What it covers
The Design and Distribution Obligations sit in Part 7.8A of the Corporations Act 2001 (Cth) and have applied since 5 October 2021. They were introduced by the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019. The aim is consumer-centred product design: financial products should be designed for the consumers they are meant to reach, and distributed in a targeted way rather than sold broadly.
The central artefact is the target market determination, or TMD. A TMD describes the class of consumers a product is appropriate for, the conditions and restrictions on how it is distributed, the events that trigger a review, and the information distributors must report back. Issuers must keep records and report significant dealings that are inconsistent with the TMD. ASIC sets out its expectations in Regulatory Guide 274 Product design and distribution obligations, reissued on 10 September 2024.
Who it applies to
DDO applies to two roles. Issuers are the entities that design and offer a financial product, for example a fund manager, insurer, or credit provider. They must prepare and maintain the TMD. Distributors are the entities that deal in or arrange for the issue of the product, including AFS licensees and advisers, and they must take reasonable steps so distribution is consistent with the TMD and feed information back to the issuer.
The obligations cover most retail financial products, including managed investment schemes, insurance, and many credit products. ASIC enforces DDO actively, including through stop orders that halt distribution where a TMD is deficient or distribution is not consistent with it.
Where AI fits
AI now sits inside the distribution chain. Recommendation engines, lead-scoring models, lookalike audience targeting, and chatbots all influence who sees and is offered a product. Under DDO, that activity is still distribution and must remain consistent with the TMD. An AI model that widens reach to consumers outside the target market, or that personalises an offer in a way the TMD does not contemplate, can put an issuer or distributor outside Part 7.8A.
Practitioners should treat AI-driven personalisation and targeting as a controlled distribution process. That means documenting how the model targets consumers, testing that its outputs map to the TMD, keeping a human review point for edge cases, and monitoring for drift where the model gradually expands the audience. The reasonable steps test does not soften because a decision was automated.
What practitioners should do
For compliance, risk, and governance teams, the practical work is mapping AI-assisted distribution back to the TMD. Confirm that every channel, including automated ones, has a documented line to the target market. Build TMD consistency into model validation and into the significant-dealing reporting flow. Set review triggers that account for model changes, not just product changes. Keep records that show the reasonable steps taken, because ASIC has shown it will issue stop orders and litigate where those steps are absent. AI should make targeting tighter and more evidenced, not looser.
TheAICommand. Intelligence, At Your Command.*
TheAICommand. Intelligence, At Your Command.