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DDOs extended without consultation: COBA

There was no consultation on expanding the design and distribution obligations to home loans and other consumer credit products, a banking group has said.

In a recent submission to the Senate select committee on Australia as a technology and financial centre, the Customer-Owned Banking Association (COBA) stated that various measures recommended by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry have been legislated without a regulation impact statement (RIS).

In particular, COBA chief executive Michael Lawrence addressed the expansion of the design and distribution obligations (DDO) regime to cover consumer credit, and argued that this was a “massive” expansion that was not subject to a consultation process.

The product DDOs for financial products – which take effect on 5 October after being postponed from its original commencement date of 5 April due to the COVID-19 crisis – were passed in Parliament in 2019 following a recommendation of the Financial System Inquiry (FSI).

The obligations have been designed with the aim of helping customers obtain appropriate financial products by requiring issuers and distributors to have a consumer-centric approach to designing and distributing products, and cover lenders and brokers.


The Australian Securities and Investments Commission (ASIC) released a regulatory guide, which explains which products fall under the DDOs, and ASIC’s interpretation and administration of the obligations.

The guide states that DDOs require issuers of financial products such as lenders to consider the design of its product to determine whether an appropriate target market exists for it and who it might be.

Issuers and distributors such as brokers and other referrers (such as online broking/mortgage marketplace sites) will also be required to distribute products in a more targeted manner.

‘Last-minute’ DDO changes lacked cost-benefit analysis

In the COBA submission to the Senate committee, Mr Lawrence said that there was no public assessment or cost-benefit analysis undertaken, nor a RIS done before expanding the DDO regime “at the last minute” to cover home loans and other consumer credit products.

“The amendments to expand the regime to include credit were rushed through under a guillotine – debate in the lower house on the amendments lasted about nine minutes, while debate in the Senate lasted for about one minute,” he said.

“It appears many MPs held the view that the amendments would operate to implement recommendations made by the Financial Services Royal Commission.”

However, Mr Lawrence said that commissioner Kenneth Hayne did not recommend this policy to expand the DDOs, but rather asked a question about whether there was a case to extend the regime.

The royal commission final report stated: “The design and distribution powers do not now extend to credit products. More significantly for present purposes, those powers do not extend to financial products that are not regulated by the Corporations Act, but are regulated by Division 2 of Part 2 of the ASIC Act.

“The product intervention powers have a broader reach, but nonetheless do not extend to all ASIC Act products. It is not apparent why the powers should not extend, as ASIC has requested, to all financial products and credit products within ASIC’s regulatory responsibility.”

Mr Lawrence said that in COBA’s view, the commissioner’s question is answered by considering the origins of the DDOs, which is in the Financial System Inquiry (FSI) final report.

He said: “The FSI, in supporting a DDOs proposal, focussed on addressing detrimental consumer outcomes from large scale financial investment failures, and poor advice associated with complex financial products.

“There was absolutely no focus on credit products or basic banking products.”

COBA urges ‘rigorous’ assessment of regulation impact

In its submission, COBA has recommended “consistent and rigorous” application of RIS processes to demonstrate a stronger commitment to adequately assess the impact of proposed regulatory measures.

Mr Lawrence noted that in the Financial Sector Reform (Hayne Royal Commission Response) Bill 2020’s Explanatory Memorandum, it states that the final report has been certified as being informed by a process and analysis “equivalent to a regulation impact statement for the purposes of the government decision to implement this reform”.

However, he said that COBA does not agree that the royal commission report can be a substitute for a RIS.

“The legislation introduced significant new obligations on banks in relation to breach reporting and new restrictions on product sales and interactions with customers among other measures,” Mr Lawrence said in COBA’s submission.

“The impact of these measures was not subject to a RIS and the very substantial bill, with its multiple schedules, was not even referred to a Senate Committee for review."

[Related: Treasury defends responsible lending repeal in Senate hearings]

DDOs extended without consultation: COBA

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