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22-278MR ASIC places interim stop orders on Holon crypto funds
ASIC has made interim stop orders preventing Holon Investments Australia Limited (Holon) from offering or distributing three funds to retail investors because of non-compliant target market determinations (TMDs). These funds are:
- Holon Bitcoin Fund ARSN 659 090 294
- Holon Ethereum Fund ARSN 659 090 516, and
- Holon Filecoin Fund ARSN 659 090 614 (together, the Funds).
The interim orders stop Holon from issuing interests in, giving a product disclosure statement for or providing general advice to retail clients recommending investments in the Funds. The order is valid for 21 days unless revoked earlier.
ASIC made the interim orders to protect retail investors from potentially investing in funds that may not be suitable for their financial objectives, situation or needs.
Each of the Funds is invested in an individual crypto-asset – bitcoin, ether and Filecoin. Crypto-assets are highly volatile and complex, making concentrated investments in individual crypto-assets very risky and speculative. Investors are likely to experience significant price volatility and deep negative returns in periods of asset price decline. In its product disclosure statements, Holon has disclosed the risk that assets in the Funds could face a total loss of value.
ASIC is concerned that Holon has not appropriately considered the features and risks of the Funds in determining their target markets. ASIC considers that the Funds are not suited to the wide target market defined in the TMDs, which includes investors:
- with a potentially medium, high or very high risk and return profile; and
- intending to use the fund as a satellite component (up to 25%) of their investment portfolio; and
- intending to use the fund as a solution/standalone component (75-100%) of their investment portfolio.
ASIC expects Holon to consider the concerns raised about the TMDs and take immediate steps to ensure compliance. If ASIC’s concerns are not addressed in a timely manner, final stop orders will be placed on the Funds. Holon will have an opportunity to make submissions to ASIC before any final stop order is made.
ASIC may consider further regulatory action in relation to Holon and the Funds.
ASIC is focussed on reducing the risk of harm to financial consumers caused by poor product design, distribution and marketing, especially by driving compliance with the design and distribution obligations (DDO). ASIC is also committed to taking appropriate action to prevent consumer harm associated with crypto-assets.
DDO requires firms to design financial products that meet the needs of consumers, and to distribute those products in a targeted manner. An important requirement under DDO, a TMD is a mandatory public document that sets out the class of consumers a financial product is likely to be appropriate for (target market) and matters relevant to the product’s distribution and review.
ASIC has surveillances underway to check whether product issuers and distributors are complying with DDO. Where firms are not doing the right thing, ASIC can take quick action under DDO to disrupt poor conduct and prevent potential consumer harm.
ASIC recently issued its first DDO stop orders to prevent the offer of financial products to consumers (22-194MR). ASIC also placed interim stop orders on the offer and distribution of the Australian Residential Property Fund, Private Property Trust No. 20 and the APIL Essential Retail Income Fund in response to deficiencies in their TMDs (22-252MR and 22-266MR).
To date ASIC has issued ten DDO interim stop orders, including the Holon funds, and six remain in place. Four interim stop orders have been lifted following actions taken by the entities to address ASIC’s concerns.
Following a hearing on 28 October 2022, ASIC made indefinite interim stop orders against Holon prohibiting the same conduct covered by the initial interim stop orders. Holon originally proposed amendments to its TMDs that addressed ASIC’s concerns, but later informed ASIC that it would wind-up the schemes. As a result, on 14 November 2022, ASIC revoked the indefinite interim stop orders and no final stop orders were made.