Firstmac Faces $8 Million Penalty for Breaching Design and Distribution Obligations

​The Australian Federal Court has imposed an $8 million penalty on Firstmac Limited for breaching its design and distribution obligations (DDO), marking the Australian Securities and Investments Commission’s (ASIC) first civil penalty action against a distributor for such violations. The case centers on the distribution of Firstmac’s High Livez investment product, which was marketed to consumers who held existing term deposits with the company, contrary to the product's target market determination (TMD).

The court found that Firstmac’s actions were in violation of section 994E(3) of the Corporations Act, as the company failed to implement reasonable steps to ensure that the distribution of its product aligned with its TMD. Between October 2021 and September 2022, Firstmac sent product disclosure statements (PDS) for High Livez to a group of 780 consumers, many of whom were not part of the intended target market for the investment product.

Justice Downes, in delivering the penalty decision, described Firstmac’s conduct as “objectively reckless,” noting that the company failed to ensure the product was only distributed to those for whom it was appropriate. The court emphasized that Firstmac’s actions increased the risk of consumer harm by potentially exposing individuals to a financial product that did not suit their needs.

The ruling underscores the importance of compliance with the DDO regime, which mandates that financial product issuers and distributors ensure their products are appropriately designed and marketed to the right consumer segments. Joe Longo, chair of ASIC, highlighted the significance of the case, warning that companies involved in cross-selling must carefully consider their design and distribution obligations before marketing financial products.

The DDO regulations, which came into effect on 5 October 2021, require financial product providers to adopt a consumer-centric approach in the design, marketing, and distribution of their products. The aim is to reduce the risk of consumers being offered financial products that are unsuitable for their circumstances.

Firstmac, a non-bank lender, also faces the responsibility of paying ASIC’s legal costs for the case. The ruling is expected to have broader implications for the financial services sector, serving as a reminder that companies must adhere to strict guidelines to avoid potential penalties. As the industry adjusts to the evolving regulatory framework, it is clear that failure to meet DDO obligations will not be tolerated and that consumer protection remains a top priority for Australian regulators.