Everyone in the financial services sector is working hard on preparations for the implementation of the new laws imposing design and distribution obligations (DDO obligations) on the issuers and distributors of financial, deposit and credit products. The new laws take effect on 5 October 2021 and are implemented by the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019.
Such complex and expansive legislative reforms can have unintended consequences, and this legislation is no exception.
On 9 August 2021 the Federal Treasury issued a media release informing industry that following feedback from industry stakeholders, the Government had decided to make a number of amendments to the legislation to make sure the intended operation of the reforms is achieved. Unsurprisingly, given the late notice of the changes, they will not be able to be given legislative effect prior to introduction of the reforms – instead temporary measures will be put in place under ASIC’s powers to modify the law temporarily, until the changes can be given legislative effect.
The changes announced include:
- Margin lending to corporate entities will be exempt from DDO obligations, consistent with the intention that all margin lending is to be exempt from DDO.
- Employees of licensees are not subject to their own separate set of DDO obligations – the fact such an exemption has to be granted is indicative of the fact that the scope of the legislation is very broad.
- Clarifying the position in relation to 31-day term deposits to ensure that they, as basic deposit products under the AFSL regime, also fall within the DDO regime.
- Make sure there is alignment between the definitions of “retail” and “wholesale” investors in the Corporations Act to ensure that the definitions and distinction extend consistently to the DDO regime
- Exempt non-cash-payment facilities from the DDO regime, except for credit and debit card facilities and stored value facilities.
Treasury has said that the changes are required to clarify the law, and ensure that the regime remains fit for purpose. We are mindful, however, that these clarifications, at a stroke, negate months and years of effort by businesses offering or distributing these products. Further late changes may be yet to come, as Treasury indicates that engagement with stakeholders leading up to the implementation date is continuing.
We are here to assist our clients with implementation of the new design and distribution obligations in relation to their businesses and activities.
