ASIC Penalizes Firms for Breaching Obligations on Design, Distribution


ASIC has commenced civil penalty action in the Federal Court against Firstmac Limited, a financial product distributor, for alleged breaches of the design and distribution obligations (DDO).

ASIC’s proceeding against Firstmac is the first DDO civil penalty action taken against a distributor of financial products. This follows ASIC’s first DDO Court action filed earlier this month against a financial product issuer, Amex, regarding credit cards issued in David Jones stores.

Firstmac distributes term deposits and other investment products, including interests in Firstmac High Livez (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 alleges that in marketing and distributing 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 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 timeframes for term deposits ranged from 30 days to two years whereas the recommended investment timeframe for High Livez was a minimum of three years up to five years. The TMD indicated that customers seeking an investment timeframe of two years or less were not in the target market.

ASIC Deputy Chair Sarah Court said ‘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. 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,’ concluded Ms Court.

ASIC is seeking declarations and pecuniary penalties from the Court.  

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