The Federal Court has ordered Firstmac Limited to pay $8 million in penalties for failing to meet its design and distribution obligations (DDO).
In ASIC’s first civil penalty action against a distributor involving DDO breaches, the Court found Firstmac contravened section 994E(3) of the Corporations Act when it failed to take reasonable steps that would have resulted in, or would have been reasonably likely to have resulted in, distribution of its High Livez investment product to term deposit holders being consistent with its target market determination (TMD).
ASIC Chair Joe Longo said, ‘This is an important decision that acknowledges the risk of consumer harm caused by poor product design, distribution and marketing by Firstmac.
‘We pursued this matter following concerns customers were exposed to the risk they might obtain financial products that were not appropriately suited to them. Compliance with the DDO is essential to protect customers.
‘Today’s judgment should act as a deterrent to anyone engaged in cross-selling financial products who fails to consider their design and distribution obligations before sending product disclosure statements.’
In July 2024, the Court found Firstmac implemented a ‘cross-selling strategy’ of marketing investments in High Livez (a registered managed investment scheme) to 780 consumers who held existing term deposits with Firstmac.
In doing so, it breached its DDO when it sent product disclosure statements (PDS) for the Firstmac High Livez to those existing term deposit holders from October 2021 to September 2022, without first taking reasonable steps to ensure consistency with its TMD for the product.
When handing down her penalty decision, Justice Downes found that Firstmac ‘courted the risk’ that the High Livez PDS would be distributed to a person who fell outside the target market for High Livez and that its conduct was ‘objectively reckless’.
‘Firstmac’s conduct fell short of the standard required by the DDO and increased the risk of harm to consumers to whom the High Livez PDS was inappropriately distributed,’ Justice Downes said.
Firstmac was also ordered to pay ASIC’s costs for the proceeding.
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Background
On 14 December 2022, ASIC commenced civil penalty proceedings in the Federal Court against Firstmac.
On 10 July 2024, the Court found that Firstmac failed to take reasonable steps to ensure the distribution of the High Livez PDS to term deposit holders was consistent with the TMD and in light of the different attributes of High Livez and term deposits.
The Court found the steps which Firstmac took were wholly inadequate to meet the statutory obligation imposed by the DDO legislation.
The DDO regime commenced on 5 October 2021. The obligations require issuers and distributors to adopt a consumer-centric approach to the design, marketing and distribution of financial products, increasing the likelihood that suitable financial products are provided to consumers.
A TMD is an important requirement under DDO. It 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.