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Design and Distribution Obligations (RG274) and Internal Dispute Resolution (RG271) Information for Advisers

ASIC recently announced new regulatory guides concerning the design and distribution of regulated products to customers, including the capture and reporting of product-related complaints known as product Design and Distribution Obligations (RG274), as well as the internal resolution of disputes (RG271). Both pieces of legislation come into effect from 5 October 2021.

This article covers the changes AUSIEX has made in response to each of the new Regulatory Guides, as well as the obligations you have as product Distributors.

1. Regulatory Guide 274: Design and Distribution Obligations (RG274 or DDO)

   This legislation introduces a new framework for product Issuers and Distributors across the lifecycle of financial products in order to promote better, fairer outcomes for consumers. At a high level, RG274 states:

   • Issuers must design products that are consistent with the likely objectives, financial situation and needs of consumers for whom they are intended;
   • Issuers must consider the key attributes of a product and determine a Target Market (TMD) including specifying any distribution conditions;
   • Issuers and Distributors must take ‘reasonable steps’ to ensure financial products are promoted to consumers identified in the TMD;
   • Issuers monitor consumer outcomes and review products to ensure consumers receive products that are likely to be consistent with their objectives, financial situation and needs;
   • Issuers and Distributors develop and maintain effective product governance arrangements across the life cycle of financial products; and
   • Issuers must monitor and plan how the product will be reviewed, including specific ‘Triggers’ for review of the product.

   What products are captured?

   Only regulated products fall within the scope of DDO, meaning products issued without a Product Disclosure Statement (PDS) are not captured by the regime. For example, Exchange Traded Options (ETOs) and Exchange Traded Products (ETPs) including ETFs and Warrants are in scope, but equities fall outside of the DDO framework.

   Additionally, DDO obligations only apply where (in-scope) products are distributed to retail clients. Clients who have been classified as either wholesale, sophisticated, or professional investors are not captured within DDO.

   What this means for AUSIEX

   As an Issuer:

   • Our ETO product is captured by DDO. We have therefore produced an ETO Target Market Determination (TMD) which is available on our website alongside our ETO application form and PDS, as well as information provided to new advisers with AUSIEX. It also means that we need to review complaints data, if any, from Distributors relating to AUSIEX ETOs.
   • We have updated our ETO PDS and Application Form effective 5 October 2021. We recommend you carefully review the changes. Should you have any questions about these changes, please contact us.

   As a Distributor:

   • We distribute online ETPs (such as Exchange Traded Funds and Exchange Traded Managed Funds) and the Macquarie Cash Management Account so have an obligation to capture complaints, however are not required to make the TMD for each ETP available – that responsibility remains with the product Issuer.
   • Where advisers are supporting non-retail clients, care needs to be taken to ensure that the classification is, and continues to be, accurate. AUSIEX may have an obligation to report to ASIC any instances where an ETO is acquired by a retail client who has been incorrectly classified as a non-retail client. Equally, AUSIEX expects that advisers will ensure that if in doubt, the client is treated as a retail client for the purposes of the DDO obligations.

   What this means for advisers/AFSL-holders

   In line with these new requirements, in order to distribute AUSIEX ETOs to your clients, we ask that you:

   • Review our Exchange Traded Options Target Market Determination.
   • From October 2021 onwards, provide complaints data, if any, about AUSIEX ETOs to us on a monthly basis via email at productteam@ausiex.com.au, or sooner if required by the Distribution Agreement. The report should include the nature and timing of complaints, number of complaints and any other relevant information that will assist AUSIEX in identifying if the TMD is no longer appropriate. If no complaints are received in that month, no report is required to be sent.

   Frequently Asked Questions

   Is advice captured under DDO?

   DDO is limited to advisers implementing personal advice given to the retail client. As an issuer, AUSIEX needs to take reasonable steps in the circumstances to ensure this. Accordingly, we will be issuing a separate statement to affected advisers, to advise them of the steps we need them to take to assist us in meeting this obligation.

   Is share trading captured under DDO?

   No, share trading is not a regulated product (as defined in the Corporations Act) and so is not captured by DDO. As mentioned above ETPs and the Macquarie Cash Management Account are covered, however the responsibility for distributing the TMDs rests with the Issuer and not AUSIEX. The only obligation AUSIEX has in regards to ETPs and the Macquarie CMA is to provide complaint data back to the relevant Issuer.

   Will AUSIEX be making TMDs from ETP Issuers available on the AUSIEX website?

   No, as a Distributor of online exchange traded ETPs, AUSIEX is not required to provide the TMDs on our website. The obligation to make TMDs available remains with the Issuers.

   Where can I find a copy of the AUSIEX ETO TMD?

   AUSIEX has made our ETO TMD available on our website alongside our ETO application form and PDS. We will also provide the ETO TMD to new advisers in their on-boarding information.

   Where can I find a copy of the Macquarie Cash Management Account (CMA) TMD?

   As the product Issuer, Macquarie are responsible for the distribution of the CMA TMD. We recommend you visit their website or contact them to obtain a copy of their TMD.

   Where can I find a copy of the TMD for an ETP I wish to trade?

   The provision of the online exchange traded TMDs are the responsibility of the individual Issuer and we recommend you visit the Issuer’s website or contact them to obtain a copy of their TMD.

   Do I need to provide the AUSIEX ETO TMD to my clients before trading options for them again?

   The AUSIEX ETO TMD needs to be considered by you as their adviser as part of your best interest duties.

   Do I need to provide AUSIEX ETO complaint reporting to AUSIEX?

   Yes, as per the ASIC Regulatory Guide 274, ‘Distributors including financial advisers serve a critical role in product governance given their direct interaction with consumers. Distributors must collect information about the financial products they distribute, and ensure that this information flows back to the products’ Issuers.’ That means you must provide complaints reporting about AUSIEX ETOs to us where you engage in retail distribution of that product.

   Do I need to provide AUSIEX ETO complaint reporting even when I haven’t received any complaints?

   No, the ‘nil reporting requirement’ was formally removed from the RG274 legislation, meaning you only need to send us monthly reporting data if complaint/s were received in that period.

   Where do I send AUSIEX ETO complaint reporting information to?

   Please email all complaint reporting to productteam@ausiex.com.au.

   What format does the complaint report need to be in?

   AUSIEX has no prescribed format for complaints reporting, however the content should address:

   • the nature and timing of complaints;
   • number of complaints; and
   • any other relevant information that will assist AUSIEX in identifying if the TMD is no longer appropriate.

   Do I need to tell you if I become aware that some of my clients who have an AUSIEX ETO account don’t, or no longer, fit the criteria outlined in AUSIEX’s ETO TMD?

   Yes, as a Distributor of a financial product you must notify the Issuer (AUSIEX) of a significant dealing in the product that is not consistent with the AUSIEX ETO TMD. If you become aware of such a dealing, you must notify us in writing as soon as practicable, and in any event within 10 business days after becoming aware. Please send any notifications to AUSIEX at productteam@ausiex.com.au.

2. Regulatory Guide 271: Internal Dispute Resolution (RG271) Information

   Designed to ensure all consumers have access to fair, timely and effective dispute resolution, RG271 contains updated standards and requirements which seek to achieve a consistent approach to complaint handling across the industry. RG271 defines a ‘complaint’ as “(an expression) of dissatisfaction made to or about an organisation, related to its products, services, staff or the handling of a complaint, where a response or resolution is explicitly or implicitly expected or legally required.”

   In response to this new legislation, AUSIEX has updated its processes and disclosure documents which refer to our complaints handling processes.

   Updates to our disclosure documents effective 5 October 2021

   The changes include the updating of final response references to ‘IDR Response’ in accordance with RG271, as well as changes to the maximum timeframes by which we are required to provide customers with an IDR Response, from 45 to 30 calendar days.

   • Share Trading Terms and Conditions
   • Financial Services Guide
   • Exchange Traded Options PDS
   • Privacy Policy

   What you need to do

   We recommend you carefully review the changes. If you have any questions, do not hesitate to call us on 1800 252 351 between 8:30am and 5:30pm (Sydney time) Monday to Friday or email service@ausiex.com.au.