The new Design and Distribution Obligations are here
Corporate News - 04 October 2021
The new product design and distribution obligations in Part 7.8A of the Corporations Act 2001 (Cth) are due to commence tomorrow, 5 October 2021 (the DDO Regime). Under the DDO Regime, the onus is on issuers and distributors to design and distribute products to the right “target market” rather than simply providing enough disclosure for retail investors to decide for themselves whether an investment is suitable.
In short, the DDO Regime requires issuers to design products that are likely to be consistent with the likely objectives, financial situation and needs of an appropriate “target market” by making a target market determination (TMD). The TMD will need to be reviewed on an on-going basis to ensure appropriateness. Issuers and distributors (such as brokers and other persons who engage with potential retail investors) will then need to take reasonable steps that will, or are reasonably likely to, result in a distribution being consistent with the most recent TMD. Issuers and distributors will also need to notify ASIC of any “significant dealings” which are inconsistent with the TMD and will need to maintain accurate records of all decisions in respect of the TMD and distribution.
In terms of equities, the DDO Regime applies to products and securities requiring disclosure under Parts 6D.2 and 7.9 of the Corporations Act (including options, preference shares, partly paid shares, performance shares, convertible notes or other hybrid securities and managed investment scheme products). Helpfully, most fully paid ordinary shares (other than shares in an investment company or where the company intends the shares to be converted into preference shares) and securities issued under an employee share scheme are excluded from the DDO Regime.
Failure to comply with the DDO Regime may result in civil and criminal penalties. ASIC will also have power under the DDO Regime to exercise a range of administrative powers (including making a stop order). This is in addition to ASIC’s product intervention power which can be implemented where ASIC is satisfied that a product has resulted, will result or is likely to result in significant detriment to consumers.
The DDO Regime is new and fairly complex. Both listed and unlisted entities, managed investment schemes and their brokers will need to take a number of steps to ensure they comply with their obligations. Please contact us in our Perth office or our Melbourne office if you would like further detailed information in relation to the DDO Regime and the implications for future capital raisings.