WHAT IS TARGET MARKET DETERMINATION (TMD) AND DESIGN AND DISTRIBUTION OBLIGATIONS (DDO)
A TMD is a document issued by each Lender, that provides details on all lending products. It sets out:
The type of customer the product is suitable for
How the product can be offered or sold
The DDO framework applies to a range of financial products, including certain credit products, which encompasses mortgages. The Design and Distribution Obligations (DDO) in Australia are part of a regulatory framework aimed at ensuring financial products are designed to meet the needs of consumers and are distributed in a manner that aligns with those needs. These obligations came into effect on October 5, 2021.
KEY ENTITIES
Under the DDO, the key entities involved are:
Product Issuers: These are companies that create and issue financial products. They are responsible for designing products that meet the needs of a specific target market and for preparing a Target Market Determination (TMD) that outlines who the product is appropriate for.
Product Distributors: These entities are responsible for selling or offering financial products to consumers. Distributors must take reasonable steps to distribute products in accordance with the TMD set by the product issuer. This includes financial advisers, brokers, and other intermediaries involved in the distribution process.
Regulatory Body (ASIC): ASIC oversees the implementation of the DDO and ensures compliance. They provide guidance and may take enforcement action if obligations are not met.
DISTRIBUTORS – Mortgage Brokers
As distributors, mortgage brokers are responsible for ensuring that the mortgage products they offer or recommend are distributed in accordance with the Target Market Determination (TMD) set by the product issuer (such as a bank or lender). This means mortgage brokers must:
Understand the TMD: Brokers need to be familiar with the TMD for each mortgage product they distribute, which defines the target market and conditions under which the product should be distributed. Refer to the Lender website to view the TMDs.
Take Reasonable Steps: Brokers must take reasonable steps to ensure that the
mortgage products are offered to consumers who fit the target market outlined in the TMD.
Provide Feedback: Brokers may also be required to report any significant dealings that are inconsistent with the TMD back to the issuer, helping them to review and refine the TMD as needed.
The goal of these obligations is to ensure that mortgage products are appropriately matched to consumers' needs and circumstances, reducing the likelihood of consumers being offered unsuitable financial products. Each Lender will have their TMDs displayed and available on their website.
REGULATORY OVERSIGHT
The Australian Securities and Investments Commission (ASIC) oversees compliance with the DDO. ASIC has the authority to enforce the obligations and take action if financial products are found to be inappropriately designed or distributed. Refer to RG 274 RG 274 Product design and distribution obligations | ASIC
Impact on Financial Services
The DDO framework significantly impacts how financial products are brought to market. It requires financial service providers to adopt a more structured approach to product development and distribution, focusing on consumer outcomes rather than purely commercial interests.
BENEFITS
Consumer Protection: Enhanced protection for consumers by ensuring products are suitable for their needs.
Market Confidence: Increased confidence in the financial system due to more
appropriate product offerings.
Accountability: Greater accountability for product issuers and distributors in terms of product suitability and distribution practices.
Overall, the DDO is designed to create a more transparent and consumer-focused financial services environment in Australia, where products are crafted and distributed with the consumer’s best interests in mind.
Disclaimer: This information is current as at the time of each QRG publication. It is a general information guide only.