The corporate watchdog’s draft guidance on produce design and distribution obligations (DDO) will increase the costs of product manufacture and distribution and could get passed onto consumers, according to Hall and Wilcox Lawyers.
Partner at the firm, Harry New, said the Australian Securities and Investments Commission’s (ASIC’s) “principles-based approach” would be welcomed by the financial services industry but the indirect effects of the legislation could place significant burden on product issuers, such as a fund managers, and distributors including financial planning groups.
“The DDO will increase the level of involvement a product issuer will need to have in their distribution network, and the amount of due diligence an issuer will need to undertake. It will also increase the costs of product manufacture and distribution,” he said.
“One commercial question in relation to the DDO regime is whether such costs will be passed on to consumers.”
New said he expected the indirect impact to be significant despite ASIC stating that arrangements between issuers and distributors were “commercial matters that issuers and distributors can determine among themselves”.
He noted that ASIC had some expectations which went “above and beyond the black-letter law”.
“For example, ASIC expects issuers to ‘manage the risk’ of a financial product being widely sold to investors who do not have a diversified portfolio: this is possible if a Target Market Determination states the product is only suited for investors who have or want a diversified portfolio. But it’s not explained how this risk-management does not move the issuer into the realm of giving personal advice.”