Key items unlisted property funds must consider for DDO regime
Unlisted property funds need to ensure any funds directed towards retail investors are compliant with the upcoming Design and Distribution Obligations (DDO), which commence next week on 5 October 2021.
Part of DDO compliance includes drafting a Target Market Determination (TMD) for investors in the fund, to ensure investors are putting money into investment vehicles which are appropriate for them.
Unlisted property funds need a TMD for each retail fund which is open to new investments, or any retail fund planning to launch after 5 October 2021.
Other than preparing a TMD for each retail product, some other key things unlisted property funds must consider include:
• Formulating a ‘reasonable steps’ distribution plan: funds and their distributors need to take reasonable steps that will result in distribution of a product being consistent with the TMD. For funds which distribute their own products, the responsibility falls on them as well as on any third party distributors.
• Engaging any third party distributors: funds need to ensure that any third party distributors are ready and able to distribute products in compliance with the TMD for the products, including complying with the reporting requirements under the TMDs, so they are able to continue distributing their products from next week.
• Formulating ‘significant dealings’ criteria: funds will need to formulate criteria to determine whether a product has been distributed in a manner inconsistent with the TMD. To do this, funds need to identify and weigh up quantitative and qualitative criteria before being able to make a judgement call as to what is a significant dealing outside the target market. Third party distributors also need to formulate their own significant dealing criteria.
• Robust governance arrangements: funds will need a robust governance arrangements policy to help them comply with their general compliance and governance obligations under DDO.
The law hasn’t stopped moving on this matter and the DDO regime is likely to be further refined over time – on 9 August 2021 Treasury announced the government’s intention to make several amendments to the regime, and flagged the possibility of ASIC providing temporary relief to give effect to the government’s policy intention.
PFA remains in discussion with ASIC regarding compliance with DDO, and other compliance matters, through our Issues and Regulatory Committee.