Consistent with ASIC 2022-23 strategic priorities, there has been an observable increase in surveillance activity by ASIC in the funds sector, focussing on design and distribution obligations, greenwashing and crypto-asset offerings. This Reporting Update provides a summary of the findings from the surveillance.
Deficiencies in target market determinations
As part of the design and distribution obligations (DDO) which commenced on 5 October 2021 set out by ASIC (RG274), financial product issuers must prepare a target market determination document (TMD).
ASIC has recently issued interim stop orders from offering or distributing products to a number of fund managers/responsible entities largely in relation to breaches of design and distribution obligations (deficiencies in the target market disclosures). To date, deficiencies identified by ASIC from its reviews of TMDs include:
- Funds/investment managers/responsible entities have not appropriately considered the product features and risks in determining the target markets for the funds.
- TMDs did not adequately describe the objectives, financial situation and needs of consumers likely to be in the target market in an objective manner. Instead, it primarily focused on the features of the offer and consumers’ understanding of the offer.
- Distribution conditions in the TMDs did not meet the appropriateness requirement under the DDO because these conditions were not specific enough to make it likely for the Funds/Trusts to reach consumers in the target market.
Improving marketing oversight
An ASIC surveillance identified marketing representations made by some funds were not consistent with regulatory guidance.
Areas of concern identified include inadequate warnings or disclaimers about past or future performance, comparing the product to lower-risk products, indices or benchmarks and the downplaying of other risks when promoting fund benefits.
Improving breach reporting and remediation
The reportable situations regime, often referred to as breach reporting, is a cornerstone of the financial services and credit regulatory regimes.
For the period between 1 October 2021 and 30 June 2022, ASIC observed the following:
- a much smaller proportion of licensees have reported under the regime than anticipated
- licensees are still taking too long to identify and investigate some breaches
- more work needs to be done to appropriately identify and report the root cause of breaches
- further improvements are needed to licensees’ practices towards remediating impacted customers.
Greenwashing
Consistent with ASIC priority on enforcement action against greenwashing, ASIC has issued infringement notices against the investment manager and superannuation trustee for greenwashing.
Crypto-asset based products
Undertaking surveillance of crypto-asset offerings for potential misleading or deceptive conduct that may result in consumer harm is one of ASIC’s strategic priorities in 2022. Recently, ASIC has commenced civil penalty proceedings in the Federal Court alleging companies.
ASIC has commenced civil penalty proceedings in the Federal Court alleging companies:
- making false, misleading or deceptive representations regarding crypto-asset based products
- providing unlicensed financial services in relation to crypto-asset based products.
