In brief - Board New Year's resolutions for 2020 should include working through the new PDD (product design and distribution) obligations, which are scheduled to apply to financial products and credit products in 2021
An important development occurred recently with ASIC issuing draft regulatory guidance for the PDD framework. ASIC's consultation process precedes the finalisation of its PDD regulatory guide.
Although the PDD obligations will commence in April 2021, businesses should take advantage of the lead time, prior to commencement of the new PDD regime, to familiarise themselves with the obligations, and formulate and implement appropriate governance and product development arrangements and processes in order to be ready to comply with the regulatory obligations.
The PDD obligations are set out in Part 7.8A of the Corporations Act 2001 (Cth). The obligations:
- provide a framework for issuers and distributors to develop and maintain effective product governance processes across the lifecycle of financial products
- represent a significant development for the regulation of financial products and credit products
For an overview of the framework, refer to our earlier articles New Design and Distribution Obligations and Product Intervention Powers for Financial Products and Government proposes Design Distribution Obligation and Product Intervention Powers legislation following Financial System Inquiry.
Product governance and regulator intervention powers for certain financial product types and classes have been on the overseas regulatory agenda for some time. We expect that this will influence regulatory policy and outcomes in Australia, particularly the product design and distribution experience in the UK and Europe.
It is particularly significant that there is also a correlated proposed product responsibility obligation emerging on the prudential regulatory front, which is evidenced in recommendation 1.17 of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and supported by APRA in its submission to the Royal Commission regarding the Bank Executive Accountability Regime (BEAR). Extending the BEAR to all APRA regulated entities has also progressed to consultation by Treasury as part of FAR (the Financial Accountability Regime).
Planning for the design and distribution obligation and FAR should go hand in hand, especially in view of proposals for life cycle executive responsibility for products. You can read more about FAR in our article Treasury consults industry on its proposed Financial Accountability Regime.
Given this momentum, we think that financial product issuers, their boards and executives responsible for product development should be in the process of assessing and addressing the implications of the PDD and FAR obligations and implementing appropriate review frameworks as a priority for 2020.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.