First court action under DDO rules


ASIC has commenced civil action in the Federal Court against Firstmac Limited, in what is the initial move of this sort against a financial product provider.

The Australian Securities and Investments Commission (ASIC) is undertaking its first civil action in the Federal Court against a financial product provider for breaches of the design and distribution obligations (DDO).

To this end, proceedings have commenced against Firstmac Limited, a service provider offering term deposits and other investment products to consumers.

ASIC stated that as a product provider, Firstmac has an obligation under the DDO rules to ensure its products are distributed with consistency in accordance with its target market determination (TMD).

As the basis for this civil action, ASIC alleged Firstmac did not satisfy this obligation by marketing and distributing its High Livez offering to term deposit holders.

More specifically, the corporate regulator alleged term deposit holders were outside the High Livez target market for several reasons.

Firstly, the High Livez product was not capital guaranteed, unlike the organisation’s term deposits, which contained a commonwealth government capital guarantee of up to $250,000 per account. The High Livez TMD indicated individuals seeking such terms were not in the target market for the said product.

Secondly, ASIC noted the recommended investment term for the High Livez product was between three and five years, whereas the timeframe for term deposits was from 30 days to two years. The High Livez TMD stated customers seeking a two-year investment horizon were not part of the product’s target market.

“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,” ASIC deputy chair Sarah Court said.

“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. The TMD needs to be reviewed and applied when developing marketing and distribution strategies to prevent consumer harm.

“ASIC is committed to reducing the risk of harm to consumers caused by poor product design, distribution and marketing, especially by driving compliance with design and distribution obligations.”

The regulator is seeking declarations and pecuniary penalties from the Federal Court.

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