ob体育 has made an interim stop order preventing Australasian Property Investments Limited (APIL) from offering or distributing the APIL Essential Retail Income Fund (the Fund) to retail investors because of a non-compliant target market determination (TMD).
The interim order stops APIL from issuing interests in, giving a product disclosure statement for or providing general advice to retail clients recommending investment in the Fund. The order is valid for 21 days unless revoked earlier.
ob体育 made the interim stop order to protect retail investors from potentially investing in a fund that may not be suitable for their financial objectives, situation or needs.
The Fund is invested in two shopping centres and is currently raising money to purchase a third shopping centre. The Fund borrows money to support its investment activities and investors in the Fund cannot withdraw their money until April 2029.
In its product disclosure statement for the Fund, APIL has disclosed that money invested in the Fund is not guaranteed and the monthly income distribution is based on assumptions and the actual results may be different to the forecast result.听
Given these features and risks, ob体育 considers that the Fund is not suited to the target market as defined in the TMD by APIL. The target market for the Fund includes investors:
- looking to invest in commercial properties with the prospect of capital growth and a secure income stream;
- who are 鈥榗ash rich鈥� entities or retirees looking for a long-term capital investment along with a monthly return;
- with a 鈥榖uy and hold鈥� strategy and do not require immediate access to capital; and
- with a need for preservation of capital that accrues capital gains/losses over the lifespan of the investment.
ob体育 also found that APIL did not meet the information requirements for the TMD. APIL also did not meet the appropriateness requirements under the design and distribution obligations (DDO) because the distribution condition was inadequate 鈥� 听APIL's distribution condition relied solely on investors' self-certification that they are in the target market.
ob体育 expects APIL to consider the concerns raised about the TMD and take immediate steps to ensure compliance. If ob体育鈥檚 concerns are not addressed in a timely manner, a final stop order will be placed on the Fund. APIL will have an opportunity to make submissions to ob体育 before the final stop order is made.
ob体育 reminds 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 them.
Background
DDO requires firms to design financial products that meet the needs of consumers, and to distribute those products in a more targeted manner. An important requirement under DDO, a TMD is a mandatory public document that sets out the class of consumers a financial product is likely to be appropriate for (target market) and matters relevant to the product鈥檚 distribution and review.听
ob体育 has targeted surveillances underway to check whether product issuers and distributors are complying with DDO. Where firms are not doing the right thing, ob体育 can take quick action under DDO to disrupt poor conduct and prevent potential consumer harm.
ob体育 recently issued its first DDO stop orders to prevent the offer of financial products to consumers (22-194MR). ob体育 also placed interim stop orders on the offer and distribution of Australian Residential Property Fund and Private Property Trust No. 20 in response to deficiencies in their TMDs (22-252MR).
Editor鈥檚 note: 听
APIL decided to cease all fundraising for the APIL Essential Retail Income Fund and to remove the product disclosure statement and non-compliant target market determination after ob体育 made the interim stop order on 28 September 2022. ob体育 revoked the interim stop order against APIL on听4 October 2022.听