ASIC has announced that it has issued its first design and distribution obligations (DDO) stop orders to prevent offers of financial products to consumers. The design and distribution obligations commenced on 5 October 2021. Background.
ASIC has placed interim stop orders on three financial firms in response to deficiencies in the target market determination (TMD) for their products.
ASIC says the three financial firms did not appropriately identify the consumers they intended to target or did not have a TMD, which meant the products may have otherwise been marketed and sold to retail investors for whom they were not appropriate or too risky.
The interim stop orders prevent Responsible Entity Services Limited (RES) and two companies in the UGC Global Group (UGC) from issuing the relevant managed investment scheme interests or shares to retail investors.
In the case of RES ASIC considered that RES’s TMD included two categories of retail investors for whom investment in PPM Units would not have been consistent with their likely objectives, financial situation and needs. These were: investors intending to use an investment in PPM Units as a core component of their investment portfolio and investors with an objective of high capital growth or a mixture of capital growth and income.
ASIC said the sole underlying asset of the PPM Unit class is a loan to a company related to RES for the development of a sandstone quarry. The product is a high-risk, illiquid, unlisted single-asset investment. The return of an investor’s funds and any interest payable under the loan is wholly dependent on the related-party borrower’s ability to repay the loan.
In the case of UGC Global Alpha Limited and UGC Global Alpha Fund Limited, the two companies lodged prospectuses seeking to raise $100 million each through the offer of ordinary shares for the purpose of investing in the UGC Alpha Global Fund (a wholesale fund).
ASIC was concerned that the UGC Global companies may have engaged in retail product distribution before preparing a TMD for their high risk offers.
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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.
