ASIC makes first DDO stop orders on three firms
The Australian Securities and Investments Commission (ASIC) has imposed its first design and distribution (DDO) stop orders, imposing them on three financial firms in response to deficiencies in the target market determination (TMD) for their products.
The TMD was a mandatory public document that set out the class of consumers a financial product was likely appropriate for (the target market). It also set out matters relevant to the product’s distribution and review.
The three financial firms, which included Responsible Entity Services Limited (RES) and two companies in the UGC Global Group (UGC), failed to appropriately identify the consumers they intended to target or lacked a TMD, which meant the products may have otherwise been marketed and sold to retail investors for whom they were not appropriate or too risky.
The interim stop orders prevented these firms from issuing the relevant managed investment scheme interests or shares to retail investors.
ASIC deputy chair, Karen Chester, said: “The design and distribution obligations were created to deliver better consumer outcomes.
“Under the law, firms must embed a consumer-centric approach. They need to design financial products that meet the needs of consumers in their intended target market, and distribute those products in a targeted way. Where firms are not doing the right thing and there is potential for consumer harm, ASIC can now take quick action to disrupt poor conduct and prevent harm.
“ASIC’s focus has now shifted to compliance. Industry has had sufficient time to bed down its implementation of the DDO regime. We have targeted surveillances underway to check whether product issuers and distributors are complying with their design and distribution obligations. We will continue to look at defective TMDs, as well as issuers who have not made TMDs or not made them publicly available.
“We will review how product issuers interact with their distributors to confirm they are not straying beyond their target market. We will also review how they monitor and review consumer outcomes to ensure consumers are receiving products that are consistent with their likely objectives, financial situation and needs.
“Financial firms need to be consumer-centric in how they design their products. Issuers need to have clearly defined target markets, especially for high-risk products, that take into account the risk that investors could lose some or all of their capital. We expect this to flow through to similarly clear distribution arrangements.
“Where firms are not meeting their obligations, ASIC can and will respond, from stop orders to court action, to prevent consumer harm and deter non-compliance.”
AUTHOR
Liam Cormican
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