ASIC places interim stop order on APS Savings and AFL’s funds

The Australian Securities and Investment Commission (ASIC) has placed an interim stop order on offers from APS Savings Limited and issued interim stop orders preventing Australian Fiduciaries Limited (AFL) from offering or distributing three funds to retail investors.

The order on offers from APS Savings was placed in response to deficiencies in the issuers’ target market determination (TMD) and stopped APS Savings from “issuing interests in, giving a prospectus for, or providing financial advice to retail clients under the existing TMD.”

The order would be valid for 21 days unless revoked earlier.

According to the regulator, the interim stop order was issued to protect retail investors from potentially investing in offers that may not be suitable for their financial objectives, situation or needs.

Amongst other concerns, ASIC considered that the TMD for APS Savings did not adequately describe the objectives, financial situation and needs of consumers likely to be in the target market in an objective manner.

To date, ASIC has issued 18 interim stop orders under the design and distribution obligations (DDO), including the order on APS Savings.

ASIC found that the TMD for the firm’s prospectus did not meet the appropriateness requirements under DDO and considered that the TMD’s initial and subsequent review periods were not reasonable.

Following this, for the three AFL’s funds, which included the Global SRI Ethical Alpha Fund, the Global SRI All Seasons Fund and the Global SRI Multi-Strategy Fund, the order was issued to “protect retail investors from potentially investing in funds that may not be suitable for their financial objectives, situation or needs” and the order would also be valid for 21 days unless revoked earlier.

According to ASIC, both Global SRI Ethical Alpha Fund and Global SRI Multi-Strategy Fund had exposure to a portfolio comprised largely of loans secured by real property and other debt instruments, precious metals, listed and unlisted equity and property development projects.

The Global SRI All Seasons Fund had exposure to a portfolio of managed funds and assets, including unlisted managed funds, derivatives, listed equity and commodities, with an investment return objective of CPI (Consumer Price Index) plus 7% per annum.

The regulator said it was concerned that AFL did not appropriately consider these features and risks in determining the wide target markets for the funds and that the target market for all three funds inappropriately included:

• investors who need liquidity during the term of their investments, which is not supported by the Funds’ liquidity features
• investors with a tolerance for ‘medium’ to ‘high’ level of risk whilst the risks associated with the portfolio of investments for two funds and the aggressive return objective of one fund are higher
• investors with an undefined ‘higher-than-average’ net worth.

The regulator reminded 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,” ASIC said in the statement.

ASIC said it expected both AFL and APS Savings to consider the concerns raised regarding the TMDs and take immediate steps to ensure compliance.

Following this, ASIC would consider making a final order if the concerns are not addressed in a timely manner and both firms would have an opportunity to make submissions before a decision is made about a final stop order.