What are the design and distribution obligations (DDO)?
The design and distribution obligations require lenders to design financial products to meet the needs of consumers and ensure that the distribution of their products is completed in a more targeted manner.
Lenders have been required to make available a Target Market Determination (TMD) for each of their products.
A TMD describes the type of consumer the product has been designed for. It sets out the likely objectives, needs, and the financial position of a consumer that would fall within that target market for that product.
How does this impact you as a broker?
There are a couple of things you need to be aware of.
In line with these obligations, all brokers dealing in consumer finance, regardless of whether they hold their own Australian Credit Licence, are required to notify their aggregator of any customer complaints relating to lenders products. These are then collated and reported to the lender, usually on a quarterly basis.
Ensure you know where to access the lenders target market determination documents. TMDs are available on the lenders broker portals and/or websites and should be provided to clients if requested.
If you are not subject to the NCCP Act’s Best Interests Duty, make sure your customer falls within the target market determination for the lender’s particular product you have recommended.
Notify Connective if you receive a complaint relating to a Lenders product.
If you receive a customer complaint relating to a financial product, then this must be reported to Connective.
This requirement applies to all brokers, both mortgage and asset finance brokers, regardless of whether you operate as a Connective Credit Representative or hold your own licence.
All complaint notifications must be sent here.
Ensure your customer falls within the TMD for that lender’s product.
Brokers have an obligation to take reasonable steps to ensure that the distribution of the product is consistent with the lenders TMD.
Mortgage brokers are subject to the NCCP Act’s Best Interests Duty, which is considered a higher requirement, and so do not have to refer to the TMD when recommending a product to meet their client’s needs.
Asset finance brokers who are not subject to the NCCP Act’s Best Interests Duty must adhere to the DDO legislation by only recommending products to consumers where the consumer meets the determination guidelines.
You should not be recommending a product if there is no TMD available. There is no requirement to provide the TMD to the client however, you must do so upon their request.
Summary
All Brokers (Mortgage brokers, Asset Brokers, Connective Credit Reps and ACL holders) must notify Connective of customer complaints that relate to a financial product.
Asset brokers (not subject to NCCP Act’s Best Interests Duty) must ensure that each customer falls within the lender’s TMD for that product.
For more information relating to the DDO legislation you can read the ASIC Regulatory Guidance here.