ASIC has made an interim stop order preventing Westlawn Financial Services Limited (Westlawn) from offering or distributing the Westlawn Income Fund (the Fund) to retail investors because of a non-compliant target market determination (TMD).
The order stops Westlawn from issuing interests in, giving a product disclosure statement for or providing general advice to retail clients recommending investment in the Fund. The interim stop order is valid for 21 days unless revoked earlier.
ASIC made the interim stop order to protect retail investors from potentially investing in a fund that may not be suitable for their financial objectives, situation or needs.
The Fund consists of a portfolio of secured and unsecured loans, credit, leases and other fixed-interest financial assets, which ASIC considers to be high-risk. The Fund is invested in five property development loans in NSW.
ASIC is concerned that Westlawn has not appropriately considered these features in determining the target market for the Fund, which, according to the TMD, includes investors:
- with a tolerance for a moderate level of risk with respect to their investment;
- needing liquidity or needing to make withdrawals during the investment term;
- seeking to have their capital invested for a minimum period of two years;
- seeking regular monthly income distributions.
ASIC also considered that the TMD did not meet the appropriateness requirements under the design and distribution obligations (DDO). The distribution conditions in the TMD were not specific enough to ensure the Fund is distributed to consumers in the target market.
ASIC expects Westlawn to consider the concerns raised about the TMD and take immediate steps to ensure compliance. If ASIC’s concerns are not addressed in a timely manner, a final stop order will be placed on the Fund. Westlawn will have an opportunity to make submissions to ASIC before the final stop order is made.
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.
Background
DDO requires firms to design financial products that meet the needs of consumers, and to distribute those products in a more targeted manner. A TMD is an important requirement under DDO. It is a mandatory public document that sets out the class of consumers a financial product is likely to be appropriate for (target market) and matters relevant to the product’s distribution and review.
ASIC has targeted surveillances underway to check whether product issuers and distributors are complying with DDO. Where firms are not doing the right thing, ASIC can take quick action under DDO to disrupt poor conduct and prevent potential consumer harm. ASIC recently issued its first DDO stop orders to prevent the offer of financial products to consumers (). ASIC also placed interim stop orders on the Australian Residential Property Fund, the Private Property Trust No. 20 (), the APIL Essential Retail Income Fund () and three funds operated by Holon Investments in response to deficiencies in their TMDs ().
To date, ASIC has issued 11 DDO interim stop orders and seven remain in place, including the Westlawn Income Fund interim stop order. Four interim stop orders have been lifted following actions taken by the entities to address ASIC’s concerns.
