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Firstmac Limited (Firstmac) was found to have breached its design and distribution obligations (DDO) by failing to take reasonable steps that would have resulted in the distribution of one of its investment products being consistent with its target market determination (TMD) for the product.
According to the Australian Securities & Investments Commission (ASIC), this is the first finding by a court of a contravention of these provisions.
The Federal Court found that the non-bank lender implemented a “cross-selling strategy” of marketing investments in its High Livez investment product to 780 consumers who held existing term deposits with Firstmac.
The alleged conduct occurred from October 2021 to September 2022 and it was found that Firstmac breached its DDO when it sent product disclosure statements (PDS) for the product to those existing term deposit holders, without taking reasonable steps to ensure consistency with its TMD for the product, according to the regulator.
Commenting on the ruling, ASIC deputy chair Sarah Court said: “ASIC took this case because we were concerned that customers were exposed to the risk they might obtain a financial product that was not appropriate to their needs and objectives.
“This 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.”
Justice Downes, in handing down the judgement, also noted that Firstmac had failed to take the reasonable steps to ensure consistency with the TMD in the distribution of its High Livez PDS to term deposit holders.
Justice Downes said: “It is self-evident that [there] were suitable and available ways to eliminate or minimise the likelihood that the High Livez PDS would be sent to a person who fell outside the target market for High Livez.”
The regulator will now seek orders from the Federal Court to impose pecuniary penalties against Firstmac, with the proceedings for a case management hearing being listed for 19 July 2024.
ASIC commenced with civil penalty proceedings against Firstmac on 14 December 2022, in its first DDO civil penalty action against a distributor of financial products.
The DDO regime began on 5 October 2021, which requires issuers and distributors of financial products to adopt a “consumer-centric focus in designing, marketing and distributing financial products” while distributing those products in “a more targeted manner”.
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