Corporate watchdog ASIC issues its first stop order in 2023.
This month ASIC issued an interim stop order preventing Vasco Responsible Entity Services Limited (Vasco) from offering or distributing the Pivotal Diversified Fund to retail investors because of deficiencies in the Target Market Determination (TMD).
Stop order for non-compliance
ASIC has issued an interim stop order valid for 21 days unless revoked earlier preventing Vasco from issuing interests in, giving a product disclosure statement for, or providing general advice to retail clients recommending an investment in the fund.
The regulator stated “the interim order to protect retail investors from potentially investing in a fund that may not be suitable for their financial objectives, situation or needs. The Pivotal Diversified Fund is invested in various managed funds, including hedge funds, a fund invested in residential and commercial real estate developments, and a private equity fund. The underlying investments in the hedge funds are exposed to a very high risk strategy that generates absolute returns by trading in listed equities and by using short selling, leverage, and derivatives. The managed fund invested in property development projects is subject to project financing, valuation, and construction risks, and the private equity fund is illiquid and leveraged.”
To date, ASIC has issued 22 interim stop orders under the Design and Distribution Obligation (DDO) regime implemented in October 2021.
ASIC reminds “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.”
Act now and plan with a system in mind
To ensure your Target Market Determinations are compliant and remove the risk of stop orders, there are 6 points we suggest when reviewing and updating TMDs:
Get them done early – Accommodate for unforeseen circumstances or time to review each Target Market Determination with distributors. ASIC advises reviewing TMDs yearly
Leverage templates – FSC has provided a range of templates to provide frameworks for organisations
Single source of truth – Create a centralised system to maintain all content that is updated and reviewed, as well as approvals to provide a clear audit trail
Clear definitions for Target Market – follow the advice from ASIC to clearly articulate the target market for each product and its differences
Defined Investment options – ASIC advises to be effective, investment sub-markets should be specific and comparable, using quantifiable investment objectives or identifiable benchmarks and commonly adopted measures
Leverage automation - Electronically lodge your final documents TMD automating the integration
Target Market Determinations may feel overwhelming but with solutions that are designed to manage disclosure, it doesn’t have to be. Ensure you adopt a fit-for-purpose solution that meets your business needs and removes the risk of stop orders. Find out how Objective Keystone can deliver a compliant and automated disclosure management process with best practices baked in.