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Non-bank lender, Firstmac Limited (Firstmac), has been ordered to pay $8 million in penalties in what was the Australian Securities & Investments Commission’s (ASIC) first civil penalty action against a distributor involving design and distribution (DDO) breaches.
The Federal Court found that Firstmac had contravened section 994E(3) of the Corporations Act when it failed to undertake reasonable measures that would have resulted in, or would have likely resulted in, distribution of its High Livez investment product to term deposit holders being consistent with its target market determination (TMD).
Joe Longo, chair of ASIC, said that this was 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,” Longo said.
“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.”
According to ASIC, the court found that Firstmac had implemented a “cross-selling strategy” of marketing investments in High Livez – which is a registered managed investment scheme – to 780 consumers who held existing term deposits with Firstmac in July 2024. ASIC commenced civil penalty proceedings against Firstmac on 14 December 2022.
As a result, Firstmac breached its DDO obligations when it sent product disclosure statements (PDS) for the product to those existing term deposit holders from October 2021 to September 2022 without taking reasonable steps to ensure consistency with TMD.
Justice Downes found that Firstmac “courted the risk” that the High Livez PDS would be distributed to an individual who fell outside of the target market for the product and labelled the conduct as “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.
On 5 October 2021, the DDO regime commenced that requires issuers and distributors to adopt a “consumer-centric” approach to the design, marketing, and distribution of financial products to increase the likelihood that suitable financial products are provided to consumers.
TMD, a mandatory public document under DDO, sets out the class of consumers of a financial product is likely to be appropriate for (e.g. its target market).
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