In this Funds Update for 16 February 2024:

ASIC uses PDS stop order powers

On 7 February 2024, ASIC announced that it had made interim stop orders on four product disclosure statements (PDSs) for classes of units of a registered managed fund (Fund), which is a timely reminder that ASIC is still ready, willing and able to issue PDS stop orders where it is concerned that a PDS may be defective and is not solely focussed on using its DDO stop order powers.

ASIC was concerned that the PDSs may have:

  • contained misleading statements regarding the Fund manager's role in unregistered schemes the Fund had invested in and the level of diversification of the assets of the Fund;
  • not adequately disclosed:
    1. the nature, quantum and risks associated with the Fund's investments in unregistered funds related to the fund manager;
    2. the performance fees that may have applied; and
    3. the conflicts of interest associated with investments in funds related to the Fund manager and the management of those conflicts;
  • gave the impression that investors could withdraw weekly when redemptions were at the absolute discretion of the Fund manager and may be subject to a two-year redemption lock-up period;
  • used inappropriate asset classifications to describe the investments in the underlying funds and the investments within those funds; and
  • failed to disclose a change in the directors of the Fund manager or any information about the new director, their skills, experience and role and the Fund's investment approach to ethical considerations in a clear, concise and effective manner.

ASIC accepts enforceable undertaking re DDO breaches

On 2 February 2024, ASIC announced that it had accepted an enforceable undertaking from an issuer of credit products in relation to failures to comply with the design and distribution obligations (DDO) including failing to have target market determinations (TMDs) and not having appropriate DDO compliance systems and controls in place.

Under the enforceable undertaking the credit product issuer will engage an independent expert to report on:

  • whether the credit products were issued to consumers within the target market;
  • the fees and charges paid by consumers outside of the target market; and
  • whether the new TMDs comply with the requirements of the DDO and if not, how they can be rectified.

ASIC has previously commenced three civil penalty proceedings for alleged breaches of DDO, which we have reported in our Funds Update of 16 December 2022.

ASIC consults on changes to OTC derivative transaction reporting rules

On 15 February 2024, ASIC announced the release of Consultation Paper 375 – Proposed changes to the ASIC Derivative Transaction Rules (Reporting): Third consultation (CP 375), which seeks feedback from reporting entities (including small-scale exempt entities) on the proposed changes to ASIC Derivative Transaction Rules (Reporting) 2024 (2024 Reporting Rules) and minor changes to ASIC Derivative Transaction Rules (Clearing) 2015 (Clearing Rules).

CP 375 proposes changes to the 2024 Reporting Rules to:

  • simplify the exclusion of exchange-traded derivatives and the scope of foreign entity reporting;
  • remove the alternative reporting provisions;
  • clarify the exclusion of FX securities conversion transactions; and
  • add additional allowable values for two data elements.

CP 375 also proposes minor changes to the Clearing Rules to:

  • simplify and align the exclusion of exchange-traded derivatives with the Reporting Rules; and
  • make minor updates to re-reference the changed location of definitions in the Corporations Act 2001 which have been moved by the Treasury Laws Amendment (2023 Law Improvement Package No. 1) Act 2023.

ASIC stated that a small number of international reporting entities and some small-scale exempt reporting entities may be impacted by the proposed changed.

The 2024 Reporting Rules are due to commence on 21 October 2024. ASIC invites feedback on CP 375 until 28 March 2024.

FFSP AFSL exemption bill delays

On 7 December 2023, the Treasury Laws Amendment (Better Targeted Superannuation Concessions) Imposition Bill (Bill) was referred to the Senate Economics Legislation Committee (Senate Economics Committee) for consideration "to carefully investigate this legislation and provide interested stakeholders with the opportunity to comment on the legislation". A report is expected from the Senate Economics Committee around 19 April 2024.

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