in a nutshell
Australian Securities and Investments Commission (ASICs) strictly monitors the design of new products and compliance with distribution obligations (DDOs), introduced on October 5, 2021. Under these DDO obligations, issuers are required to design financial products that meet consumer needs and market the products in a clearly defined and targeted manner.
To date, 17 DDO interim stop orders have been issued by ASIC. After the ASIC concerns were addressed by the companies or the products were withdrawn, 9 interim suspension orders were lifted and 6 remain in force.
ASIC created a tentative stop order based on the target market determination (TMDs) after deeming them deficient for a variety of reasons, including:
- Failed to prepare TMD for offer
- Improperly stated terms of delivery in the TMD that do not meet the adequacy requirements under the DDO’s obligations
- TMDs that do not meet the content requirements under Part 7.8A of Corporations Act 2001 (Cth) – e.g. omission of information about TMD review triggers and reporting period
- Specifying too broad a target market, failing to adequately identify target consumers, or failing to exclude certain categories of investors from the target market
ASIC’s reason for placing these preliminary orders is generally to prevent improper conduct and prevent retail investors from investing in financial instruments that may not be consistent with their financial needs, circumstances or goals.
With the implementation of ASIC’s DDO obligations, issuers of financial instruments will be required to:
- Understand your target market: Publishers must have a well-defined understanding of the class of consumers they are targeting.
- Check TMDs. TMDs must be rigorously reviewed to ensure they meet the content requirements set forth in the Companies Act 2001 (Cth), including testing TMDs for ASIC’s provisional stop order concerns.
- Product Disclosure Statement (PDS) Alignment: Publishers must ensure that the TMD is consistent with the PDS, particularly the product risks described in the PDS, and other marketing materials related to the offer.
- Understanding the Consequences of a DDO Obligation Breach: Issuers should be aware that ASIC prioritizes continuous monitoring to ensure compliance with its DDO obligations. Receipt of a provisional stop order from ASIC may result in the need to withdraw the product from the market, as well as adverse publicity and damage to the issuer’s reputation.
If you have any questions about the compliance and risk management regimes required by the Financial Services Act and any process improvements your business may require, please feel free to contact the attorneys listed in this alert or your usual Baker McKenzie contacts. please give me.
