Case Study - Iress’ grand plan for an industry-wide DDO solution
From 5 October this year, new design and distribution obligations (DDO) will be imposed on financial product issuers and distributors. Issuers will be required to make a target market declaration (TMD) and make it publically available. The new obligations are going to touch a huge chunk of the industry, according to Iress’ chief commercial officer, Michael Blomfield.
Iress has announced it will deliver an industry wide solution to meet the DDO obligations and Blomfield spoke to Industry Moves about how such a solution, although obviously in Iress’ best interests, could also reduce complexity for everyone involved.
Can explain what you are hoping to achieve with the DDO solution?
For a start, what we want to do is to provide an industry central agnostic solution that any player in the industry that is impacted by RG274 and the DDO obligations can utilise and I mean any party. Whether that’s an alternative provider of advice software, whether that’s a manufacturer or platform and so on.
It’s a blockchain solution but you know what, the fact that it’s blockchain doesn’t really mean much. The beauty of blockchain is that it can sit centrally, it can hold data immutably. It can be highly locked down, and so highly secure, but allow lots of parties to be authorised to connect in ways that don’t require that bilateral point-to-point solution.
Practically what we're doing is building a facility that allows product manufacturers to issue and store a target market determination. That’s part one, the second part is a messaging solution that allows other parties, including them, to (if you like) ping the existence and conditions of that, to check and to meet their obligations as it relates to the TMD. And then thirdly it’s to provide information to all those parties around that.
RG274 sets out a whole bunch of obligations around information and so things like the ability to monitor and review the TMD, the obligation for it to be up to date. All of those things need to be testable in a solution.
How did you go about understanding user needs for such a solution?
By asking and listening is the simple answer. We were already well advanced on designing and implementing advice fee consent capabilities and they existed irrespective of this set of obligations. Solving that for Iress and its clients was one thing, but again there is an interconnectedness of the advice fee consent regulation that required us to really sit down and talk to planners, platforms, distributors, [and] manufacturers. The step from advice fee consent to DDO is really the same thing with added complexity.
We worked with an industry group of early adopters and interested parties to think about advice fee consent and were just doing the exact same thing now around the DDO obligations.
We don’t hide from this fact, it is better for us for a highly efficient industry wide solution to exist. And then you look at it and you say ‘Who might provide that?’ and we think that we’re a very natural player to be both the provider and a user of that system as well.
How do you go about talking to or engaging the regulators?
I think we always have to be careful here in that the sense that the regulators are issuing their ongoing and updated guidance as it goes. We’re not looking to influence the regulation were looking to influence the way in which its implemented.
Does your solution need all industry participants on board?
No it doesn't require a universal solution. What we’re trying to do is show that a universal solution is actually more valuable, is quicker to arrive at, [and] is lower cost than the alternatives.
Via Xplan and via our other infrastructure we, in a sense, have critical mass anyway. But there is no good I think having critical mass and then having these enormously complex hand offs. And all those complex handoffs do is make it harder to meet the regulation.
Then when a regulator comes along and says - ‘OK well just at the moment I need some evidence of some things’ - going to some wide range of places to get all of that information and attempt to pull it back together, I think is extraordinarily difficult and expensive. And this is why it is better as a universal solution but it doesn't have to be.
How are your conversations with stakeholders going?
Clearly with our announcement last week the pace has picked up and we are holding an industry forum this month. That will again probably touch a wider group of people. It’s all hands on deck around this right now. The regulation on the current timeline becomes live in October. We think that requires a solution well in advance of that. Launching it a week before the regulatory obligation kicks in wont give anyone confidence. So we’re working to have that done well in advance.
I think you can be sure that the industry will require at least a couple of months of certainty and evidence of a solution in place if it’s going to commit.
What is the fee structure?
That's all part of what we are consulting with the industry on. And that's not a copout, it affects more parties than I think a single central piece of legislation has effected before. And different groups, or different parts of the industry, will need to connect to it for different reasons and [at] different intensities [and] part of the consultation with industry is to talk about a fee model and how that will work.
How are the product providers dealing with it all?
We can see very clearly they are forming business and compliance teams to start to deal with that. It is kind of new in the sense of connectivity. It's a bit of a blank sheet of paper for them to start with. The industry needs to be careful. It can, on a massive scale, make capex investment in everybody trying to meet this set of obligations in their own way, but all of that capital goes to issues that are competitive parity.
We are trying to show a way that can be done for opex (operating costs) instead of capex (capital expenditure) and that leaves the rest of the industry ideally with the capital still in their hands to invest in ways that, at least in their minds, improves their business or make them more competitive.
When everybody does that all themselves, how that interconnects and how you can go to solving a regulatory request for information, it just looks like an incredibly complex thing. Were not talking five or 10 systems if the industry chooses to build it themselves, were talking potentially hundreds of systems. And hundreds of systems rarely, if ever, connect elegantly.
Do you think the industry is ready for the obligations?
Let me be clear, on one level it’s certainly, I think, intellectually ready for it. It’s not practically ready for it but it doesn’t yet need to be practically ready for it.
I think what we see in projects like these, is the whole industry has got to make decisions around these sorts of very very interconnected pieces of regulation and really ask itself whether it wants to try to solve those by each party bilaterally, or internally building their own capabilities, the complexity of connection of which is extraordinarily high. Or do we go to an industry infrastructure, industry utility model that seeks to solve that for the highest effect and lowest participant complexity…and if that’s the right approach then who? And I guess were arguing a) that’s the right approach and b) we think we’re very well positioned to be the party that stands in the middle of all that.
We’ve had very high levels of engagement around this – very high. And I think very high levels from a really broad cross-section of the industry.