The Australian Securities and Investments Commission (ASIC) aims to combat the negligence in the design and allocation obligations (DDOs) of over-the-counter (OTC) derivatives and other high-risk financial products. This includes CFD and cryptocurrency derivatives.

A recent targeted review examined the DDO practices of sample financial issuers and found that most retail customers incurred losses when trading contracts for differences. ASIC is disappointed that some high-risk retail product issuers have made almost no changes in fulfilling their design and distribution obligations (DDOs), "said Karen Chester, Vice Chairman of ASIC

DDO requires companies to design financial products that meet consumer needs and distribute these products in a targeted manner. This regulation was approved by the Australian Parliament in 2019 and came into effect on October 5, 2021.

Nearly two years after DDO was approved, regulatory authorities have found little evidence to suggest that financial products, especially high-risk products, incorporate transparent targets and targeted customer needs guidelines. In Australia, over 60 licensed financial service providers provide high-risk over-the-counter derivatives to retail customers.

After the recent survey results, ASIC called on financial product issuers to address the issue of excessive reliance on customer survey questionnaires, review the mass marketing dynamics of over-the-counter derivatives, and optimize available data when designing products and targeting the market.

Since March 2023, ASIC has taken action against five retail over-the-counter derivative issuers. These measures have led to 10 temporary suspension orders and further DDO related investigations. Chester pointed out, "We will not hesitate to take further action, from suspension orders to court proceedings, especially when we see serious dereliction of duty

background

Over the years, ASIC has stated that it has taken strong and frequent regulatory actions to address the harm caused to consumers by providing over-the-counter derivatives to retail customers, including:

Enforcement actions;

Cancellation and suspension of AFS license;

Product intervention order;

Public warning;

Strengthen the demand for financial resources;

Publications and regulatory guidelines.

DDO requires financial product publishers and distributors to ensure that product design takes into account consumer needs and targeted distribution. Financial product companies also need to monitor results over time and reassess their product governance arrangements. It is a mandatory public document (according to DDO) that specifies the consumer categories (target markets) that financial products may be suitable for, as well as matters related to product distribution and review.

So far, ASIC has conducted or is conducting risk based supervision on buy before pay, credit cards, derivatives, investment products, microcredit, and pensions. ASIC has:

82 temporary stop loss orders were issued (9 issuers have subsequently withdrawn 11 products from the market);

Take regulatory actions against five retail over-the-counter derivative issuers for violating DDO (22-056MR, 23-127MR, 23-141MR, 23-040MR);

Published supervision results on microcredit contracts (22-352MR), pensions (22-236MR), and management investment products (23-115MR);

Initiate civil penalties for suspected violations of the Regulations by managing investment plan distributor Firstmac LIMITED (22-361MR), credit product issuer American Express Australia Limited (22-338MR), and contract for difference issuer eToro Aus Capital Limited (23-204MR)