9 November 2022 - Product design and distribution: The consumer is key

By Karen Chester, Deputy Chair

The design and distribution obligations (DDO) regime recently marked its first full year in operation. It also marks a shift to outcomes-based regulation — in short, to know your customer outcomes.

Companies need to take a consumer-centric approach across a financial product’s lifecycle. Ultimately, this requires products to be designed and distributed with clear and contemporary consideration of the objectives, financial situation and needs of the consumers being targeted.

For boards, the regime is fundamental to managing non-financial risks and preventing many of the poor outcomes seen in recent years. Products that were the subject of several case studies in the banking Royal Commission would simply not have passed muster under DDO.

It is encouraging to see the work many firms have done to implement DDO, especially in developing target market determinations (TMDs) and simplifying unnecessarily complex products. However, the obligations are not ‘set-and-forget’. Companies must monitor consumer outcomes to improve and refine the design and distribution of their financial products over time.