ASIC makes first DDO stop orders to prevent offer of financial products to consumers
03 August 2022
03 August 2022
On 28 July 2022 ASIC announced that it had placed interim stop orders on three financial firms in response to deficiencies in the target market determination (TMD) for their products. These actions are ASIC’s first use of the stop order powers under the design and distribution obligations (DDOs), which took effect on 5 October 2021. The actions reflect a shift in ASIC's approach to compliance after initially taking a "best efforts" approach during the transition to the regime.
The interim stop orders prevent Responsible Entity Services Limited (RES) and two companies in the UGC Global Group (UGC) from issuing the relevant managed investment scheme interests or shares to retail investors amongst other things.
In the case of RES, ASIC considered that RES’s TMD included certain retail investors for whom investment in PPM Units (a class of interests in the RES Investment Fund) would not have been consistent with their likely objectives, financial situation and needs.
In the case of UGC, the two relevant companies (GC Global Alpha Limited and UGC Global Alpha Fund Limited) lodged prospectuses seeking to raise $100 million each through the offer of ordinary shares for the purpose of investing in the UGC Alpha Global Fund (a wholesale fund). ASIC extended the exposure period for these prospectuses because of concerns that the disclosure was defective and placed interim stop orders (under section 739 of the Corporations Act 2001) on offers made under the prospectuses.
When the prospectuses were made publicly available during the exposure period, they did not have a TMD and said that applications to invest would be processed on a ‘first come, first served’ basis. ASIC was concerned that the UGC Global companies may have engaged in retail product distribution before preparing a TMD for their high risk offers. Therefore, ASIC also made orders for non-compliance with obligations under DDO in relation to the shares of these companies.
Fully paid ordinary shares are generally an excluded financial product not subject to the DDO regime. However, an exception exists in relation to shares issued in an investment company, which are characterised as an in scope financial product under section 994B(4). It is on that basis that ASIC made orders for non-compliance with the DDO obligations in relation to the shares issued in the UGC companies.
The complete ASIC media release can be viewed here.
Authors: Jonathan Gordon, Partner and Corey McHattan, Partner.