The Federal Court has imposed an $8 million penalty on Firstmac for not fulfilling its design and distribution obligations under the Corporations Act, ASIC reported.
This case marks ASIC’s first civil penalty action concerning breaches of design and distribution obligations (DDO) by a distributor.
The court specifically noted Firstmac’s failure to ensure that its marketing strategies for the High Livez investment product aligned with the specified target market determination (TMD).
Justice Kylie Downes, presiding over the case, criticised Firstmac for its approach to selling the High Livez investment scheme to existing term deposit customers.
Between October 2021 and September 2022, Firstmac pursued a cross-selling strategy that the court found recklessly ignored the product’s TMD, exposing customers to potential financial products ill-suited to their needs.
The judgment highlighted that Firstmac’s actions were “objectively reckless,” significantly risking consumer harm.
ASIC Chair Joe Longo (pictured above) stressed the importance of the decision, noting the potential for consumer harm due to inadequate product design and irresponsible marketing practices.
“Compliance with the DDO is essential to protect customers,” Longo said, underscoring that the ruling should serve as a deterrent to financial institutions disregarding their obligations in cross-selling financial products.
The decision comes after ASIC initiated civil penalty proceedings against Firstmac in December 2022, following which the court found that the company’s strategies failed to align with their legal obligations under the DDO legislation, introduced on Oct. 5, 2021.
This regime mandates that issuers and distributors of financial products adopt a consumer-centric approach, ensuring that the products meet the needs of the appropriate consumer group as defined by the TMD.
Firstmac is also required to cover ASIC’s costs for the proceedings.
This case sets a precedent in the financial sector, highlighting the need for stringent adherence to consumer protection laws and regulations.
