Would ASIC’s DDO, product intervention powers have stopped Sterling collapse?

The corporate regulator has claimed it’s product intervention powers would not necessarily have provided a faster solution to the Sterling Income Trust managed investment scheme debacle.

The Australian Securities and Investments Commission (ASIC) said in its submission into the inquiry into the collapsed Sterling Income Trust that it could have intervened, if it had its product intervention powers at the time, by restricting distribution of the product, prevented the marketing of the product as part of a lease-for-life arrangement, or required that the product only be distributed through personal advice. 

“ASIC notes that the issue of any product intervention order would have been dependent on not only establishing the risk of significant consumer detriment but also in ASIC having obtained sufficient evidence of this detriment and the need to intervene,” ASIC said.

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“On balance, ASIC’s view is that the product intervention power would not necessarily have provided a faster solution to the Sterling Income Trust managed investment scheme than intervention through the issuing of stop orders on the PDS [product disclosure statement] and ultimately the closure of the product by Theta on 30 April, 2018.”

The submission also examined whether its design and distribution obligation (DDO) regime, that came into force in October 2021, would have had an impact on the Sterling Income Trust.

It said Theta would have had to define a target market for the fund and would have needed to ensure the products would likely be consistent with the likely objectives, financial situation, and needs of the consumers in the defined group.

Theta would have also needed to ensure the products were marketed and distributed to the target market.

“These obligations would have required Theta to put in place controls and processes to broadly ensure that the Sterling Income Trust was marketed and sold in a way that was consistent with the target market determination—so that generally only consumers whose needs would have been consistent with products would have received them,” it said.

“The Sterling Group (and other entities that sold the product) would also have been required to have controls to broadly direct sales to the target market.

“If the Sterling Income Trust product were marketed and sold to a large number of consumers for whom the product was not appropriate (for example, because the target market was inappropriate or because it was not distributed in accordance with the defined target market), then there would likely have been a breach of the design and distribution obligations.

“In such circumstances, ASIC may have imposed a stop order on further sales of the product until the design and distribution issues were resolved.”

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DDO is just another example of regulation with absolutely no benefit to clients. Worst still it is an attempt to push the responsibility for product failings back to advisers, allowing clients to sue the adviser when the product manufacturer stuffs up under an argument of outside the TMD. Lawyers will love suing advisers and taking their 40% cut of any settlements.

The DDO may have allowed ASIC to step in IF the product provider was honest enough to report it's breaches and the significant dealings, BUT, it was pretty clear they didn't have the processes or ethics in the first place, so it wouldn't have happened and ASIC would have been unaware until the damage was done.

Agree, only those with processes and systems in place as well as doing the right thing and their reporting should be minimal.
Those that fly under the radar, don't report, we will only know that when the damage has been done.

Was the 'Sterling Income Trust' recommended to these clients under financial advice?

If not, why on Earth isnt DDO 100% carved out for advisers?

it was recommended under personal advice, let me guess, it was through an aligned company AKA vertical integration.... Of which we have all known needed to be banned rather than all this nonsensical red tape.

Definition - Novelty - the quality of being new, original, or unusual.

Um, is this a serious response? A REGULATOR saying it won't examine new or unusual products as they enter the market? If this is the case then ASIC has to be abolished as it is just admitted it will not examine new and emerging products in the market for consumer risk.

More importantly, if ASIC can not or will not examine novelty products as they emerge; how can it demand that advisors do so?

This is world class regulatory failure and its the end of ASIC regulating this industry as it has just admitted it cannot and will not do so!

Man, I am giving up planning, going to start a dodge brothers incorporated company and do nothing but create novelty products that sound great but have buckleys of working. I may even get some union boys onside to 'refer' likely suckers um I mean investors, that way no one can get in trouble for promoting it as we know those guys have a free pass by ASIC.

Charge high entry fees, high product fees, hell even whack in some vintage gold exit fees and then quietly disappear when it all goes belly up, just to do it again down the track.

If i am really lucky will get IFM industry funds to invest in it under 'alternate' strategies thatthey don't have to disclose or have individual valuations done and then sell the whole lot to them once they work out what a great scam it is!!

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