The Australian Federal Court today found that Firstmac Limited breached the new design and distribution provisions by failing to take reasonable steps that would have resulted in, or would have been reasonably likely to have resulted in, the distribution of one of its investment products being consistent with its target market determination (TMD) for the product.
This is the first finding by a court of a contravention of these provisions.
The Court found Firstmac implemented a ‘cross-selling strategy’ of marketing investments in its High Livez investment product to 780 consumers who held existing term deposits with Firstmac. In doing so, it breached its design and distribution obligations (DDO) when it sent product disclosure statements (PDS) for the Firstmac High Livez product to those existing term deposit holders, without first taking reasonable steps to ensure consistency with its TMD for the product. The conduct occurred between from October 2021 to September 2022.
ASIC Deputy Chair Sarah Court said:
‘ASIC took this case because we were concerned that customers were exposed to the risk they might obtain a financial product that was not appropriate to their needs and objectives. This should act as a deterrent to anyone engaged in cross-selling financial products who fails to consider their design and distribution obligations before sending product disclosure statements.’
In handing down the judgment, Justice Downes noted Firstmac failed to take reasonable steps to ensure the distribution of the High Livez PDS to term deposit holders was consistent with the target market determination.
The Court found the steps which Firstmac took were wholly inadequate to meet the statutory obligation imposed by the DDO legislation.
ASIC will now seek orders from the Court imposing pecuniary penalties against Firstmac Limited. The proceedings have been listed for a case management hearing on 19 July 2024.
Firstmac is a non-bank lender and the investment manager of High Livez, a registered managed investment scheme, with an Australian Credit Licence and AFS Licence.
ASIC commenced civil penalty proceedings in the Federal Court against Firstmac on 14 December 2022. This was ASIC’s first DDO civil penalty action against a distributor of financial products.
The DDO regime commenced on 5 October 2021 and required issuers and distributors of financial products to adopt a consumer-centric focus in designing, marketing and distributing financial products, and to distribute those products in a more targeted manner. A TMD is an important requirement under DDO. It is a mandatory public document that sets out the class of consumers a financial product is likely to be appropriate for (target market) and matters relevant to the product’s distribution and review.
