ASIC has published Report 762 Design and distribution obligations: Investment Products (REP 762), which outlines the findings of its review of how investment product issuers are meeting the DDO and actions taken by ASIC in response.
The review considered target market determinations (TMDs) compliance by issuers of interests in managed investment schemes, shares issued by an investment company, preference shares and debentures.
The review found that a significant number of product issuers made deficient TMDs, with poorly defined target markets and unclear or inadequate product governance arrangements.
ASIC prioritised the initial review of investment products because of concerns that investors were being inappropriately exposed to high-risk products. The key target market deficiencies ASIC identified across investment product issuers include:
- target markets defined too broadly – a factor in 15 stop orders;
- unsuitable investor risk profiles used – a factor in 21 stop orders;
- inappropriate levels of portfolio allocation used – a factor in 10 stop orders; and
- unsuitable investment timeframes and/or withdrawal features, not reflecting the product’s risks and liquidity profile – a factor in 18 stop orders.
ASIC also identified inappropriate or no distribution conditions – a factor in 13 stop orders.
Many of these deficiencies appeared when issuers relied on TMD templates without customising them appropriately.
As at the date of the report, ASIC has placed interim stop orders on 26 investment products, of which 19 were managed investment schemes and 7 were other investment products. In 22 of these cases, the stop order was revoked after a revised TMD was provided to ASIC. Five issuers of investment products withdrew their products after ASIC’s action.
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Author: David Jacobson
Principal, Bright Corporate Law
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About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.
