The Australian Securities and Investment Commission (ASIC) aims to clamp down on the negligent implementation of design and distribution obligations (DDO) for over-the-counter (OTC) derivatives and other high-risk financial offerings. These include contracts for differences (CFDs) and cryptocurrency derivatives.
ASIC tightens high-risk and OTC derivatives product distribution
A recent targeted review, which examined the DDO practices of sample financial issuers, found most retail clients lost money when trading CFDs. The ASIC deputy chair, Karen Chester, said:
ASIC is disappointed that some high-risk retail product issuers have changed little in response to their design and distribution obligations (DDO).
DDO requires companies to design financial products that meet the needs of consumers and to distribute these in a targeted manner. The regulations got the stamp of approval from the Australian Parliament in 2019 and compliance came into effect on 5 October 2021.
After almost two years since DDO approval, the regulator found little evidence that financial products, especially high-risk ones, incorporate the guidelines of transparent objectives and targeted customer needs. In Australia, there are more than 60 licensed financial service providers that offer high-risk OTC derivatives to retail clients.
Don’t miss out the latest news, subscribe to LeapRate’s newsletter
After recent findings, ASIC called on issuers of financial products to address over-reliance on customer questionnaires, review the mass marketing drives of OTC derivatives, and optimise available data when designing products and targeting a market.
Since March 2023, ASIC has taken action against five issuers of retail OTC derivative products. These steps led to 10 interim stop orders and further DDO-related investigations. Chester indicated:
We will not hesitate to take further action, from stop orders through to court proceedings, especially where we see egregious failures.
