Australia: ASIC Stays True to DDO Enforcement Promises
By Kane Barnett and Bernard Sia
Since 1 October 2021, when the design and distribution obligations (DDO) commenced, ASIC has issued 13 DDO‒related stop orders.
What has non-compliance looked like so far?
ASIC’s first DDO stop order was issued in July 2022 when ASIC identified a target market determination (TMD) that included retail investors for whom the investment would not be appropriate. The other initial interim stop orders related to the failure to prepare a TMD.
The subsequent stop orders have had the following issues:
- failing to identify an appropriate target market or specifying an overly broad target markets;
- a deficient TMD (ie not including certain required content);
- inappropriate or no distribution conditions; and
- failure to prepare a TMD for share offerings requiring a TMD.
On 9 November 2022, ASIC issued two interim stop orders for deficiencies in TMDs. In one instance, Finnia Income Ltd failed to prepare a TMD for the issue of redeemable preference shares and then when it did, ASIC identified numerous deficiencies in the TMD. The other interim stop order related to Nelder Road Vintners Limited as it intended to rely on investor self-certification to ensure each investor was in the specified target market. Under the DDO, the onus is on the product issuer to ensure that consumers who acquire the product are in the target market. Also, ASIC could not locate a publicly available version of the TMD.
ASIC has shifted its focus to ensuring compliance with DDO regime and taking enforcement action where it identifies non‒compliance. In its updated 2022-2026 corporate plan, ASIC listed DDO as one of four strategic priorities. Issuers will need to ensure they prepare appropriate TMDs and discharge their obligations under the DDO regime or face enforcement action from an increasingly active ASIC.