In Australian Securities and Investments Commission v Firstmac Limited [2024] FCA 737 the Federal Court of Australia decided that Firstmac contravened section 994E(3)(d) of the Corporations Act which requires that “a person who makes a target market determination for a financial product must take reasonable steps that will, or are reasonably likely to, result in retail product distribution conduct in relation to the product …. being consistent with the determination”.

Section 994E is part of the new design and distribution provisions.

Firstmac distributed two term deposit products: the Business Term Deposit and the Stow It Term Deposit (together described as the Firstmac Term Deposit). While both are retail financial products, only a sole proprietor, partnership, company or trust was eligible for a Business Term Deposit, whereas individuals were eligible for the Stow It Term Deposit. These term deposits were issued by BNK Banking Corporation Limited trading as Goldfields Money.

Firstmac was also the distributor, manager and promoter of the retail product known as High Livez during the relevant period. The product is a unit trust (managed investment scheme) which is issued by Perpetual Trust Services Limited (Perpetual) as the responsible entity of the trust.

Justice Downes found that Firstmac engaged in retail product distribution conduct by giving certain documents relating to High Livez (including its PDS) to retail clients who held (or had held) Firstmac Term Deposits (TD Holders) on 870 occasions (Distribution Conduct) and failed to take reasonable steps that would have resulted in, or would have been likely to have resulted in, the Distribution Conduct being consistent with the High Livez TMD.

Justice Downes specifically considered when the “reasonable steps” must be taken:

“there is a contravention if the distributor gives a PDS to a retail client without first taking reasonable steps that would have resulted in, or would have been reasonably likely to have resulted in, the giving of the PDS being consistent with the TMD. In other words, the relevant reasonable step must be antecedent to the retail product distribution conduct itself (in this case, the giving of the PDS) and not be taken concurrently with or after that conduct. That is because, if the step is concurrent with or occurs after the retail product distribution conduct, it can have no bearing on the likelihood that the conduct will be consistent with the TMD (which is the focus of s 994E(3)(d)) because the conduct itself will have taken place.

It follows that, contrary to Firstmac’s submissions, the nature of the retail product distribution conduct itself (such as the content of disclosures in the PDS and material which accompanies it) cannot be reasonable steps within the meaning of s 994E(3)(d), and nor are they relevant matters to be taken into account within the meaning of s 994E(5).”

A penalty hearing will take place in future proceedings.

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