1. The Legal Framework

Legislation: Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019, inserting Pt 7.8A, sections 994A-994M of Corporations Act.

ASIC Guidance: RG 274 Product design and distribution obligations.

Who must comply?

• Issuers - makers of financial products for retail clients (managed funds, insurance, super, credit cards, crypto-assets that are financial products, margin trading)
• Distributors - sellers, arrangers, brokers, advisers

Two Core Tools:

A) Target Market Determination (TMD) - s994B
Issuer must make a TMD before offering product. Must contain:

1. Target market - class of retail clients product is likely appropriate for, based on objectives, financial situation, needs
2. Distribution conditions - how it must be distributed to reach target market
3. Review triggers - events that would make TMD no longer appropriate (complaints, losses, claims ratio)
4. Review periods
5. Reporting - what distributors must report (complaints, significant dealings outside TMD)

A TMD is NOT a PDS. PDS tells customer about product. TMD tells distributor WHO product is for.

B) Reasonable Steps Obligation - s994E
Issuer AND distributor must take reasonable steps that would result in, or would be reasonably likely to result in, distribution being consistent with TMD.

C) Other Obligations:

• s994C: Must not engage in retail distribution without TMD
• s994D: Must notify ASIC of significant dealing inconsistent with TMD
• Record keeping: s994F

Penalties: Civil penalty - up to $1.11m per contravention for individuals, $11.1m or 10% turnover for corporations. ASIC can also issue stop orders.

2. Case Laws - How Courts Are Interpreting DDO

ASIC has made DDO its #1 enforcement priority. All cases are in Federal Court of Australia.

CASE 1: ASIC v Firstmac Limited - The FIRST DDO Penalty in Australia

FCA 737 (liability) & FCA 12 (penalty) - $8 Million[2024][2025]

Facts: Firstmac, large non-bank lender, had a managed investment scheme called Firstmac High Livez. Its TMD defined target market as investors who want to invest for 3+ years, with high risk tolerance, seeking capital growth.

Between Oct 2021 to Sept 2022, Firstmac cross-sold it to its own term deposit holders - low risk, capital guaranteed customers - by sending them PDSs. Term deposits are low-risk. High Livez was high-risk.

Held: Federal Court found breach of s994E(3). Justice Downes said sending PDS was "distribution". Firstmac failed to take reasonable steps - no filter, no screening, no questionnaire. It relied on existing customer relationship.

Principle Established:

"Reasonable steps" requires positive, proactive controls. Just having a TMD on website is not enough. You must have systems to filter distribution lists against TMD.

Penalty: $8 million. First time court ordered penalty for DDO. ASIC Deputy Chair Sarah Court: "This should act as a deterrent to anyone engaged in cross-selling".

CASE 2: ASIC v American Express Australia Limited - Second Win

FCA 784 - $8 Million[2024]

Facts: Amex distributed two David Jones co-branded credit cards. TMD said target market was people who want benefits and who will spend at David Jones. ASIC data showed high cancellation rates - up to 30% cancelling within first year in some channels, and customers not understanding annual fee.

Distribution channels included in-store at David Jones - staff incentivised to sell, with minimal assessment.

Held: Amex breached s994C(4) - failed to take reasonable steps. Ordered to pay $8 million plus $200k costs.

Principle: High attrition/cancellation rates and complaints are objective evidence that distribution is NOT consistent with TMD. You cannot ignore your own data.

CASE 3: ASIC v Bit Trade Pty Ltd (Kraken Australia) - Crypto DDO

Federal Court proceedings filed 2023, ongoing

Facts: Bit Trade operated margin trading product with up to 5x leverage - 1,100+ customers lost $8.35m. ASIC alleges Bit Trade failed to make TMD before offering product to retail clients.

Principle: Crypto assets that are financial products (margin extension, non-cash payment facility) are caught. Failure to make TMD at all is the most serious breach of s994B. This is ASIC's test case for crypto DDO.

CASE 4: ASIC v BPS Financial Pty Ltd - Qoin Wallet

FCA 457 (liability) & FCA penalty - $14 Million AUD ($9.3M USD)[2024][2026]

BPS promoted Qoin Wallet as non-cash payment facility linked to crypto token Qoin, issued 96,000 wallets and $42m token sales.

Held: Court found:

1. Unlicensed financial services - contravened s911A Corporations Act
2. Misleading and deceptive conduct - claimed Qoin was officially approved, readily exchangeable for fiat, accepted by many merchants when it was not.

Ordered $12m for misleading conduct + $2m for unlicensed conduct = $14m, plus 10-year ban from unlicensed services.

While primarily AFSL case, ASIC pleaded DDO as overlay - Qoin had no proper TMD for retail. Demonstrates ASIC using DDO + unlicensed + misleading trifecta.

CASE 5: ASIC v Ausfinancial Pty Ltd trading as Swoosh Finance (2024)

ASIC alleges breach of responsible lending AND DDO. Swoosh offered personal loans to high-risk customers. TMD was too broad - included unemployed customers. No distribution conditions.

Shows ASIC targeting combined breaches - responsible lending failures indicate your target market is wrong.

3. Practical Compliance Checklist from Case Law

From Firstmac and Amex judgments, ASIC expects:

1. Don't define target market as "anyone who wants product". Must use objective filters: income, investment timeframe, risk tolerance.
2. Distribution filters are mandatory. Before sending PDS, screen against TMD. Firstmac failed because it sent to entire term deposit database.
3. Monitor data: Cancellation rates, complaints, claims ratio, significant dealings outside TMD. If >10% outside, review trigger.
4. Distributor reporting: Distributors must report complaints and significant dealings to issuer within 10 business days.
5. Stop orders: ASIC has issued 30+ interim stop orders for defective TMDs - especially for crypto, high-risk funds.

If you are drafting a TMD, structure:

Target Market: [Age, income, objective, risk, need for product, financial situation]
Not in target market: [Explicit exclusions]
Distribution Conditions: [Channel - only via personal advice, only via qualified advisers, no unsolicited cross-sell]
Review Triggers: [X complaints per quarter, loss ratio > Y%, etc]