ASIC places interim stop orders on 4 more funds

On Friday, ASIC announced stop orders on a total of four funds held by two different companies as it continues to crack down on target market determination (TMD) deficiencies.

ASIC issued interim stop orders preventing Australian Fiduciaries Limited (AFL) from offering or distributing three funds to retail investors because of deficiencies in their TMDs, including Global SRI Ethical Alpha Fund; Global SRI All Seasons Fund; and Global SRI Multi-Strategy Fund.

According to the corporate regulator, both Global SRI Ethical Alpha Fund and Global SRI Multi-Strategy Fund have exposure to a portfolio comprised largely of loans secured by real property, precious metals, listed and unlisted equity, and property development projects, while the Global SRI All Seasons Fund includes unlisted managed funds, derivatives, listed equity and commodities.

ASIC considered that the target market for all three funds inappropriately includes investors who need liquidity during the term of their investments, which is not supported by the funds’ liquidity features; investors with a tolerance for ‘medium’ to ‘high’ level of risk, whereas the risks associated with the portfolio of investments for two funds and the aggressive return objective of one fund are higher; and investors with an undefined ‘higher-than-average’ net worth.

Furthermore, the corporate regulator considered that the TMDs did not meet the appropriateness requirements under DDO because they did not include any distribution conditions.

ASIC also placed an interim stop order on offers from APS Savings in response to deficiencies in the issuers’ TMD, with the aim to “protect retail investors from potentially investing in offers that may not be suitable for their financial objectives, situation or needs”.

According to ASIC, APRS Savings, in seeking to raise funds through the issue of secured notes under a prospectus, proposed to lend the funds raised to its parent company, APS Benefits Group Limited, to fund personal loans for its members.

Amongst other concerns, ASIC considered that the TMD for APS Savings did not adequately describe the objectives, financial situation and needs of consumers likely to be in the target market in an objective manner.

ASIC also found that the TMD for the prospectus did not meet the appropriateness requirements under DDO.

The distribution conditions of the TMD were limited to identifying investors who had completed investment application forms and were willing to make a minimum investment of $10. There were no additional processes to identify investors as being within the target market.

Furthermore, ASIC considered that the TMD’s initial and subsequent review periods were not reasonable. This meant that if the TMD was no longer appropriate, retail clients could face significant consequences.

Ultimately, ASIC reminded financial product issuers that under DDO, they must define target markets for their products appropriately, having regard to the risks and features of their products.

“Issuers also need to consider how their product will reach the target market and have appropriate distribution conditions in place to ensure the product is directed towards the target market”.

The orders are valid for 21 days unless revoked earlier.