The Federal Court has ordered Firstmac Limited to pay $8 million in penalties for failing to meet its design and distribution obligations (DDO).

In ASIC’s first civil penalty action against a distributor involving DDO breaches, the Court found Firstmac contravened section 994E(3) of the Corporations Act when it failed to take reasonable steps that would have resulted in, or would have been reasonably likely to have resulted in, distribution of its High Livez investment product to term deposit holders being consistent with its target market determination (TMD).

ASIC Chair Joe Longo said, ‘This is an important decision that acknowledges the risk of consumer harm caused by poor product design, distribution and marketing by Firstmac.

‘We pursued this matter following concerns customers were exposed to the risk they might obtain financial products that were not appropriately suited to them. Compliance with the DDO is essential to protect customers.

‘Today’s judgment should act as a deterrent to anyone engaged in cross-selling financial products who fails to consider their design and distribution obligations before sending product disclosure statements.’

In July 2024, the Court found Firstmac implemented a ‘cross-selling strategy’ of marketing investments in High Livez (a registered managed investment scheme) to 780 consumers who held existing term deposits with Firstmac.

In doing so, it breached its DDO when it sent product disclosure statements (PDS) for the Firstmac High Livez to those existing term deposit holders from October 2021 to September 2022, without first taking reasonable steps to ensure consistency with its TMD for the product.

When handing down her penalty decision, Justice Downes found that Firstmac ‘courted the risk’ that the High Livez PDS would be distributed to a person who fell outside the target market for High Livez and that its conduct was ‘objectively reckless’.

‘Firstmac’s conduct fell short of the standard required by the DDO and increased the risk of harm to consumers to whom the High Livez PDS was inappropriately distributed,’ Justice Downes said.

Firstmac was also ordered to pay ASIC’s costs for the proceeding.