Design and Distribution Obligations (DDO) and Product Intervention Powers (PIP) - New Legislation
The Treasury Laws Amendment Act 2019 (Design and Distribution Obligations and Product Intervention Powers) was passed in April 2019 (DDO and PIP Act). The new legislation imposes obligations on issuers (designers) and distributors of financial products to incorporate product governance frameworks to ensure that there are clear target market determinations (TMD’s).
What Is a Responsible Entity?
A Responsible Entity is an Australian public company licensed to operate managed investment schemes. It performs, amongst other duties, the role of trustee and manager. All registered investment schemes are legally required to engage the services of a Responsible Entity.
Responsible Entity Obligations
The RE’s duties are set out in the Corporations Act 2001 and the managed investment scheme’s constitution. In particular, an RE must:
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Act honestly;
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Exercise the degree of care and diligence that a reasonable person would exercise if they were in the RE's position;
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Act in the best interests of members of the scheme and, if there is a conflict between the members' interests and its own interests, give priority to the members' interests;
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Treat all members with interests in the same class equally and members in different classes fairly;
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Ensure the scheme has a constitution and compliance plan which meet regulatory and legal requirements;
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Ensure that all scheme property is held separately from RE Property and property of any other scheme; and
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Report any breach of the Corporations Act relating to their scheme, to ASIC.
An RE’s services and responsibilities can include:
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Issuing the project product disclosure statement.
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Complying with annual financial reporting and auditing obligations.
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Reporting obligations to investors.
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Dealing with investor’s inquiries.
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Managing the investment project or appointing the scheme operational manager.
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Entering into an agreement to cover the relationship between the RE and operational manager including reporting, funding and budgetary arrangements, insurance, audits, additional funding, and other relevant matters.
Who Uses Our Services?
RE services would typically be sought by:
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Promoters or Investment Managers wishing to establish an investment fund in Australia
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Investors wanting to replace their existing RE
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RE’s who would like to be replaced as RE and released from it's duties and obligations.