DDO won’t absolve conflicts of interest
Under the design and distribution obligations (DDO), product issuers and distributors will still need to be careful with what incentives apply to distributors who sell products to those target customers, according to EY.
The DDO regime required product issuers and distributors to have an adequate governance framework to ensure products were targeted at the right customers but having this in place would not be enough to absolve them from any conflicts of interest.
Speaking on a webinar, Michelle Segaert, EY Oceania financial services law partner, said the Australian Securities and Investments Commission (ASIC) would be focusing on this.
“With ASIC, we will likely see conflicts arising under the distribution relationships, as we are now seeing a more disintermediated financial services sector with product issuers spitting from distributors, but also seeking their products have relevant distribution channels,” Segaert said.
“Under the design and distribution obligations (DDO), where we will have a target market regime, product issuers and distributors will need to be careful what incentives may apply to distributors who sell products to those target customers.
“In particular, where target markets have been defined broadly, while we’re expecting alignment between issuers and distributors, which both have reasonable steps obligations, distributors should be strongly aware of the situations of conflict which may present in their selling practices while the DDO regimes evolves, particularly in relation to the way in which they’re remunerated for sales.”
Segaert said it was important to be constantly reviewing and rethinking what is the best way to manage conflicts of interest, whether that was to disclose, control or avoid them.
“Just because you’ve disclosed the nature of the conflict upfront, doesn’t mean you might need to avoid later down the track depending on changes in circumstances,” Segaert said.
“Conflict management should be considerate of the different types of conflicts which may arise and have different control mechanisms that can be used to address different types of conflicts, it’s not a one size fits all approach.”
AUTHOR
Chris Dastoor
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