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With DDO stop orders, ASIC steps up marketing scrutiny
The Australian Securities and Investments Commission has been ramping up its enforcement of new regulations meant to ensure financial products are properly marketed to investors, issuing 21 stop orders since July against companies for violating design and distribution obligations.
The corporate regulator has also overseen $5.6 billion in remediation for 7 million Australian consumers in the six years through September 2022 in connection with companies’ harmful sales and retention practices, it said in a December 12 enforcement and regulatory update for the September quarter. It also highlighted court proceedings against AMP companies for charging consumers fees for no service, resulting in $14.5 million in penalties, and a $7.2 million penalty against listed wealth management firm Dixon Advisory for breaching its best-interest obligations.
“ASIC remains committed to using our full regulatory toolkit to address consumer and investor harms and promote trust and confidence in Australia’s financial system,” ASIC Chair Joe Longo said in a statement.
“That commitment is evident across the very broad remit of responsibilities that ASIC oversees,” he added. “Our enforcement and regulatory action between July and September spanned the insurance, credit, superannuation, financial advice, managed investments, markets and auditing sectors.”
Marketing practices targeted
The design and distribution obligations (DDO) regime, which went into force October 5, 2021, requires product issuers to carefully consider the kind of consumers for which their products are appropriate and tailor marketing efforts accordingly.
The regulations require issuers to provide a target market determination (TMD) for each product they issue, with basic information like the registration and objectives of the fund, and to show they have taken reasonable steps to ensure products are appropriately distributed.
“The DDO regime represents a fundamental shift in consumer protection in financial services, giving ASIC the capability to prevent consumer harm and move quickly when firms do not meet their obligations,” Longo said.
ASIC issued its first interim stop orders in connection with DDO violations in July, accusing Responsible Entity Services and two UGC Global Group entities of failing to appropriately identify the customers they intended to target and failing to have a TMD. The orders barred the companies from issuing the products to retail investors.
In total, ASIC issued five stop orders in the September quarter, including against Fawkner Property and Australasian Property Investments. It has issued another 16 since then, suggesting a ramp-up of enforcement efforts under the DDO regulations. The regulator also noted it recently commenced its first civil penalty proceedings for poor target-market practice.
“Financial firms need to be consumer-centric in how they design their products,” said Karen Chester, deputy chair of ASIC. “Where firms are not meeting their obligations, ASIC can and will respond, from stop orders to court action, to prevent consumer harm and deter noncompliance.”
