still consider if the product (including its key attributes) is likely to be
consistent with the likely objectives, financial situation and needs of
certain classes of consumers (e.g. a diversified portfolio does not
mitigate the risks associated with a product that represents poor value to
consumers); and
(b) comply with its reasonable steps obligation by managing the risk of the
financial product being widely sold to investors who do not have a
diversified portfolio.
RG 274.131 Managing the risk of the financial product being widely sold to consumers
who do not have a diversified portfolio does not require issuers to have
knowledge of each individual consumer’s financial situation. This is
reflective of the risk-based approach of the reasonable steps obligation. The
exact nature of the steps an issuer should take will ultimately depend on the
nature of the product and the circumstances of its distribution, including any
distribution conditions and restrictions, as well as any information or data
the issuer or distributor may have access to. In determining the nature of the
reasonable steps required, issuers and distributors should assess the risk of a
consumer receiving the product on a standalone basis and the potential harm
for consumers if that were to occur.
Note: See RG 274.139–RG 274.146 on the reasonable steps obligation.
Superannuation
RG 274.132 A superannuation fund may offer a number of financial products (e.g.
pension and accumulation products). Superannuation trustees, as issuers,
must make a TMD for each financial product for which the trustee is
required to prepare a PDS, other than MySuper products, defined benefit
interests and interests in eligible rollover funds which are exempt: see
s994B(1)(b) and s994B(3)(a) and reg 7.8A.20 (2) and (3). A superannuation
product will commonly offer investment options and insurance. We expect
investment options and insurance will likely be key attributes of the product
that must be considered by the trustee in preparing the TMD: see Example 9.
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Example 9: Superannuation products
Investment options
Investment options, when offered, are likely to be key attributes of a
superannuation product: see RG 274.76–RG 274.78. That is, we expect that
investment options will likely affect whether a superannuation product
(including its key attributes) is likely to be consistent with the likely
objectives, financial situations and needs of consumers.
The trustee should take this into account in preparing the TMD for the
choice product. In practice, this is likely to involve a single TMD for the
choice product that describes multiple sub-markets for investment options
or groups of investment options offered as part of the product.
The nature and extent of investment options available within the product
may also affect the class of consumers for whom the product is appropriate.
Insurance component of a superannuation product
Insurance, when offered, is likely to be a key attribute of a superannuation
product. That is, we expect that insurance offered will likely affect whether a
superannuation product (including its key attributes) is likely to be consistent
with the likely objectives, financial situations and needs of consumers.
Accordingly, the trustee will need to have regard to the insurance
component when defining the target market for the superannuation product.
In considering whether the insurance component changes the class of
consumers for whom the superannuation product (including its key
attributes) is likely to be appropriate, trustees could have regard to
members for whom insurance is unlikely to be appropriate. For example,
the trustee should consider whether occupational or other factors would
result in the members being ineligible to claim under the cover.
The trustee may find it necessary or appropriate in some circumstances to
use information provided by the insurer to consider the insurance
component in making the TMD. There is no obligation on the insurer who
issues the group policy to the trustee to prepare a TMD as they are not
distributing directly to a consumer.
Interaction with member outcomes
RG 274.133 The member outcomes framework requires a trustee to assess whether the
outcomes it seeks to provide beneficiaries have been, and will be, provided
and whether and how those outcomes can be improved. Under the design
and distribution obligations, trustees must consider whether the product
(including its key attributes) is likely to be consistent with the likely
objectives, financial situation and needs of members, focus on how the
product is marketed and distributed, and review the ongoing appropriateness
of these arrangements.
Note: The term ‘member outcomes framework’ is used to refer to obligations for
APRA-regulated RSE licensees under s52(9)–(12) of the SIS Act and Prudential
Standard SPS 515 Strategic planning and member outcomes, as well as associated
guidance in Prudential Practice Guide SPG 515 Strategic and business planning
(486 KB) and Prudential Practice Guide SPG 516 Business performance review.
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RG 274.134 While the member outcomes framework and the design and distribution
obligations are distinct regimes, they are complementary. Efficiencies may
arise in developing compliance arrangements for each of the regimes. In
particular, we expect these would arise in relation to:
(a) preparing a TMD for a superannuation product; and
(b) reviewing the TMD.
Note: The member outcomes framework also applies to MySuper products. The design
and distribution obligations do not apply to MySuper products: see s994B(3)(a).
Investor directed portfolio services
RG 274.135 In the case of an investor directed portfolio service (also known as a
‘platform’) the design and distribution obligations apply to both the issuer
(or operator) of the platform and issuers of the underlying products offered
on the platform.
Example 10: Investor directed portfolio services (IDPS) and IDPS-like
schemes
An investor directed portfolio service (IDPS) is an unregistered managed
investment scheme for holding and dealing with investments selected by
consumers.
An IDPS-like scheme is a registered managed investment scheme for
holding and dealing with investments selected by consumers.
In broad terms, both IDPS and IDPS-like schemes provide custodial,
transactional and reporting services for the consumer.
The operator of the IDPS must prepare a TMD in relation to the platform
itself, as a separate financial product to the products offered or available on
its platform: see reg 7.8A.08. The responsible entity of an IDPS-like
scheme is also required to prepare a TMD for the platform itself: see
s994B(1).
The operator of an IDPS or IDPS-like scheme will need to consider the
costs and features of the platform, as well as the types of products
available on the platform.
Each issuer of a financial product available on the platform must prepare a
TMD in relation to the product. This is likely to include consideration of
whether the selected platform is an appropriate distribution channel for the
product.
Both the issuer of the financial products available on the platform and the
platform operator will be required to take reasonable steps in relation to the
distribution of products offered on the platform: see s994E(1) and 994E(3).
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Making the TMD publicly available
RG 274.136 A TMD must be made publicly available before any person distributes a
financial product that is subject to the design and distribution obligations:
see s994B(2). This applies to new products the issuer offers, and existing
products that continue to be offered after the design and distribution
obligations commence.
Note: We explain the application of the TMD requirement for certain situations,
including the bundling of products, at RG 274.119–RG 274.128.
RG 274.137 A person who makes a TMD must ensure that it is available to the public
free of charge: see s994B(9). Promotional material in relation to products
that require a PDS must describe the target market or specify where the
TMD is available: see s1018A(1)(ca) and (2)(ca).
RG 274.138 The Revised Explanatory Memorandum, paragraph 1.49, explains that the
TMD must be made publicly available to mitigate evidential difficulties with
substantiating non-compliance with the requirement to make a TMD. The
Revised Explanatory Memorandum makes it clear that this also allows
consumers to refer to the TMD should they wish to. However, we do not
consider the TMD to be a consumer-facing disclosure document.
Note: Consistent with the evidential purpose of making the TMD publicly available, the
requirement applies to all TMDs made in respect of the product, including those that
have ceased to apply: see Note 3 to s994B(9) and Revised Explanatory Memorandum,
paragraph 1.49.
Taking reasonable steps in relation to distribution: Issuers
RG 274.139 An issuer must take reasonable steps that will, or are reasonably likely to,
result in distribution being consistent with the TMD (reasonable steps
obligation): see s994E(1). To meet this obligation, an issuer will need to
implement effective arrangements that are likely to direct distribution of the
financial product to the target market. Issuers will not fail to take reasonable
steps merely because a consumer outside the target market acquires the
product: see s994E(2)(b). Similarly, the reasonable steps obligation is not a
requirement to ensure that distributors comply with the TMD. If an issuer
takes reasonable steps but the retail product distribution conduct of the
distributor is still inconsistent with the TMD, the issuer would not have
breached the obligation.
Note: See the Revised Explanatory Memorandum, paragraph 1.101.
RG 274.140 An issuer must have effective arrangements to manage the risks identified in
its distribution. The Revised Explanatory Memorandum states at paragraph
1.98 that:
… where a distributor’s previous conduct indicates that they may be at
higher risk of engaging in conduct that is not consistent with the target
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market determination, issuers will need to take reasonable steps to address
the risk. This could include: having systems that enable distributors to be
alerted to updates of target market determinations; assisting distributors to
address concerns; or, in extreme cases, ceasing to distribute the product
through the distributor where doing so is possible. Other relevant factors
include the complexity and risk profile of the product, and the nature of any
relationship between an issuer and a distributor of a product.
RG 274.141 An issuer 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 distributed otherwise 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 (see s994E(5)).
RG 274.142 A reasonable step does not need to fall within the definition of retail product
distribution conduct. This means that it includes proactive steps aimed at
reducing the risk of distributing the product to consumers that are not in the
product’s target market. Setting appropriate distribution conditions should
also assist in meeting the reasonable steps obligation: see RG 274.95–
RG 274.99.
Note: See the Revised Explanatory Memorandum, paragraph 1.102
Distribution strategy
RG 274.143 In setting its distribution strategy, the issuer needs to consider whether the
intended distribution channels and methods would likely result in
distribution being consistent with the TMD.
RG 274.144 In formulating distribution conditions (see RG 274.95–RG 274.99) and in
meeting its reasonable steps obligations, an issuer will need to consider all of
the circumstances of the financial product’s distribution, including the
distributors, methods, marketing, controls and supervision. Issuers should
select distributors whose typical consumers, and services offered, are
consistent with the target market for the financial product, and consider the
potential risks of existing and prospective distribution methods.
RG 274.145 The issuer will also need to consider the choice architecture built into the
context of the sales process and the presentation of the product within that
context. This is because the context surrounding the distribution of the
product (for example the order in which options appear, website and face-to-
face sales design, use of defaults and marketing) as well as the presentation
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of the structure of the product itself (for example product choices, features
and options or whether a product price is framed as a discount or as the base
price), can affect the likelihood that the product will be distributed to its
intended target market.
Factors relevant to our administration of the obligation
RG 274.146 We have set out some factors we expect will be relevant when considering
whether an issuer has taken reasonable steps: see Table 4.
Note: The factors listed in Table 4 are not intended to be an exhaustive list of
potentially relevant factors that we will consider when deciding whether steps should or
could be taken in order to meet the ‘reasonable steps’ threshold.
Table 4: Factors relevant to our administration of the issuer’s reasonable steps obligation
Factor Explanation
Distribution conditions We will take into account whether the distribution conditions the issuer sets in the
TMD are sufficient to direct distribution towards the target market for its financial
product.
A financial product with a narrow target market will likely require more specific and
detailed distribution conditions. For a product with a comparatively wide target
market, fewer distribution conditions may be needed to ensure that the products are
sold in accordance with the TMD.
In addition, we consider that more restrictive distribution conditions may result in
fewer additional steps being required for issuers to meet the reasonable steps
obligations.
For example, if an issuer determines that the product should be distributed under a
personal advice model only, owing to this distribution condition, the steps required to
meet the reasonable steps obligation are likely to be reduced compared to if the
issuer elects to distribute more broadly through general advice or no advice
methods.
Marketing and
promotional materials
We will take into account whether an issuer’s promotional materials and marketing
campaigns direct distribution towards the target market for the financial product.
Note 1: In any promotional material for products that require a PDS, the issuer must
describe the target market or specify where the TMD is available: see s1018A(1)(ca) and
(2)(ca).
Note 2: See also Regulatory Guide 234 Advertising financial products and services
(including credit): Good practice guidance (RG 234).
Selection of distributors We will consider the steps that an issuer has taken in conducting due diligence in
the selection of distribution channels, methods and distributors. Reasonable steps
will generally include making an assessment of the capacity of the distributor to
comply with the distribution conditions imposed and meet its own obligations as a
distributor.
We consider that relevant factors would include an assessment of the distributor’s
resources, internal controls, past conduct, experience with the target market and
competence to distribute the financial product to the target market.
An issuer should consider the likelihood of the distributor’s conduct being
inconsistent with the TMD for the financial product. If the issuer has information that
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Factor Explanation
Selection of distributors
(continued)
would lead a reasonable person to have conduct or resourcing concerns about a
distributor, we would expect the issuer to undertake an assessment of the risk and
the available steps to mitigate that risk in forming a view on whether it is reasonable
to use that distributor.
Supervision and
monitoring
We will consider whether an issuer has adequately supervised and monitored the
distribution of its product, having regard to the target market for the financial product
and the potential for harm that may result from a consumer outside of the target
market acquiring the product.
In implementing the obligations for existing products, and when issuing new
products, issuers will need to consider whether the nature of their relationship with
their distributors is appropriate in the circumstances. If the issuer has reason to
believe that distribution of the product could be inconsistent with the TMD in
circumstances where the relationship is not formalised, or data and qualitative
information indicates that inconsistent distribution is occurring, the issuer should
take steps to improve communication or oversight of distribution. This may require
formalising the relationship. Where an issuer is unable to increase oversight of a
particular channel in these circumstances it may need to cease distribution through
that channel. This is consistent with a risk-based approach to the reasonable steps
obligation.
As noted in the Revised Explanatory Memorandum (note 34):
The obligations do not require any formal relationship (for example, contract or other
arrangement) to exist between an issuer and a distributor. However, the existence or non-
existence of any such relationship may be relevant in determining whether or not an issuer
has met its obligation to take ‘reasonable steps’. In addition, it may be a ‘reasonable step’ for
an issuer to formalise its relationship with a distributor or vary such a relationship where
doing so is reasonably practicable and would promote distribution being consistent with a
product’s target market determination.
We expect an issuer to review how evolving activity in the course of distribution over
time remains consistent with (or deviates from) what was originally planned or
envisaged for distribution of the financial product.
In meeting its obligation to review the TMD to ensure that it remains appropriate, an
issuer will need to:
 collect and analyse appropriate information at sufficient intervals to detect patterns
in distribution as compared with the planned target market; and
 assess the performance of the distribution methods through which its financial
products are being distributed.
Conflicts of interest We will take into account whether a conflict, potential conflict or apparent conflict of
interest exists (including in remuneration and incentive structures proposed for
distribution) that is likely to result in distribution that is inconsistent with the TMD.
In developing remuneration and incentives for the distribution of a financial product,
an issuer should consider the role that incentives have in influencing behaviours that
could result in distribution being inconsistent with the TMD, and the harm that could
arise as a result.
If it is likely that a distributor’s incentives will result in distribution being inconsistent
with the TMD, the issuer should consider requiring the distributor to alter its
remuneration and incentive structures or not proceeding with that distributor.
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Factor Explanation
Information sharing with
distributors
We will take into account whether an issuer has provided distributors with sufficient
information to assist them with meeting their obligations to ensure distribution is
consistent with the TMD.
An issuer should consider whether distributors require tailored information in
addition to materials prepared for an end consumer. For example, an issuer could
consider (for each distribution channel or type of distributor):
 what information distributors of that type already have;
 the distributors’ likely level of knowledge and understanding; and
 the distributors’ information needs and what form or medium would best meet
those needs (which could include discussions, training, or scripts as appropriate).
Reasonable steps for issuers: Examples
RG 274.147 Below are some examples to illustrate our guidance on reasonable steps for
issuers.
Example 11: Superannuation and reasonable steps
Superannuation trustees may offer superannuation products in a fund
through a number of distribution channels. These could include:
• direct-to-public issues through the trustee’s website and member
contact centre;
• employers; and
• financial advisers.
In determining what arrangements to put in place to meet its reasonable
steps obligation, the trustee must consider the risks of distribution being
inconsistent with the TMD in each of its distribution channels.
Direct-to-public
The superannuation trustee has direct control over distribution of the choice
product in its direct-to-public distribution. In its member contact centre, the
trustee could implement appropriate call scripts and general advice
processes to mitigate the risk of inconsistent distribution.
The trustee should also consider information available about the choice
product and its investment options on the fund website. This consideration
may lead to the trustee putting in place further arrangements to reduce the
possibility of members selecting a product (including its key attributes) that
is unlikely to be consistent with their objectives, financial situation and
needs.
For example, these arrangements might involve filters to direct members
away from certain options due to the members being at an age where the
time to decumulation phase is short.
Example continues over page.
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Employer
The distribution arrangements for the choice product that the trustee puts in
place for direct-to-public and adviser distribution are also likely to apply to
members that joined the fund through their employer.
To further mitigate the risk that employee members may choose to switch
to options that are unlikely to be consistent with their likely objectives,
financial situation and needs, the trustee should consider its welcome
information for employees. The trustee could also explain the risks of
various options and who they may be appropriate for in any periodic
seminars that are offered to employees.
Note: Employers are not subject to the reasonable steps obligation in
s994E(3) when complying with certain superannuation guarantee obligations:
see reg 7.8A.25.
Adviser
The superannuation trustee assesses that the risk of inconsistent
distribution through a financial adviser is lower than for distribution through
other channels. This is because personal advice that requires the collection
and analysis by the adviser of information relating to the member’s
individual objectives, financial situation and needs is provided in this
channel. The trustee should consider any materials that may need to be
prepared for advisers to assist them in distributing the product consistently
with the TMD: see Table 4.
Example 12: Mortgage fund: Oversight of distribution
A mortgage fund is a managed investment scheme. The underlying
portfolio of the fund generally comprises residential, commercial and
development mortgages, with varying risk profiles.
An issuer should have appropriate oversight of the distribution of its product
and the activities of distributors and take action if it has concerns about the
conduct of a distributor.
For example, if the issuer is aware that a distributor uses the language of
‘cash’ or ‘cash-like’ to promote the mortgage fund, creating an inaccurate
expectation that the product is low in risk and high in liquidity (which
creates a risk that the product will be sold outside the target market), the
issuer must take steps to address this conduct.
In these circumstances, the issuer could:
• require the distributor to immediately cease promoting the product in
this way, either through distribution conditions or contact with the
distributor;
• review the adequacy of information it provides to distributors;
• provide training if necessary;
• consider providing distributors with marketing materials, or vetting
materials produced by distributors; and/or
• no longer distribute the product through the distributor, if appropriate in
the circumstances.
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Example 13: Listed investment companies
Listed investment companies (LICs) issue shares that are listed on a
licensed exchange such as ASX or NSX.
LICs offer exposure to a wide range of underlying assets that will suit
different types of consumers (e.g. some may invest mostly in Australian
shares, whereas other LICs may specialise in infrastructure or technology
shares). A key feature of LICs is that they are closed-ended, meaning the
investor cannot redeem their investment and the only way to exit is to sell
on-market. The design and distribution obligations apply to any initial public
offer, and to any subsequent offer by the LIC that requires disclosure to
investors under Pt 6D.2.
LICs have differing investment approaches, ranging from low to high risk.
Some LICs use complex strategies through the use of short selling,
derivatives and leverage that may result in significant or complete loss of
capital. These strategies will not be suitable for all consumers.
As part of the capital raising process, LICs often use a highly intermediated
structure to attract consumers, with allocations of securities distributed
through networks of wealth management, private banking, stockbroking and
financial advisory firms to utilise the existing consumer bases of these firms.
In selecting distributors that form part of this distribution network, LICs should
keep in mind the target market for the product, the distribution conditions it has
set and the broader approach to distribution: see RG 274.143–RG 274.145.
A LIC may have decided to specify distribution conditions requiring
distributors to implement controls on marketing or an offer (e.g. by
confining email marketing to those consumers whom it is aware have
certain characteristics set out in the TMD). The LIC might also have placed
restrictions on the content used by distributors to advertise the offer to
ensure that the LIC and the financial product are fairly represented, which
might include, for example, prohibiting the use of gross ‘non-actual’ past
performance based on the LIC manager’s other funds: see Regulatory
Guide 53 The use of past performance in promotional material (RG 53).
Particular considerations in selecting distributors are likely to include:
• whether the distributor provides no advice (e.g. information only),
general advice or personal advice to consumers;
• the distributor’s general client base and whether the distributor deals
directly with the investor, or through other intermediaries;
• whether the distributor has arrangements in place so that its
representatives have sufficient knowledge and understanding of the
product to be able to give appropriate advice to investors; and
• previous consumer outcomes that resulted from using a particular
distributor.
An issuer should provide distributors in the distribution network with
information sufficient to assist them to meet their obligations to ensure that
distribution (including marketing and dealing) is consistent with the TMD. In
particular, the issuer should seek to ensure that distributors are fully aware
of the risks associated with the investment in the LIC, and how these risks
might affect who is in the target market.
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In planning the supervision required for the distribution network, an issuer
should keep in mind that distribution will usually occur in a short timeframe.
Issuers should have appropriate oversight of the distribution of the product,
including to ensure that distributors do not use the short offer period to
pressure investors to make a decision quickly without taking time to assess
whether the investment meets their likely objectives, financial situations
and needs.
To ensure that distribution is consistent with the TMD, an issuer might
consider taking steps in advance of the offer, such as reviewing:
• the types of materials (in particular, non-prospectus materials) that will
be presented to consumers by distributors; and
• the arrangements that distributors in the distribution network will use.
Note: While our example refers to LICs, much of the discussion also applies to
listed investment trusts, which are incorporated as trusts, rather than
companies.
Reviewing the TMD
RG 274.148 To ensure that the TMD remains appropriate for the financial product over
time, issuers must review the TMD:
(a) periodically;
(b) in response to review triggers; or
(c) when other events or circumstances reasonably suggest that the TMD is
no longer appropriate: see s994C.
Note: Setting review periods is discussed at RG 274.108–RG 274.111. Setting review
triggers is discussed at RG 274.102–RG 274.107.
RG 274.149 These review requirements only apply when a product is currently on offer
for acquisition by issue, or regulated sale, to retail clients: see s994C(2)–(5).
Issuers also have the discretion to review a product’s TMD at any time or to
make a new TMD: see s994C(1) and the Revised Explanatory Memorandum
at paragraph 1.74.
RG 274.150 The review process must be established as part of the issuer’s product
governance arrangements, and controls should be put in place to ensure that
meaningful reviews take place. Figure 2 depicts possible outcomes from the
review process. These include:
(a) no change to the way the product is distributed.
(b) changing the product design, target market or distribution; or
(c) ceasing to distribute the product.
Note: Review of a product’s design is discussed at RG 274.50.
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RG 274.151 Taking a consumer-centric approach means being outcomes focused: see
RG 274.5–RG 274.14. As such, while the initial TMD can be made based on
the information readily available to the issuer at the time, if it becomes
aware of new information that could change the TMD, the issuer must
conduct a review. This may be the case if the issuer varies a product: see
Example 14.
Example 14: Product changes and reviewing the TMD
If an issuer adds a new promotional feature to a product, the issuer must
consider whether the promotional feature has the effect of varying the
product such that the target market for the product would need to be
adjusted. If the promotional feature is concessional (e.g. a reduced or nil
annual fee), it is likely that the existing target market will remain appropriate
(i.e. because the product was previously assessed as likely to be
consistent with the likely objectives, financial situation and needs of
consumers in the target market when it cost the full fee to acquire).
However, if the promotional feature is likely to encourage consumers
outside the target market to acquire the product and distribution conditions
on the product are not likely to limit distribution to the target market, it
would no longer be reasonable to conclude that it is likely that the
consumer will be in the target market, as required by the appropriateness
requirement at s994B(8). The issuer, therefore, will need to review the
TMD: it will need to adjust the description of the target market and review
whether the distribution conditions will direct distribution to the new target
market.
RG 274.152 Issuers must ensure that their arrangements are able to identify areas of
likely consumer harm and other factors that may indicate that a review of the
TMD is required. To meet their review obligations issuers and distributors
may need to improve their data capabilities to ensure that their data is timely,
accurate, adequate and complete.
RG 274.153 If the issuer becomes aware of information that would reasonably suggest
that the TMD is no longer appropriate (e.g. a review trigger has occurred), it
must stop issuing the financial product and direct its distributors to stop
distributing until the issuer has reviewed the TMD and its product: see
s994C(3)–(5).
Conducting a review
RG 274.154 In reviewing a TMD, we expect that the issuer will take into account all
available information on its financial product using multiple data sources.
This could include:
(a) information the issuer holds about the product and its distribution, for
example:
(i) volume of sales;
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(ii) percentage of sales to consumers who are not in the target market;
(iii) conversion rates; and
(iv) web analytics (e.g. click data and website paths).
(b) information the issuer holds about consumer behaviour and outcomes—
for example:
(i) consumer and transaction data (e.g. claims outcomes for insurance
products);
(ii) results of multi-method consumer testing;
(iii) assessment and measurement of product design and performance;
(iv) impact of choice architecture on consumer choice and outcomes;
and
(v) purchase decisions and use of product;
(c) information collected from distributors, including:
(i) the information that the issuer specifies in the TMD that must be
provided to the issuer (see RG 274.112–RG 274.115); and
(ii) general product feedback and consumer complaints;
(d) information collected from consumers and consumer advocates,
including general product feedback and complaints, as well as the
outcomes of those complaints based on internal dispute resolution
information; and
(e) information from other sources about consumer outcomes, including
from the Australian Financial Complaints Authority (AFCA).
RG 274.155 The issuer should use credible and reliable data sources and collect
information that is fit for purpose and unbiased. The issuer should consider
their obligations under privacy laws and relevant ethical and data codes.
Note: Consumer satisfaction is not an appropriate source of data because it is an
unreliable indicator of consumer outcomes. For example, shadow shopping research
ASIC conducted with real consumers who sought retirement advice identified a large
gap between the technical quality of the advice (as assessed by ASIC) and the
consumers’ own assessment of that advice: see Report 279 Shadow shopping study of
retirement advice (REP 279). While 86% of consumers considered the advice they
received to be good, ASIC assessors rated only 3% of the advice reviewed as good, with
the remainder rated as adequate or poor. In an earlier shadow shop on superannuation
advice, in cases where ASIC could see that the advice clearly lacked a reasonable basis,
85% of consumers still felt satisfied with the advice: see Report 69 Shadow shopping
survey on superannuation advice (REP 69). See also APRA Prudential inquiry into
Commonwealth Bank of Australia (PDF 1.1 MB), April 2018, pp. 11, 39, 43, 89, 91–92.
RG 274.156 When conducting a review, an issuer should consider the objectives of the
design and distribution obligations, including to minimise the risk of
financial products being sold to consumers for whom the products are not
likely to be consistent with their likely objectives, financial situation and
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needs. For example, when the performance of a product has varied
materially from its stated objectives, the issuer should check:
(a) whether the product is continuing to meet the likely objectives, financial
situation and needs of the target market that it was designed for; or
(b) whether the product’s performance is materially different from what the
issuer originally expected and communicated to the distributor or
consumer at the time of the sale.
Note: When this occurs, the issuer needs to consider what further action may be
required, such as informing its existing consumers.
Notifying ASIC of ‘significant dealings’
RG 274.157 An issuer must notify ASIC of a significant dealing (except excluded
dealings) in a financial product that is not consistent with the product’s
TMD. Issuers must notify ASIC in writing as soon as practicable, and in any
case within 10 business days after becoming aware: see s994G and 1311(1).
Note 1: Excluded dealings consist of arranging for a consumer to apply for or acquire a
product for the purpose of implementing personal advice that the person has given to a
retail client: see s994A(1).
Note 2: While s994G requires notification of a significant dealing in the product in
relation to ‘a retail client’, this includes significant dealings in relation to more than one
retail client: see Acts Interpretation Act 1901 s23(b).
Note 3: Issuers must provide significant dealing notifications to ASIC through the ASIC
Regulatory Portal.
Meaning of ‘significant dealing’
RG 274.158 The term ‘significant dealing’ is not defined in the Corporations Act. This is
consistent with the term ‘significant’ being undefined elsewhere in the Act.
Whether or not a dealing is significant is a matter to be determined in the
circumstances of each case. Issuers, who have an aggregate view of the
distribution of their product, will take a more systemic approach to
determining whether a dealing is significant.
RG 274.159 We expect that the following factors will be relevant for issuers when
determining whether a significant dealing has occurred (these are not
intended to be an exhaustive list of potentially relevant factors):
(a) of those consumers who acquire the product, the proportion of
consumers who are not in the target market, including the proportion of
consumers who are part of a class that has been excluded from the
target market acquiring the product;
(b) the actual or potential harm to consumers, including the amount of any
financial loss, resulting from consumers who are not in the target
market acquiring the product;
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(c) the nature and extent of the inconsistency of distribution with the TMD
(noting that distribution to a consumer can be either more or less
consistent with a target market along a continuous spectrum);
(d) the proportion of gross income or premium obtained from the product in
respect of consumers who are not in the target market acquiring the
product; and
(e) the time period in which these acquisitions outside the target market
occurred.
Note: In outlining the above factors to consider when determining whether a significant
dealing has occurred, we have considered the factors outlined in the law in s994E(5)
and the matters set out in s1023E(1) relating to determining significant detriment to
retail clients.
RG 274.160 In determining whether a particular dealing is significant, we consider that it
may assist issuers in meeting their obligations if they set objective criteria
based on the nature and risk profile of their product. This would enable the
issuer to have in place arrangements to monitor dealings in their product.
Setting objective criteria that is widely available should assist issuers in
identifying when a dealing is significant, and acting accordingly. It may also
assist distributors in understanding the dealings that they must notify to the
issuer.
RG 274.161 Distributors must notify issuers when they identify a significant dealing that
is not consistent with the TMD: see s994F(6) and RG 274.211–RG 274.215.
Note that whether a dealing is significant will likely differ between issuers
and distributors given the different circumstances of their businesses. Still,
the distributor’s determination that the dealing is significant will assist the
issuer in making their own determination that the dealing is significant and
therefore reportable to ASIC.
Content of the notification
RG 274.162 An online form is available through the ASIC Regulatory Portal to assist
issuers in reporting significant dealings to ASIC. Some of the information
that the form requests is listed in Table 5. If an issuer does not have
information about specific matters requested in the online form at the date of
the notification, the issuer should include the information that is available
and provide further information as it becomes available.
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Table 5: Content of a written notification of significant dealing
What ASIC will do with the information in the notification
RG 274.163 The information in the notification assists ASIC to consider whether issuers
and distributors are complying with the design and distribution obligations.
We will consider this information to decide whether it is necessary or
appropriate to take any further action.
Keeping records of decisions made
RG 274.164 An issuer must keep complete and accurate records of decisions made in
relation to the issuer’s TMDs and associated reviews, together with the
reasons (and underlying data) for those decisions, for up to seven years.
Note: See s994F(1) and 1101C. Keeping good records will assist issuers to meet the
design and distribution obligations, particularly in relation to conducting reviews.
Issuers are also required to keep records of complaints: see Section E of RG 271. Note
that for complaints received prior to 5 October 2021, RG 165 will apply instead: see
equivalent at Section B of RG 165.
RG 274.165 ASIC may request these records to determine compliance with the law. Good
records are also likely to assist an issuer to demonstrate that it has taken the
necessary steps to comply with the design and distribution obligations.
Date(s) of the significant
dealing
Include both:
 the date that the significant dealing occurred, or date range during
which dealings occurred that taken together are significant; and
 the date the issuer became aware of the significant dealing.
Description of the significant
dealing
Describe the significant dealing, including why it is not consistent with the
TMD.
Why the dealing is significant Describe why the issuer considered the dealing to be significant.
How the significant dealing was
identified
For example, the significant dealing may have been identified through the
issuer’s product governance arrangements, reporting from the distributor,
as a result of a consumer complaint or the occurrence of a review trigger.
What steps, if any, have been,
or will be, taken in relation to
the significant dealing
Include details as relevant.
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E Obligations for distributors
Key points
Distributors generally interact directly with the end consumer. A distributor
can be an intermediary between the issuer of a financial product and the
consumer, or the issuer itself, when the issuer deals directly with
consumers.
Like issuers, distributors must take reasonable steps that will, or are
reasonably likely to, result in distribution of a financial product being
consistent with the TMD for that product: see s994E(3).
What are reasonable steps for distributors depends on the likelihood of
distribution being inconsistent with the TMD, the potential harm that might
arise from inconsistent distribution, and the steps that can be taken to
mitigate these harms: see RG 274.171–RG 274.172.
In some cases, the reasonable steps obligation will require a distributor to
collect or review data about consumers. This is not for the purpose of
providing individualised advice, but rather to enable the distributor to
assess whether a consumer, or group of consumers, is reasonably likely to
be in the target market: see RG 274.174–RG 274.188.
Distributors also have obligations to report certain information to issuers,
including when there is a significant dealing that is not consistent with the
TMD. Distributors must also keep records of distribution information: see
RG 274.216–RG 274.223.
Taking reasonable steps in relation to distribution
RG 274.166 Distributors generally interact directly with the end consumer. Distributors
can be an intermediary between the issuer of a financial product and the
consumer (e.g. a sales partner of the issuer or a referrer), or the issuer itself,
when the issuer deals directly with consumers.
Note: All references to ‘distribution’ are to ‘retail product distribution conduct’, which
includes, in relation to a product, dealing in relation to a consumer, providing financial
product advice to a consumer, giving a disclosure document or PDS to a consumer, or
arranging for the application, acquisition or issue of a financial product: see s994A(1).
RG 274.167 An issuer that distributes its products directly to consumers must comply
with both the reasonable steps obligation under s994E(3) (described in this
section of the guide) and the reasonable steps obligation under s994E(1)
(described in Section D of this guide at RG 274.139–RG 274.147). For
example, an IDPS platform operator must comply with:
(a) the issuer’s reasonable steps obligation under s994E(1) in relation to
interests in the IDPS issued to consumers; and
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(b) the distributor’s reasonable steps obligation under s994E(3) in relation
to the underlying financial products offered on the platform.
Note: See also Example 10.
RG 274.168 A distributor generally must not distribute a financial product unless a TMD
has been made for it: see s994D.
Note: A distributor may distribute a product if it reasonably believes (after making all
reasonable inquiries) that a TMD has been made, or that a TMD is not required, or
when the distribution conduct is excluded conduct: see s994D.
RG 274.169 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: see s994E(3).
RG 274.170 A distributor must have robust product governance arrangements in place to
help ensure that it complies with its obligations, including the reasonable
steps obligation: see Section B.
RG 274.171 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 otherwise 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 (see s994E(5)).
RG 274.172 A distributor must comply with distribution conditions in the TMD for the
product and any distribution agreement with the issuer. However, in most
circumstances, merely complying with the distribution conditions and any
agreement with the issuer will not be sufficient to satisfy the distributor’s
reasonable steps obligation. The distributor will still need to consider what
additional steps are reasonable for it to take in the particular circumstances.
For example, if a product’s TMD does not specify the distribution channel
that must be used to distribute the product, the distributor should consider,
having regard to the target market and the risk of harm that could result from
inconsistent distribution, what distribution method would be appropriate and
what additional arrangements need to be put in place that are reasonably
likely to result in sale of the product being consistent with the TMD.
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Factors relevant to our administration of the reasonable
steps obligation
RG 274.173 Table 6 sets out some of the factors we expect to consider when examining
whether a distributor has met its reasonable steps obligation.
Note: The factors listed in Table 6 are not intended to be an exhaustive list of
potentially relevant factors that we will consider when deciding whether steps should or
could be taken in order to meet the ‘reasonable steps’ obligation.
Table 6: Factors relevant to our administration of the distributor’s reasonable steps
obligation
Factor Explanation
Compliance with
distribution conditions
The TMD prepared by the issuer will specify any distribution conditions.
We will take into account the steps that a distributor takes to comply with the
distribution conditions set by the issuer. As noted at RG 274.172, a distributor will
also need to consider what additional steps may be required in addition to the
conditions set by the issuer.
Distribution method We will take into account whether the means through which a distributor chooses
to interact with the consumer (i.e. its distribution method) is reasonably likely to
direct and limit distribution to the target market for the financial product.
Examples of distribution methods include online, face-to-face, and inbound or
outbound telephone sales. Some methods may not be appropriate for all financial
products.
For example, if significant consumer harm could result from a financial product
being sold to consumers who are not in the product’s target market, and the risk of
sales outside of the target market is material for a given distribution method, this
method must not be used. This means, for example, that a distributor must not
engage in sales of insurance products through a distribution method that gives rise
to a risk that the product will be sold indiscriminately, including to consumers who
are ineligible to claim, unless the risk of sale outside of the target market is
mitigated.
Marketing and
promotional materials
We will take into account the content and medium of delivery to end consumers of
promotional or advertising materials circulated by distributors. The materials and
delivery should be informed by, and consistent with, the TMD for the financial
product.
For example, mass market advertising or prominent online methods, such as
banner advertising, generally are not appropriate for a product with a narrow target
market. The disclosure necessary in these circumstances is more than the
minimum disclosure about the target market required in promotional material by
the obligations.
Note 1: In any promotional material for products that require a PDS, the issuer must
describe the target market or specify where the TMD is available: see s1018A(1)(ca) and
(2)(ca).
Note 2: See also Regulatory Guide 234 Advertising financial products and services
(including credit): Good practice guidance (RG 234).
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Factor Explanation
Effectiveness of product
governance
We will consider whether a distributor’s product governance arrangements are
effective to ensure that the distributor has sufficient control and oversight over its
distribution processes.
Effective product governance should allow distributors to:
 monitor whether distribution conduct is compliant with the law and consistent
with the TMD; and
 highlight areas for improvement in conduct of sales staff or in the operation of
systems or processes.
A distributor should have a process for identifying changes that may negatively
affect its product governance arrangements. Distributors must regularly review
these arrangements to ensure that they remain effective.
For guidance on reviewing product governance arrangements, see RG 274.57–
RG 274.58.
Inappropriate incentives We will take into account the steps the distributor has taken to eliminate or
appropriately manage the risk that incentives for staff or contractors may
encourage behaviour that could result in consumer harm or in distribution being
inconsistent with the TMD.
Training We will take into account whether a distributor has given staff involved in
distribution operations sufficient training and has assessed the staff members’
skills to perform the required duties.
For example, a distributor should consider whether specific training is required for
staff to understand the key product attributes and the target market for certain
products, in addition to training about appropriate sales conduct.
In many instances, this training could be incorporated into existing staff training
requirements, particularly when existing continuing professional development
requirements apply.
Assessment of whether a
consumer is in the target
market
We will take into account how a distributor assesses whether a consumer is
reasonably likely to be in the target market for a financial product. For further
guidance, see RG 274.174–RG 274.188.
Assessing whether a consumer is reasonably likely to be in
the target market for a product
RG 274.174 A distributor is not taken to have failed to take reasonable steps merely
because a consumer who is not in the target market for the financial product
acquires the product: see s994E(4). However, a distributor must have
effective systems and processes in place that are reasonably likely to avoid
this result: see s994E(3) and (5).
Distribution arrangements
RG 274.175 When considering whether the distributor’s arrangements are reasonably
likely to result in distribution that is consistent with the TMD, the starting
point for the distributor should be to establish and maintain effective controls
in each of the categories identified in Table 6.
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RG 274.176 Where the distributor has taken steps to make these arrangements effective,
the further steps that the distributor will need to take in the circumstances of
each transaction may be fewer as the risk of inconsistent distribution may be
lower. Distributors should take a risk management approach in determining
the steps required.
RG 274.177 Beyond the general arrangements identified, there are a number of additional
ways a distributor could determine whether a consumer is reasonably likely
to be in the target market for a financial product. These include:
(a) analysis of data held on the consumer or a class of similar consumers,
which reasonably leads to the conclusion that they are reasonably likely
to be in the target market;
(b) the inclusion of ‘knockout questions’ within application processes for
direct-to-consumer product sales, either through digital or other
channels (e.g. if a consumer would be excluded from coverage under an
insurance policy, the knockout question would operate to not allow the
consumer to proceed with purchasing the cover); and
(c) asking the consumer direct questions to determine whether they are
reasonably likely to be in the target market.
Note: The law provides an exemption from the personal advice obligations for the
actions of asking for information to ascertain whether a consumer is in the target market
and informing them of the result: see s766B(3A) and RG 274.189–RG 274.194.
RG 274.178 Distribution arrangements must be consistent with the objectives of the
design and distribution regime and the distributor’s obligations to distribute
products appropriately. For example, while a distributor may ask a consumer
to confirm factual information about themselves, it should not require the
consumer to self-certify that they are in the target market.
Reliance on existing information about consumers
RG 274.179 In some cases, the distributor may already have information about a
prospective consumer or class of consumers (e.g. if they are an existing
consumer in the case of a renewal) prior to distribution.
RG 274.180 This information could include:
(a) indicators about the likely circumstances of the consumer or a class of
consumers (e.g. concession card status, income, employment status);
(b) reasonable inferences about the likely circumstances of the consumer or
a class of consumers (e.g. for insurance, information inferred from the
postcode of the consumer’s residential address); or
(c) data that the distributor may already hold about the consumer or similar
consumers, or results derived from analyses of that data (e.g. analysis
undertaken by the distributor of common characteristics of consumers
who have purchased a product).

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RG 274.181 Existing information about a consumer or class of consumers held by a
distributor could, as part of meeting its reasonable steps obligation, be used
to determine whether the consumer is reasonably likely to be within the class
of consumers for which the product is likely to be appropriate. Using
existing information in this way for the purpose of checking whether a
consumer is in the target market would not constitute personal advice.
Note: See RG 274.186–RG 274.188 for more guidance on asking further questions of
the consumer to determine whether they are in the target market.
RG 274.182 For example, if the target market for a product includes only employed
people, and the distributor’s records indicate that the consumer is
unemployed, the distributor would not be complying with its reasonable
steps obligations if it sold the product to the consumer.
RG 274.183 A distributor should consider the following factors, among others, in
deciding whether it is appropriate to rely on existing information, and the
extent to which it should rely on it:
(a) the likelihood of circumstances changing so that consumers are no
longer in the target market for the financial product;
(b) the harm that may result from consumers who are no longer in the target
market acquiring the product;
(c) the time that has elapsed since the distributor formed a reasonable view
of whether a consumer or class of consumers is reasonably likely to be
in the target market; and
(d) when the distributor last gathered relevant information.
RG 274.184 A distributor must have a reasonable basis for making conclusions about the
above factors. For example, conclusions might be based on forecasts or
predictive models and informed by ongoing data collection about the
financial product.
RG 274.185 In addition to relying on existing information, a distributor will also need to
consider whether, to meet its reasonable steps obligation, it should:
(a) seek further information from the consumer; or
(b) implement arrangements to filter out consumers who are no longer in
the target market.
Asking additional, specific questions
RG 274.186 In most cases, a distributor should have sufficient existing arrangements, or
information about a consumer or class of consumers, to determine whether
the consumer is reasonably likely to be in the target market for a financial
product. However, in some circumstances, a distributor may need to ask
further, specific questions of the consumer.
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RG 274.187 In some cases, the information that the distributor needs may be obtained
through existing sales processes and application forms. For example,
information obtained from a consumer’s credit card application will include
information about the consumer’s financial situation, such as income.
RG 274.188 In determining whether further information is required (and, as a
consequence, whether specific questions should be asked), a distributor must
take into account the likelihood of the consumer being outside the target
market, the potential for harm, and other mitigation steps that the distributor
has available. For example, if a high degree of consumer harm would result
from a consumer who is not in the target market acquiring the financial
product (such as a consumer being sold an add-on insurance product despite
the consumer being ineligible to claim), and the risk of that occurring is
significant, the distributor should take additional steps to determine whether
consumers are ineligible to claim before selling the product.
Example 15: Renewal of general insurance policies
Many general insurance policies are offered for renewal on an annual basis
and consumers then enter into a new contract at each renewal. These
include policies covering risks of loss or damage to motor vehicles and
home buildings and contents.
Each renewal constitutes a financial product issue where reasonable steps
are required. What reasonable steps are required at each renewal will need
to be determined by the insurer based on the information it holds and its
experience in practice. It may not be necessary to take the same steps at
each renewal.
Insurers will need to assess information reasonably available to them to
identify common events that would result in the likely objectives, financial
situation and needs of consumers changing such that these consumers
would no longer be in the target market for a policy, and the likelihood of
those events occurring over time since initial policy purchase.
For example, depending on the particular policy, the passage of time may result
in a change to the needs of consumers to obtain comprehensive car cover
(given the age of the car), such that the consumers are no longer reasonably
likely to be in the target market for the policy. At the time of renewal, an insurer
(in its role as distributor) must take reasonable steps to ensure that the renewal
process results in outcomes that are consistent with the TMD.
At the time of renewal of an insurance policy, an insurer generally should
consider:
• the likelihood that consumers are no longer in the target market for the
policy;
• information the insurer holds or can reasonably obtain about the asset
being insured and relevant claims data;
• any updates the consumer has provided that affect whether the
consumer is in the target market for the product; and
• whether more data should be gathered from or about consumers to
inform the insurer’s analysis.
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An insurer should analyse information it holds or to which it reasonably has
access. For example, if that analysis shows that:
• the risk of consumers in a particular class no longer being in the target
market increases significantly after a set period (e.g. after the fourth or
fifth renewal following initial policy purchase), the controls the insurer
would apply, and further steps the insurer would take at that point,
should be scaled up as appropriate; or
• the risk that consumers in a particular class are no longer in the target
market increases significantly from a specific date or age, the controls
and further steps should be similarly scaled up for consumers who
have reached that threshold.
Examples of further steps that may be appropriate in the above scenarios
could include:
• obtaining further information from the relevant consumers;
• informing the relevant consumers that information indicates the
consumer may no longer be in the target market for the product; and
• offering alternative products with target markets that the consumer
would likely be in.
When an insurer assesses that it is likely that a consumer is no longer in
the target market for an insurance policy, an insurer need not decline to
renew the policy, but would need to take reasonable steps to direct the
consumer to a policy that is likely to be appropriate.
Personal advice exemption to ask for information
RG 274.189 For the purposes of the design and distribution obligations, the law provides
that the acts of asking for information solely to determine whether a person
is in the target market for a financial product, and of informing the person of
the result of that determination, do not, of themselves, constitute personal
advice: see s766B(3A).
Note: RG 175 provides further explanation about the difference between personal and
general advice.
RG 274.190 This is because, in some circumstances, the questions that a distributor may
need to ask the consumer will relate to one or more of the consumer’s
objectives, financial situation or needs and therefore may otherwise
constitute personal advice.
RG 274.191 Where the distributor considers they need to ask questions of the consumer
and relies on the exemption, those questions must be for the sole purpose of
determining whether the consumer is in the target market (or informing the
consumer of their status in the target market). The exemption in s766B(3A)
will not apply if the distributor sets up the interaction in a way that instead
has the purpose of influencing consumers in making a decision about a
financial product. Whether the conduct of the distributor goes beyond the
scope of the exemption is a matter to be considered in the circumstances of
the particular interaction.
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RG 274.192 If the distributor designs arrangements where additional questions will be
asked of consumers, they can reduce the likelihood that their conduct will
take them outside the exemption. They can avoid conduct that is likely to
influence the consumer. For example, distributors could:
(a) avoid involving a relevant provider (i.e. an individual authorised to give
personal advice to consumers on relevant financial products) in the
distribution process, particularly when there is an existing relationship,
or the consumer is aware that the relevant provider is authorised to
provide personal advice; and
(b) ask specific questions of a consumer (when required) in the later stages
of the sales process after the consumer has already made the decision to
acquire the product.
Note: These factors are not exhaustive. The distributor should consider the relevant
risks in the circumstances of its distribution process.
RG 274.193 Further, if a distributor relying on the exemption informs a consumer that they
are in the target market for a financial product, the distributor must not
suggest or imply that it has considered the consumer’s personal objectives,
financial situation and needs or that the product is suitable for the consumer’s
individual circumstances. To do so may be misleading or deceptive and would
fall outside of the exemption: see s12DA(1) of the ASIC Act.
Note: Regulatory Guide 244 Giving information, general advice and scaled advice
(RG 244) explains the differences between giving factual information, general advice
and personal advice.
RG 274.194 Conduct beyond the exemption provided in s766B(3A) could constitute the
provision of personal advice in breach of the law if the associated personal
advice obligations are not met.
Note: Where the advice relates to a financial product within the meaning of Div 3 of
Ch 7, persons providing personal advice must act in the best interests of the consumer
(the ‘best interests duty’) and related obligations in Div 2 of Pt 7.7A.
Consumers outside the target market
RG 274.195 Issuers and distributors should implement product governance arrangements
that make it unlikely that consumers will actively seek to acquire financial
products that are not consistent with their likely objectives, financial
situation and needs.
RG 274.196 However, if a distributor becomes aware that it is interacting with a consumer
who is outside the target market for the product that the consumer seeks to
acquire, the distributor will need to take steps that are reasonably likely to
avoid distribution of the product to the consumer. In determining what steps
are reasonable in these circumstances, the distributor must consider:
(a) the circumstances of the interaction, including the distribution method
through which the interaction takes place (whether online, in person,
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over the phone) and any information or advice provided to the
consumer on the product before this interaction;
(b) the nature and degree of harm that might result from the product being
acquired by the consumer (which in these circumstances can be
assessed based on the circumstances of the consumer in question); and
(c) the steps that can be taken to eliminate or minimise the likelihood of
harm.
RG 274.197 The distributor is not prevented from ultimately selling the consumer a
financial product in such circumstances, provided reasonable steps are taken:
see s994E(4). However, a product that has been sold to consumers on
multiple occasions when consumer harm is likely to result can indicate a
failure to meet reasonable steps obligations.
RG 274.198 When a distributor knows or should know that the financial product is
unsuitable for the consumer (e.g. when a product only benefits those who are
employed, and the distributor is aware that the consumer seeking the product
is unemployed), the distributor should take reasonable steps to avoid
distributing the product to that consumer.
RG 274.199 If consumers outside the target market are regularly seeking the financial
product, the distributor should inform the issuer of that fact and, if
applicable, notify the issuer that a significant dealing in the product has
occurred: see s994F(6) and RG 274.211–RG 274.215. The issuer can then
determine whether the product is appropriate for a broader class of
consumers beyond the target market, or, if not, take steps to ensure that
promotional material, and other means through which consumers are made
aware of the product, are appropriately directed to the target market and not
more broadly.
Interaction with personal advice
RG 274.200 When a distributor provides personal advice, it will not be required to take
reasonable steps that will, or are reasonably likely to, result in distribution of
a financial product being consistent with the TMD: see 994E(3) and the
definition of ‘excluded conduct’ in s994A(1).
Note 1: Personal advice providers have other obligations under the design and
distribution obligations, including to provide distribution information to issuers: see
RG 274.216–RG 274.219.
Note 2: As a result of s994AA(2), excluded conduct currently covers personal advice
that is provided in relation to products regulated under the ASIC Act, as well as those
regulated under the Corporations Act: see RG 274.31.
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RG 274.201 The Revised Explanatory Memorandum at paragraph 1.84 notes, for
financial products under the Corporations Act:
While retail product distribution conduct includes providing financial
product advice, the new regime excludes personal advice and associated
conduct from most of the new distribution obligations. This reflects that
such conduct already involves consideration of the client’s individual
circumstances and is subject to the best interest obligations under Pt 7.7A
of the Corporations Act.
RG 274.202 We consider that a TMD for a financial product should be considered by
financial advisers in providing advice and meeting their best interests duty.
Note: For example, we consider that a TMD may be a factor considered under
s961B(2)(e).
RG 274.203 It may be appropriate for a financial adviser to advise a consumer outside of
the target market to acquire a financial product, when acquisition would be in
the best interests of the consumer. For example, it may be appropriate in the
broader context of a particular consumer’s portfolio, taking into account their
relevant circumstances, for an adviser to recommend a product that would
ordinarily be too high-risk for the consumer if it were a concentrated holding.
Implementing personal advice
RG 274.204 The law includes a provision to facilitate the implementation of personal
advice by distributors who are not associated with the advice provider: see
s994E(6). A distributor will satisfy the reasonable steps obligation if their
distribution conduct is necessary to implement personal advice given to the
client in relation to the product they are distributing.
RG 274.205 According to the Revised Explanatory Memorandum at paragraph 1.105,
retail product distribution conduct will be ‘necessary to implement personal
advice’ if the distributor is:
… satisfied of all relevant matters including: that the particular retail client
has received personal advice in relation to a particular product; that the
advice remains current; and that the distributor’s proposed conduct would
be consistent with that advice as it relates to the particular product they
would be distributing.
RG 274.206 In some circumstances the distributor will not be able to review the personal
advice (e.g. if there are privacy concerns about a distributor accessing the
advice). It may be reasonable in these circumstances for the distributor to
rely upon the certification of the advice provider attesting that the client has
received personal advice in relation to the particular product, that the advice
remains current and that the advice is consistent with distributor’s proposed
conduct.
Note: In relation to advice provided by a financial adviser, when considering whether
advice remains current, the distributor should consider industry practice as set out in
Statements of Advice (e.g. 30 to 45 days).
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Referrers
RG 274.207 Some referrers may be a regulated person for the purposes of the design and
distribution obligations: see RG 274.28. When a referrer who is a regulated
person engages in retail product distribution conduct, the issuer and the
referrer must comply with the reasonable steps obligation: see s994E(1) and (3).
RG 274.208 A referrer engages in retail product distribution conduct when dealing in a
financial product or providing financial product advice: see s994A(1).
Dealing includes ‘arranging’ for a person to apply for or acquire a financial
product: see s766C, as amended by s994A(1). Ultimately, whether a
referrer’s conduct will constitute arranging is a question of degree. For more
information on conduct that may constitute arranging, see RG 36.
Note: Conduct that amounts to credit assistance or conduct that is exempt under the
National Credit Act may constitute dealing for the purposes of the design and
distribution obligations.
Example 16: Comparison website
A website provides comparisons of the rates and features of available
home loans and refers users of the website to the credit providers for those
loans by using links to their websites and application forms. The website
provider holds a credit licence.
The website provider is engaging in retail product distribution conduct if its
conduct constitutes ‘arranging’ for a person to apply for or acquire a
product. The more active the website operator’s role in bringing into effect
dealings in the product, the more likely the operator is arranging. For
example, the conduct of the web provider is more likely to amount to
‘arranging’ if the website provider receives a benefit based on sales.
If the conduct of the website provider amounts to retail product distribution
conduct, the issuer of the product and the website operator will need to
satisfy the reasonable steps obligation.
In complying with the reasonable steps obligation, the issuer and the
website provider will need to have regard to the nature of the referral
conduct and the effect this may have on product distribution. Referral
conduct may have a different impact on product distribution depending on
the nature of the product, nature of the referral, what other controls the
issuer has in place and the risk of harm to consumers if a referral is made
outside of the target market. For example, what is reasonable in the
circumstances may differ according to whether the website provides generic
information or enables the consumer to filter by specifying parameters, and
whether the website recommends a particular product. For more information
on the reasonable steps obligation, see RG 274.166–RG 274.188.
RG 274.209 The conduct of a referrer who relies on a licence exemption is limited by the
conditions imposed on the exemption. Taking reasonable steps in this
circumstance would not extend to requiring the unlicensed referrer to do
something they are not permitted to do under the exemption they rely on.
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Licensed referrers can engage in a broader range of conduct, and, therefore
what is reasonable in the circumstances would not be limited in this way.
Note: For example, the conduct of the unlicensed referrer may be restricted to informing
the consumer that a licensee can provide a service and giving the consumer information
about how to contact them: see reg 25(2) of the National Credit Regulations.
Reasonable steps for distributors: Examples
RG 274.210 Below are some examples to illustrate our guidance on reasonable steps for
distributors.
Example 17: Tyre and rim insurance
Tyre and rim insurance products are generally sold at the time of purchase
of a motor vehicle. The distributor should consider how to prevent
distribution to consumers where the issuer has identified in the TMD that
the product is clearly unsuitable for them.
For example, in Report 492 A market that is failing consumers: The sale of
add-on insurance through car dealers (REP 492), we identified consumers
being sold tyre and rim insurance when the type or use (e.g. personal use
or business use) of the vehicle meant the consumer was not covered in the
event of a claim.
Examples of the eligibility criteria identified in REP 492 include:
• the type or class of vehicle (e.g. if the policy does not cover vehicles
over a certain age); and
• the use or purpose of the vehicle (e.g. if the vehicle is to be used as a
taxi or for other similar business purposes).
Both of these eligibility criteria are objective and are usually readily
ascertainable at the point of sale. Distributors must establish processes to
minimise the risk of sales of tyre and rim insurance in circumstances where
these types of eligibility criteria are not met.
Example 18: Direct life insurance
Direct life insurance is sold to consumers by insurers or their sales partners
over the phone, online or face-to-face. These products are sold with
general advice (meaning a consumer’s individual circumstances are not
considered), or with no advice (meaning only factual information is given).
In REP 587, we found that sales practices for direct life insurance and the
design of the product itself were leading to poor consumer outcomes.
Practices such as pressure selling and inadequate explanations of future
costs and product exclusions resulted in high rates of cancellations during
the cooling-off period, short-term lapse rates, and poor claims outcomes.
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Therefore, for this product, we expect distributors to consider the following
as part of their reasonable steps obligations:
• the level of oversight to apply, including the provision of training and
scripts to set clear professional standards for sales conduct (e.g.
setting standards for how distributors behave with vulnerable
consumers);
• the appropriate controls to apply, including implementation of quality
assurance audits that monitor sales conduct and policies that resolve
poor consumer outcomes;
• the product’s distribution conditions;
• the choice architecture employed; and
• sufficient monitoring of consumer outcomes to ensure that the
distribution processes are performing in line with expectations.
Note: See REP 587, pp. 37–62.
Notifying the issuer of ‘significant dealings’
RG 274.211 A distributor of a financial product must notify the issuer of a significant
dealing in the product that is not consistent with the product’s TMD. If a
distributor becomes aware of such a dealing, it must notify the issuer in
writing as soon as practicable, and in any event within 10 business days after
becoming aware: see s994F(6).
RG 274.212 This obligation extends to personal advice providers, or those that engage in
conduct associated with such advice.
RG 274.213 The obligation to notify the issuer of a significant dealing is intended to help
the issuer make timely and appropriate decisions (for example, a decision to
review a TMD) and to meet its obligation to report significant dealings to
ASIC: see the Revised Explanatory Memorandum at paragraph 1.115.
RG 274.214 As noted in Section D, consideration of whether a dealing is significant will
likely differ between issuers and distributors: see RG 274.161. While issuers
will have an aggregate view of dealings in their products, distributors will
only be aware of their own dealings. This will likely mean that distributors
will be reporting clusters of their own dealings that are not consistent with
the product’s TMD.
RG 274.215 We expect a distributor and issuer to agree on the form and content of the
notification.
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Keeping records and reporting information
Collecting and reporting information
RG 274.216 All distributors, including financial advisers, serve a critical role in product
governance given their direct interaction with consumers. Distributors must
collect information about the financial products they distribute, and ensure
that this information flows back to the products’ issuers: see s994F(2)–(6).
RG 274.217 A distributor must provide the following information in writing to an issuer
of a product where they engage in retail product distribution conduct in
relation to the product:
(a) information about whether the distributor received complaints in
relation to the product during the reporting period specified in the
TMD, and if so, the number of complaints received; and
(b) any further information acquired during the specified reporting period,
that the TMD has specified should be reported to the issuer.
RG 274.218 Distributors must report the information described in RG 274.217 to the
issuer as soon as practicable, but in any case within 10 business days, after
the end of the relevant reporting period: see s994F(4)–(5).
RG 274.219 Being provided with this information gives the issuer greater insight into
consumer outcomes, which is critical in enabling the issuer to meet its
obligations to determine on an ongoing basis whether changes are required
to the TMD, and/or to the design of the product. The purpose of having this
information reported to the issuer is to enable the issuer to identify promptly
whether a review trigger, or another event or circumstance that would
reasonably suggest that the TMD is no longer appropriate, has occurred.
Keeping records
RG 274.220 Distributors must keep records of distribution information in relation to
products that are currently being issued, for up to seven years: see s1101C.
Note: All distributors must keep records of distribution information, including those
providing personal advice or engaging in conduct associated with such advice.
RG 274.221 ‘Distribution information’ includes the following:
(a) the number of complaints the distributor receives in relation to the
financial product;
(b) the steps the distributor has taken to ensure that its distribution is
consistent with the TMD (see RG 274.166–RG 274.173);
(c) any information that the distributor is required to report to the issuer
(for the purpose of prompting a review), as specified in the TMD;
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(d) the dates on which the distributor reported to the issuer the following:
(i) the number of complaints received during a specified reporting
period;
(ii) other information specified in the TMD that the distributor must
report; and
(iii) any significant dealings in the product (see RG 274.211–
RG 274.215);
(e) the substance of its reporting to the issuer; and
(f) further information prescribed by the Corporations Regulations (see
s994F(2)–(3) and (7)).
Note: Licensees are also required to keep records of complaints under RG 271 (see
Section E under ‘Data collection, analysis and internal reporting’). For complaints
received prior to 5 October 2021, see RG 165 at Table 2.
RG 274.222 Keeping good records will assist the distributor in monitoring its governance
processes and controls to meet its reasonable steps and other obligations.
RG 274.223 We may request these records to ensure compliance with the law. Good
records are also likely to assist a distributor in demonstrating that it has taken
the necessary steps to comply with its obligations.
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F Our administration of the design and
distribution obligations
Key points
We will administer the design and distribution obligations to promote the
provision of suitable financial products to consumers: see RG 274.224.
When we have concerns that the design and distribution obligations have
been contravened, we are able to exercise a range of administrative
powers, including making a stop order: see RG 274.227–RG 274.243.
If a consumer suffers loss or damage due to a breach of the design and
distribution obligations, they can seek to recover that loss in court: see
RG 274.245–RG 274.246.
We have powers to modify and provide relief to extend or exclude the
application of the design and distribution obligations. In considering
whether to grant relief, we will consider the policy intention underlying the
obligations including the potential impact of relief on consumers: see
RG 274.249–RG 274.253.
Our role
RG 274.224 We will administer the design and distribution obligations to promote the
objectives of Ch 7 of the Corporations Act, including to promote the
provision of suitable financial products to consumers.
RG 274.225 Under Pt 7.8A, we have the power to make a stop order to protect consumers
from breaches of the design and distribution obligations: see RG 274.227–
RG 274.236. In appropriate cases, we may take enforcement action to
protect consumers and promote the confident and informed participation of
investors and financial consumers in the financial system more generally.
RG 274.226 We also have a product intervention power to intervene in relation to
financial products when we are satisfied that the product (or class of
products) has resulted, will result or is likely to result in significant detriment
to consumers: see Pt 7.9A.
Stop order power
RG 274.227 The stop order power under Pt 7.8A is an administrative mechanism that
allows us to prohibit entities from engaging in specified conduct when we
are satisfied that there has been a breach of Div 2 of Pt 7.8A or s994E of the
Corporations Act. Examples of breaches include when an entity has:
(a) failed to make, review, make public or otherwise satisfy the
requirements for a TMD;
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(b) distributed a financial product when a TMD has not been made for the
product or is no longer appropriate; or
(c) failed to take reasonable steps that will, or are reasonably likely to,
result in distribution of the product being consistent with the TMD.
RG 274.228 If we have concerns that there may have been a contravention of the design
and distribution obligations, we will generally notify the issuer before
making a stop order.
RG 274.229 Generally, we expect to use our stop order power to stop the issue or
distribution of a financial product (e.g. when we are satisfied that the TMD
has not met the appropriateness requirements: see RG 274.64–RG 274.66).
RG 274.230 If we make a stop order, we will serve it on the issuer of the financial
product. The issuer in turn must take all reasonable steps to ensure that other
people who engage in conduct to which the order applies are aware of the
order: see s994J(7).
Hearings
RG 274.231 Before we make a stop order, we are obliged to hold an administrative
hearing and give a reasonable opportunity for any interested persons to make
verbal or written submissions to us on whether the order should be made: see
s994J(3).
RG 274.232 Regulatory Guide 8 Hearings practice manual (RG 8) sets out in detail the
guiding principles and procedures we adopt in the conduct of administrative
hearings. Issuers and distributors can also refer to Information Sheet 1
Administrative hearings (INFO 1) for a concise summary.
Interim stop orders
RG 274.233 ASIC has the power to make an interim stop order without a hearing if we
consider that a delay would be prejudicial to the public interest. Such an
interim stop order lasts for 21 days, unless revoked earlier: see s994J(4).
RG 274.234 ASIC also has the power to make an interim stop order during a hearing.
Such an interim stop order lasts until ASIC makes a stop order or the interim
stop order is revoked: see s994J(5).
RG 274.235 To make an interim stop order, consistent with making stop orders generally,
ASIC must be satisfied that there has been a breach of Div 2 of Pt 7.8A or
s994E: see RG 274.227.
RG 274.236 ASIC has the power to revoke an interim stop order at any time. To revoke
an interim stop order, the delegate must be satisfied that the concerns have
been adequately addressed.
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Enforcing the law
RG 274.237 The Corporations Act imposes civil and criminal liability for a contravention
of each obligation under Pt 7.8A. A contravention of s994B, 994C, 994D or
994E(1) or (3) can also give rise to a private cause of action: see
RG 274.245–RG 274.246.
RG 274.238 In conjunction with using our stop order power, we may consider taking
enforcement action for a breach of the design and distribution obligations.
RG 274.239 We also have powers to make an application to the court for orders to
redress, prevent or reduce loss or damage suffered by non-party consumers
in relation to breaches of the design and distribution obligations: see
RG 274.247.
RG 274.240 For guidance on our approach to enforcement, see Information Sheet 151
ASIC’s approach to enforcement (INFO 151).
Product intervention power
RG 274.241 The product intervention power contained in Pt 7.9A of the Corporations Act
and Pt 6-7A of the National Credit Act enables ASIC to intervene in relation
to a product (or class of products) when we are satisfied that the product (or
class of products) has resulted, will result or is likely to result in significant
consumer detriment.
RG 274.242 The product intervention power complements the design and distribution
obligations. When issuers and distributors comply with the design and
distribution obligations, we expect that it will be less likely that we will be
required to exercise the product intervention power.
RG 274.243 When there is a risk of significant consumer detriment, we can use the
product intervention power in the absence of a contravention of the design
and distribution obligations: see Regulatory Guide 272 Product intervention
power (RG 272).
Remedies for consumers
RG 274.244 Issuers, AFS licensees, Australian credit licensees and credit representatives
are required by law to have a dispute resolution system that covers
complaints made by consumers in relation to the financial services provided:
see RG 271 and RG 165. Consumers may raise concerns directly with an
issuer or distributor in relation to the product or service provided by way of
such a system.
RG 274.245 If a consumer suffers loss or damage due to an entity’s breach of the design
and distribution obligations in s994B, 994C, 994D, 994E(1) or (3), they can
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seek to recover that loss or damage in court by taking action against the
entity.
Note: An entity is not taken to have breached the reasonable steps obligations in s994E
merely because a consumer who is not in the target market for the financial product
acquires the product: see s994E(2) and 994E(4).
RG 274.246 The court may award compensation for loss or damage. It also has the power
to make a variety of orders when it thinks it is necessary to do justice
between the parties: see s994N. As such, the court may:
(a) make an order declaring that a contract entered into by the person who
suffered loss or damage is void; and
(b) if it makes such an order—make such other orders as it thinks are
necessary or desirable because of that order (e.g. an order for the return
of money paid by a person and an order for payment of an amount of
interest specified in, or calculated in accordance with, the order).
RG 274.247 We can apply to the court seeking orders to redress, prevent or reduce the
loss or damage suffered by non-party consumers when there has been a
breach of the design and distribution obligations set out in s994B, 994C,
994D, or 994E(1) or (3) that has caused, or is likely to cause, non-party
consumers to suffer loss or damage.
Note: Non-party consumers are persons who have not been a party to proceedings under
the Corporations Act in relation to the contravening conduct: see s994P.
RG 274.248 When a consumer has suffered loss or damage—whether monetary or non-
monetary or both—as a result of an entity’s breach of the design and
distribution obligations, we expect that the entity will remediate the
consumer.
Note: See also Regulatory Guide 256 Client review and remediation conducted by
advice licensees (RG 256), which sets out our guidance on client review and
remediation.
ASIC’s power to give relief
RG 274.249 ASIC has a discretionary power to provide exemptions from and
modifications to the requirements of Pt 7.8A: see s994L.
RG 274.250 Our general approach to exercising our relief powers is set out in Regulatory
Guide 51 Applications for relief (RG 51).
RG 274.251 When applying the general principles in RG 51 in the context of assessing
applications for individual relief from provisions in Pt 7.8A, we will also
take into account:
(a) whether the objects of Ch 7 are being promoted, including the provision
of suitable financial products to consumers (see s760A(aa));
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(b) the policy intention underlying the design and distribution obligations to:
(i) improve consumer outcomes; and
(ii) require financial services providers to have a consumer-centric
approach to designing and distributing financial products; and
(c) the legislative intent (as reflected in the law) for the design and
distribution obligations to apply to a broad range of financial products.
RG 274.252 The requirement to comply with the design and distribution obligations, in
some cases, flows from the requirement to provide disclosure: see, for
example, s994B(1)(a) and (b). However, if we grant relief from the
requirement to provide disclosure, relief from the design and distribution
obligations will not automatically follow. An issuer or distributor seeking
relief from disclosure requirements and the design and distribution
obligations will need to specifically set out why relief should be granted in
relation to each set of requirements. We will make separate decisions in
relation to these requests.
RG 274.253 Our exemption and modification powers under Pt 7.8A can be used to
provide relief on both an individual basis (i.e. in relation to a person) and
class basis (i.e. in relation to a class of persons).
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Appendix: Exchange traded products
RG 274.254 This appendix explains how the design and distribution obligations apply to
issuers and distributors of exchange traded products (ETPs), which are
traded on a financial market.
The nature and structure of exchange traded products
RG 274.255 Exchange traded products are open-end investment products that are traded
on a financial market. In contrast to closed-end products such as LICs (see
Example 13), an ETP’s open-ended structure allows the issuer of an ETP to
issue and redeem units on a daily basis resulting in the number of units on
issue fluctuating depending on investor demand. An ETP issuer may use
external market making (EMM) or internal market making (IMM) structures.
Under the EMM structure, units are first issued to a wholesale client (the
authorised participant) prior to being sold on a financial market, including to
retail clients. Under the IMM structure, a trading participant is appointed as
the issuer’s agent to facilitate the issue of products on a financial market. In
some circumstances, issuers of ETPs issue their product to consumers off-
market.
Note: For more information on the nature and structure of ETPs, see Report 583 Review
of exchange traded products (REP 583).
How the obligations apply
Issuers
RG 274.256 The Corporations Regulations clarify that an issuer of an ETP is required to
make a TMD for an ETP that is designed to be sold to a retail client, even if
it is first issued to a regulated person: see reg 7.8A.09. As a result, an issuer
of an ETP that uses an EMM structure is required to prepare a TMD. An
issuer that uses an IMM structure, where the trading participant acts as an
agent of the issuer, directly issues to retail clients and is required to make a
TMD as a result of s994B(1)(a) or (b).
Note: We have modified reg 7.8A.09 to address any uncertainty that it applies to certain
securities as well as other financial products where the issuer issued the product with
the intention that the acquirer would on-sell (see s1012C(6)(c)(i)) and 707(3)(b)(i)).
This reflects the types of products intended to be covered by the regulation: see
reg 7.8A.09(4), s707(3)(b)(i) and ASIC Corporations (Design and Distribution
Obligations—Exchange Traded Products) Instrument 2020/1090.
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RG 274.257 We have modified the obligations that apply to ETP issuers where they are
required to prepare a TMD (either as a result of reg 7.8A.09 or s994B(1)(a)
or (b)), to ensure that consistent obligations apply where these products are
traded on financial markets. In particular, our modification clarifies that
while issuers must review their TMD as necessary, they are not required to
cease on-market distribution in circumstances where a TMD is no longer
appropriate: see s994C(2) as modified by ASIC Instrument 2020/1090. This
is because, practically, an issuer of an ETP is not in a position to cease retail
product distribution conduct in relation to a product traded on a financial
market.
Note 1: In other circumstances, for example when an issuer of an ETP issues, or offers
to issue, an ETP directly to a retail client off-market, it will be required to give a PDS or
disclosure document to the retail client and the design and distribution obligations will
apply to the issuer and distributor of the ETP in a similar manner to the design and
distribution obligations for an initial offering by a LIC: see Example 13.
Note 2: In the absence of our modification, issuers and distributors of IMM structured
ETPs would be subject to different obligations to issuers and distributors of EMM
structured ETPs. See the definition of ‘regulated sale’ in s994A(1).
Distributors
RG 274.258 In circumstances where an ETP is acquired by consumers on a financial
market, distributors of ETPs will only be required to comply with the
obligation to keep records of complaint information and information that an
issuer specifies in the TMD (see s994B(5)(h)), as well as to report this
information to the issuer: see s994F as modified by ASIC Instrument
2020/1090.
Note 1: A broker providing execution-only services would engage in ‘retail product
distribution conduct’ within the meaning in s994A(1) because they are dealing in the
ETP by arranging for the retail client to apply for or acquire the ETP: see s766C(1)(a)
and 766C(2) and Australian Securities and Investments Commission v Stone Assets
Management Pty Ltd [2012] FCA 630 where the facilitation of clients’ access to a
derivatives trading platform was sufficient to constitute dealing for the purposes of
s766C(2).
Note 2: The conduct of the interposed wholesale client (e.g. an authorised participant)
that sells units on the financial market (including to consumers) would not amount to
‘retail product distribution conduct’ because disposing of a financial product is excluded
from the definition of ‘dealing’ in s994A.
Reasonable steps for issuers
RG 274.259 An ETP issuer that is required to make a TMD must take steps that are
reasonably likely to result in retail product distribution conduct (other than
excluded conduct) being consistent with the TMD: see s994E(1).
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RG 274.260 ETPs are commonly acquired by consumers through online brokers in an
execution-only context, where a consumer enters a trade on a trading
platform. In considering its reasonable steps obligation, it is open to an ETP
issuer to take into account the context of execution-only trading by
consumers through brokers and the steps it is reasonably able to take to
reduce the risk of distribution that is not consistent with the product’s TMD.
In this context, we would expect the issuer would generally be focused on
factors that are likely to influence retail acquisition of its product. For
example, the issuer is likely to focus on its own conduct in marketing the
product and in interacting with consumers.
RG 274.261 In any case, an ETP issuer is not required as part of its reasonable steps
obligation to ensure that each on-market transaction involving retail clients
is consistent with the TMD. As noted in the Revised Explanatory
Memorandum, at paragraph 1.101:
If the issuer takes reasonable steps but retail product distribution conduct of
third parties is still inconsistent with the target market determination, the
issuer would not breach the requirement.
RG 274.262 However, if an ETP issuer is actively marketing its product through a broker
or other distribution channel, there are likely to be steps it could reasonably
take to ensure that the marketing approach is consistent with the TMD.
Further, if the issuer becomes aware that particular conduct by a broker is
likely to result in its product being distributed outside the target market, it
would be reasonable for the issuer to raise this with the distributor to attempt
to address this conduct. If these practices were occurring as part of an
arrangement the issuer had with the distributor to actively market its product,
it may be open for the issuer to amend or enforce this arrangement.
RG 274.263 Example 19 illustrates how an issuer of an ETP might approach its
obligations where the product is intended to be sold on a financial market.
Example 19: Exchange traded products
An issuer of an ETP that is intended to be sold on a financial market
prepares a TMD. In defining the target market for the product, the issuer
takes into account that the product is geared. It excludes from the target
market consumers with a low risk tolerance and consumers who do not
have the ability to bear loss.
In setting distribution conditions and considering how it will meet its
reasonable steps obligation, the issuer takes into account that its ETP is
only available through execution-only broker channels and the issuer does
not actively market its product through these channels. The issuer
considers that consumers are unlikely to be influenced by conduct at this
point of distribution and there are limited steps and controls available to it in
relation to this conduct. Accordingly, the issuer determines that the steps
reasonably available to it that are likely to reduce the risk of consumers
outside the target market acquiring the product generally relate to its own
conduct, including:
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• its website content and paths that contain information on its products as
well as trading strategies using its various products;
• its marketing materials and strategy;
• its information packs that are available on request to consumers; and
• the call scripts used in relation to the product when consumers request
a call from the issuer on its website.
Taking into consideration the above factors, the issuer sets distribution
conditions and puts in place arrangements so that the product is directed
towards consumers in the target market, and away from consumers outside
the target market. For example, it ensures its call scripts are designed to
reduce the risk that the product will be acquired by consumers with a low
risk tolerance and consumers who do not have the ability to bear loss. To
reflect the distribution approach that it will take in relation to the product,
the issuer sets a distribution condition that the ETP will only be available to
retail consumers on-market (as opposed to, for example, direct issue off-
market to retail clients).
In preparing its TMD, the issuer specifies information that distributors will
have to report (under ASIC Instrument 2020/1090) so that the issuer can
properly review its TMD as necessary.
The issuer also sets review triggers for the product. Because the product
has an objective to track an index in a particular way, it specifies a review
trigger in relation to a material deviation from that objective. Because the
target market includes consumers whose likely objectives, financial
situation and needs are consistent with the relatively lower management
fees of the product, the issuer also specifies that a review should occur if
there is a significant increase in management fees.
If the issuer were to also make the ETP available by way of off-market
direct issue to consumers, in respect of those direct off-market issues only,
the issuer and distributors will be subject to the design and distribution
obligations as they ordinarily apply. The issuer will need to consider its
TMD requirements and reasonable steps obligation in these circumstances,
noting that there is an increased ability to control off-market retail
acquisition of the product, compared with an acquisition by a consumer on
a financial market.
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Key terms
Term Meaning in this document
AFCA Australian Financial Complaints Authority—AFCA is the
operator of the AFCA scheme, which is the external
dispute resolution scheme for which an authorisation
under Pt 7.10A of the Corporations Act is in force
AFS licence An Australian financial services licence under s913B of
the Corporations Act that authorises a person who carries
on a financial services business to provide financial
services
Note: This is a definition contained in s761A.
AFS licensee A person who holds an AFS licence under s913B of the
Corporations Act
ASIC Australian Securities and Investments Commission
ASIC Act Australian Securities and Investments Commission Act
2001
ASIC Instrument
2020/1090
ASIC Corporations (Design and Distribution Obligations—
Exchange Traded Products) Instrument 2020/1090
ASIC Regulations Australian Securities and Investments Commission
Regulations 2001
authorised
representative
A person authorised by an AFS licensee, in accordance
with s916A or 916B of the Corporations Act, to provide a
financial service or services on behalf of the licensee
Note: This is a definition contained in s761A.
CCI Consumer credit insurance
choice architecture Refers to features in an environment that influence
consumer decisions and actions. These features are
present at every stage of product design and distribution.
Examples include product bundling, default settings,
sales process and website design
choice product A superannuation product that is not a MySuper product
consumer A ‘retail client’ for a financial product, unless otherwise
specified
continuing products Existing products that continue to be issued to consumers
after commencement of the design and distribution
regime
Corporations Act Corporations Act 2001, including regulations made for the
purposes of that Act
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Term Meaning in this document
Corporations
Regulations
Corporations Regulations 2001
design and
distribution
obligations
The obligations contained in Pt 7.8A of the Corporations
Act
design obligations Has the meaning given in s994B and 994F of the
Corporations Act
distribution condition Has the meaning given in s994B(5)(c) of the Corporations
Act
distribution
information
Has the meaning given in s994F(2)–(3) and (7) of the
Corporations Act
distributor A ‘regulated person’, as defined in s994A(1) of the
Corporations Act
Note: An issuer can also be a distributor.
employee share Has the meaning given in s9 of the Corporations Act
exchange traded
product
Has the meaning given in ASIC Instrument 2020/1090
financial adviser An individual who is authorised to give personal advice to
consumers on Ch 7 financial products
financial product (or
product)
Has the meaning given in s994AA of the Corporations
Act, and includes credit contracts regulated under the
National Credit Act as well as short-term credit not
regulated under the National Credit Act
financial advice A recommendation or a statement of opinion, or a report
of either of these things, that is intended to, or can
reasonably be regarded as being intended to, influence a
client in making a decision about a particular financial
product or class of product as defined in s766B of the
Corporations Act
FSI Financial System Inquiry
FSI final report Financial System Inquiry: Final report, November 2014
IDPS An investor directed portfolio service as defined in Class
Order [CO 13/763] Investor directed portfolio services or
any instrument that amends or replaces that class order
issuer A person who is subject to the TMD requirements in
s994B (including sellers in a regulated sale situation),
unless indicated otherwise
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Term Meaning in this document
key attributes The features and attributes of a product that affect
whether the product is likely to be consistent with the
likely objectives, financial situation and needs of
consumers in the target market
Note: For more information, see RG 274.8.
LIC A listed investment company
MySuper product A superannuation product provided under Pt 2C of the
SIS Act
National Credit Act National Consumer Credit Protection Act 2009
National Credit
Regulations
National Consumer Credit Protection Regulations 2010
new products Products issued for the first time following the
commencement of the design and distribution regime
non-party consumers Has the meaning given in s994P(1)(c) of the Corporations
Act
PDS A Product Disclosure Statement—a document that must
be given to a consumer for the offer or issue of a financial
product in accordance with Div 2 of Pt 7.9 of the
Corporations Act
Note: See s761A for the exact definition.
personal advice Financial product advice given or directed to a person
(including by electronic means) in circumstances where:
 the person giving the advice has considered one or
more of the person’s objectives, financial situation and
needs; or
 a reasonable person might expect the person giving the
advice to have considered one or more of these
matters
Note: This is a definition contained in s766B(3) of the
Corporations Act.
platform An investor directed portfolio service (IDPS) and IDPS-
like scheme
product A financial product or service
product governance The systems, processes, controls, procedures, audits, or
other arrangements in place to ensure that, as far as
reasonably practicable, issuers and distributors comply
with their design and distribution obligations
product intervention
power
Means the power contained in Pt 7.9A of the
Corporations Act and Pt 6-7A of the National Credit Act
Productivity
Commission Inquiry
report
Productivity Commission, Competition in the Australian
financial system: Inquiry report, June 2018
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Term Meaning in this document
Pt 7.8A (for example) A part of the Corporations Act (in this example numbered
7.8A), unless otherwise specified
reasonable steps
obligation
The obligation to take reasonable steps to ensure
distribution is consistent with the TMD, as defined in
s994E(1), (3) and (4) of the Corporations Act
regulated person Has the meaning given in s994A(1) of the Corporations
Act
regulated sale Has the meaning given in s994A(1) of the Corporations
Act
REP 622 (for
example)
An ASIC report (in this example numbered 622)
retail client A client as defined in s761G of the Corporations Act and
Div 2 of Pt 7.1 of the Corporations Regulations
retail product
distribution conduct
Has the meaning given in s994A(1) of the Corporations
Act
review period Has the meaning given in s994B(5)(e)–(f) of the
Corporations Act
review triggers Events and circumstances that would reasonably suggest
that the TMD is no longer appropriate, as defined in
s994B(5)(d) of the Corporations Act
Revised Explanatory
Memorandum
Revised Explanatory Memorandum for Treasury Laws
Amendment (Design and Distribution Obligations and
Product Intervention Powers) Bill 2019
RG 51 (for example) An ASIC regulatory guide (in this example numbered 51)
Royal Commission Royal Commission into Misconduct in the Banking,
Superannuation and Financial Services Industry
Royal Commission
final report
Royal Commission into Misconduct in the Banking,
Superannuation and Financial Services Industry: Final
report, February 2019
s994B (for example) A section of the Corporations Act (in this example
numbered 994B), unless otherwise specified
significant dealing The term ‘significant dealing’ is not defined in the
Corporations Act. In this guide, we have listed factors to
consider when deciding if a significant dealing has
occurred: see RG 274.158–RG 274.161
SIS Act Superannuation Industry (Supervision) Act 1993
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Term Meaning in this document
stop order power An administrative mechanism that allows ASIC to
prevent entities from engaging in specified conduct
when, in ASIC’s view, there has been a breach of Div 2
of Pt 7.8A or s994E of the Corporations Act. ASIC is
granted this power under Pt 7.8A of the Corporations
Act
target market The class of consumers described in the TMD for the
product under s994B(5)(b) of the Corporations Act
target market
determination
Has the meaning given in s994B of the Corporations Act
TMD Means a target market determination document
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Related information
Headnotes
consumer, financial product, design obligations, design and distribution
obligations, distribution obligations, distributors, issuers, key attributes,
product governance, reasonable steps obligation, retail client, significant
dealings, target market, target market determination, TMD
Regulatory guides
RG 8 Hearings practice manual
RG 36 Licensing: Financial product advice and dealing
RG 51 Applications for relief
RG 53 The use of past performance in promotional material
RG 104 AFS licensing: Meeting the general obligations
RG 165 Licensing: Internal and external dispute resolution
Note: We have updated our internal dispute resolution requirements for complaints
received by financial firms on or after 5 October 2021: see RG 271. For complaints
received by financial firms before that date, RG 165 applies. We will withdraw RG 165
on 5 October 2022.
RG 175 Licensing: Financial product advisers—Conduct and disclosure
RG 205 Credit licensing: General conduct obligations
RG 234 Advertising financial products and services (including credit): Good
practice guidance
RG 244 Giving information, general advice and scaled advice
RG 256 Client review and remediation conducted by advice licensees
RG 271 Internal dispute resolution
Note: This guide came into effect on 5 October 2021.
RG 272 Product intervention power
Information sheets
INFO 1 Administrative hearings
INFO 151 ASIC’s approach to enforcement
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Consultation papers
CP 325 Product design and distribution obligations
Reports
REP 69 Shadow shopping survey on superannuation advice
REP 279 Shadow shopping study of retirement advice
REP 454 Funeral insurance: A snapshot
REP 470 Buying add-on insurance in car yards: Why it can be hard to say no
REP 492 A market that is failing consumers: The sale of add-on insurance
through car dealers
REP 580 Credit card lending in Australia
REP 583 Review of exchange traded products
REP 586 Review of reverse mortgage lending in Australia
REP 587 The sale of direct life insurance
REP 632 Disclosure: Why it shouldn’t be the default
REP 674 Response to submissions on CP 325 Product design and
distribution obligations
Legislative instruments
ASIC Corporations (Basic Deposit and General Insurance Product
Distribution) Instrument 2015/682
ASIC Corporations (Deferral of Design and Distribution Obligations)
Instrument 2020/486
ASIC Corporations (Design and Distribution Obligations—Exchange
Traded Products) Instrument 2020/1090
Legislation
ASIC Act, Div 2 of Pt 2, s12DA
ASIC Regulations, reg 2B(3)
Corporations Act, Ch 7, Pts 6D.2, 7.8A, 7.9 and 7.9A, s9, 707, 760A, 766B,
766C, 910A, 912A, 912D, 961B, 994A, 994AA, 994B, 994C, 994D, 994E,
994F, 994G, 994J, 994L, 994N, 994P, 1012C, 1018A, 1023E, 1101C, 1311
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Corporations Amendment (Design and Distribution Obligations)
Regulations 2019
Corporations Regulations, reg 7.6.01, 7.8A.02, 7.8A.05, 7.8A.06, 7.8A.07,
7.8A.08, 7.8A.09, 7.8A.10, 7.8A.20
National Credit Regulations, reg 25
National Credit Act, Pt 6-7A
SIS Act, s52
Treasury Laws Amendment (Design and Distribution Obligations and
Product Intervention Powers) Act 2019