DDO case note: ASIC v Firstmac
The decision in ASIC v Firstmac Limited [2024] FCA 737 was handed down on 10 July 2024.
What was the case about?
This was a case mainly concerned with the obligation of a product distributor under DDO to take reasonable steps that will (or are reasonably likely to) result in the distribution conduct being consistent with the target market determination (TMD) for the product.
In the Firstmac case, the product in question was a managed investment product called High Livez which was issued by Perpetual Trust Services as the responsible entity and distributed by Firstmac. Perpetual prepared the TMD for this product.
The TMD for High Livez excluded from the target market:
consumers who held a capital guaranteed investment objective; and
consumers whose investment timeframe was less than 2 years.
Firstmac also distributed some term deposit products issued by BNK Banking Corporation. The term deposit products were capital guaranteed (up to $250,000) and were only offered for terms up to 2 years.
The distribution conduct that got Firstmac into trouble was sending out the PDS for the High Livez product to its term deposit account holders.
ASIC’s case was that there was likely to be some term deposit holders that had a capital guaranteed objective and/or an investment time frame of under 2 years. Those requirements would put them outside the target market for High Livez.
Firstmac said its view was that term deposit holders were likely to be in the target market for High Livez, but some of them may have fallen outside the target market.
Reasonable steps requirement
As a product distributor, Firstmac was required to take reasonable steps that would (or would be reasonably likely to) result in the distribution conduct for High Livez being consistent with the TMD for High Livez.
The judge said that there was not one true path to be followed to meet the reasonable steps requirement, and the fact that one reasonable path is chosen over others need not result in a conclusion that all reasonable steps were not taken.
ASIC claimed that Firstmac did not take any reasonable steps as required. Firstmac disputed this. It included disclosures on its website about how High Livez was not capital guaranteed and had a 3-5 year investment time frame. If a customer raised capital guarantee or investment time frame in a phone call, the product features would be explained to the customer.
However, Firstmac didn’t check with the term deposit holders, before sending them the High Livez PDS, whether the term deposit holder had a capital guaranteed objective or a short-term investment time frame; nor did it draw their attention to the fact that High Livez would not be appropriate for consumers who had those requirements.
There was one person at Firstmac responsible for sending out the High Livez PDS to term deposit customers. At the time she was doing this she had not been given any training on DDO and she did not change the practices she followed prior to DDO commencing after it had commenced. She acknowledged that she would send the High Livez PDS to term deposit holders even if, in a discussion with them, it seemed to her that they wanted a government guaranteed product or a short-term investment; and even if they told her that they were not interested in High Livez.
Firstmac had a DDO policy, but the judge found that it was totally deficient and there was no supervision and awareness of the processes used by the one person who was sending out the PDSs. The conduct of Firstmac fell far short of what would be expected of a reasonable person in its position. The steps it had taken were “wholly inadequate”.
In her judgment, Justice Downes laid out various reasonable steps that could have been taken to screen customers before sending them the PDS.
Key takeaways
There are some key takeaways from the Firstmac case:
make sure your DDO processes are robust and properly embedded in your business;
make sure that relevant staff involved in product distribution are trained in DDO and supervised; and
make sure that when marketing products with clearly identifiable categories outside the target market, you take reasonable steps to exclude those people from your marketing activity.