ASIC takes term deposit provider to court over DDO breaches
The corporate regulator has commenced civil penalty action in the Federal Court against Firstmac Limited for alleged breaches of the design and distribution obligations.
In an online update, the Australian Securities and Investments Commission (ASIC) said the proceeding against Firstmac is the first design and distribution obligations (DDO) civil penalty taken against a distributor of financial products.
Firstmac distributes term deposits and other investment products, including interests in Firstmac High Livez, a registered managed investment scheme.
Under the DDO, Firstmac is required to take reasonable steps to ensure that it distributes financial products consistent with the target market determination (TMD) for each product.
ASIC has alleged that in its marketing and distribution of High Livez to term deposit holders, Firstmac failed to take reasonable steps to ensure that the product was distributed in accordance with the TMD.
It is ASIC’s case that 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 of 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 time frames for term deposits ranged from 30 days to two years, whereas the recommended investment time frame for High Livez was a minimum of three years up to five years. The TMD indicated that customers seeking an investment time frame of two years or less were not in the target market.
ASIC deputy chair Sarah Court said that 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 design and distribution obligations, 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,” said Ms Court.
“The TMD needs to be reviewed and applied when developing marketing and distribution strategies to prevent consumer harm.”
