The Australian Securities and Investments Commission has been working on the new design and distribution obligations over the summer, issuing draft guidelines that set out the "product governance framework" that issuers and distributors will have to put in place.Under Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Power) Bill 2019, financial services companies will be required to identify the target market for their product and will need to design the product for that market. They will have to select appropriate distribution channels and periodically review those arrangements to ensure they continue to be appropriate.The design and distribution obligations take effect for financial product issuers and distributors on 5 April 2021.A "target market determination" must describe the class of retail clients that comprise the target market for the product, specify any conditions or restrictions on sale, specify events and circumstances that would suggest that the determination is no longer appropriate, and specify review periods.Towards the end of last year, the Government issued regulations relating to ASIC's new powers.The regulations extend the application of DDO by including distributors of basic deposit products, general insurance products and bundled consumer credit insurance products in the definition of "regulated persons".Certain credit licensees and credit representatives are also included.The list of financial products covered by DDO has been extended to include simple corporate bonds, debentures issued by ADIs and life insurance companies, basic banking products, interests in an investor directed portfolio service, ETFs and custodial services.The regulations also exclude certain financial products from DDO coverage. They include defined benefit schemes, eligible rollover funds, depository interests in fully paid ordinary shares in a foreign company, financial products not offered in Australia and "certain credit arrangements."In its draft guidance (CP 325), ASIC has set out its expectations for the product governance framework. This refers to systems, processes, procedures and arrangements in place to ensure compliance with the DDO.The target market determination should include consideration of those for whom the financial product "is clearly unsuitable" - the so-called negative target market.ASIC has set out the factors that will be relevant in determining whether a product issuer has taken reasonable steps to direct distribution of the product to the target market.These include distribution conditions, marketing and promotional materials, selection of distributors, supervision and monitoring, conflicts of interest and information sharing with distributors.ASIC has also included some examples of factors that issuers would take into account when assessing whether a target market determination is still appropriate. These include complaints data, consumer feedback, proportion of sales to consumers not in the target market, and analysis of recorded sales calls.The target market determination must be a public document.Distributors will have to ensure that distribution is consistent with the target market determination. Factors that ASIC says are relevant include distribution method, compliance with distribution conditions, marketing and promotional materials, inappropriate incentives, training.Distributors are required to keep records of distribution information in relation to products for up to seven years.One of ASIC's requirements is that issuers and distributors not take advantage of behavioural