The Federal Court of Australia today found that Firstmac Limited breached the new design and distribution provisions by failing to take reasonable steps that would have resulted, or would have been reasonably likely to have resulted, in the distribution of one of its investment products complying with by identifying the target market (TMD) for the product.
This is the first finding by a court of a violation of these provisions.
The Tribunal found that Firstmac employed a “multi-selling strategy” to invest in marketing its High Livez investment product to 780 consumers who had 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 these existing term deposit holders without first taking reasonable steps to ensure consistency with the TMD of for the product. The conduct took place from October 2021 to September 2022.
ASIC Deputy Chair Sarah Court said:
“ASIC took this case because we were concerned that customers were being exposed to the risk of getting a financial product that was not suitable for their needs and objectives. This should act as a deterrent to anyone involved in cross-selling financial products who does not consider planning and distribution obligations before sending product disclosure statements.’
In making the judgment, Justice Downes noted that Firstmac did not take reasonable steps to ensure that the distribution of High Livez PDS to term deposit holders was consistent with the identification of the target market.
The Court found that the steps taken by Firstmac were wholly insufficient to meet the statutory duty imposed by the DDO legislation.
ASIC will now seek orders from the Court to impose monetary penalties against Firstmac Limited. Proceedings are listed for a case management hearing on July 19, 2024.
Firstmac is a non-banking lender and investment manager of High Livez, a registered managed investment scheme, with an Australian credit license 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 financial products distributor.
The DDO regime began on 5 October 2021 and required issuers and distributors of financial products to focus on the consumer in the design, marketing and distribution of financial products and to distribute those products in a more targeted manner. TMD is an important requirement under DDO. It is a mandatory public document that defines the category of consumers for whom a financial product is likely to be suitable (target market) and matters related to the distribution and review of the product.