ASIC makes first civil DDO action against financial product distributor
The Australian Securities and Investments Commission (ASIC) has commenced its first civil penalty action against a distributor of financial products in the Federal Court for alleged breaches of the design and distribution obligations (DDO).
Firstmac Limited distributed term deposits and other investment products, including interests in Firstmac High Livez (High Livez), a registered managed investment scheme.
ASIC alleged that in marketing and distributing High Livez to term deposit holders, Firstmac failed to take reasonable steps to ensure that the product was distributed in accordance with the target market determination.
ASIC also alleged in its action that Firstmac sent High Livez material to 817 Firstmac term deposit customers between 5 October, 2021 and 9 September, 2022.
By adopting a cross-selling strategy of marketing and distributing High Livez to term deposit holders, there was a likelihood that those customers would be outside the High Livez target market, because:
- Unlike Firstmac’s term deposits which were guaranteed by the Commonwealth Government in the amount up to $250,000 per account, High Livez was not a capital guaranteed product. The TMD indicated that customers seeking a capital guarantee were not in the target market; and
- The investment timeframes for term deposits ranged from 30 days to two years whereas the recommended investment timeframe for High Livez was a minimum of three years up to five years. The TMD indicated that customers seeking an investment timeframe of two years or less were not in the target market.
ASIC deputy chair, Sarah Court, said: “ASIC is concerned that Firstmac’s term deposit customers were exposed to the risk that they might obtain a financial product that was not appropriate to their needs and objectives.
“Under the DDO, issuing and distributing financial products now requires a consumer-first mindset with genuine consideration of the likely objectives, financial situation and needs of consumers being targeted.”
ASIC was seeking declarations and pecuniary penalties from the Court.
AUTHOR
Laura Dew
Recommended for you
Bell Financial Group has appointed a chief investment officer who joins the firm from Clime Investment Management.
Private markets funds with “unattractive practices” could find themselves facing enforcement activity with ASIC chair Joe Longo stating he cannot rule it out in the future.
Despite ASIC concerns about private credit funds being accessed via the advised channel, there are questions regarding how high its usage actually is among financial advisers.
Challenger has looked to the superannuation industry for its appointment of a group chief investment officer, a newly-created role.
