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.
“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.”
Recommended for you
The Reserve Bank of Australia (RBA) has lowered rates to a level not seen since mid-2023.
Financial Services Minister Stephen Jones has shared further details on the second tranche of the Delivering Better Financial Outcomes reforms including modernising best interests duty and reforming Statements of Advice.
The Federal Court has found a company director guilty of operating unregistered managed investment schemes and carrying on a financial services business without holding an AFSL.
The Governance Institute has said ASIC’s governance arrangements are no longer “fit for purpose” in a time when financial markets are quickly innovating and cyber crime becomes a threat.
