Promoting the provision of suitable financial products to consumers: substantial penalties ordered for breaching the Design and Distribution Obligations

Firstmac Limited (Firstmac) has been ordered to pay $8 million for breaching its Design and Distribution Obligations (DDO) for “objectively reckless” cross-selling. The penalty judgment delivered on 24 January 2025^[1] is the conclusion of the Australian Securities and Investments Commission’s first civil penalty action against a distributor for failing to comply with the new DDO which commenced on 5 October 2021. 

Liability judgment

ASIC's proceeding against Firstmac, a non-bank lender responsible for distributing term deposits and other investment products, including the High Livez registered managed investment scheme for which it was the investment manager, was the first DDO civil penalty proceeding taken against a financial products distributor. 

ASIC alleged that Firstmac's marketing and distribution of High Livez to holders of its term deposits failed to take reasonable steps to ensure that the product was distributed in accordance with the product's Target Market Determination (TMD).^[2] The Federal Court agreed,^[3] finding Firstmac's cross-selling strategy of marketing High Livez to 780 holders of its term deposits without regard to whether High Livez was appropriate for their needs and objectives was in breach of the company’s DDO. 

His Honour's concluding findings that:

• there were "suitable and available ways to eliminate or minimise the likelihood that the High Livez PDS would be sent to a person who fell outside the target market for High Livez"; and
• “the steps which Firstmac took were wholly inadequate to meet the statutory obligation imposed” by the DDO regime,

set up his Honour's determination at the later penalty phase that Firstmac was "objectively reckless".

Penalty and significance

At the penalty phase, his Honour was open about the significance of ordering the first penalty against a distributor for failing to comply with the DDO, stating "the penalty in this case will provide guidance to market participants as to the likely implications of contravening [the DDO provisions]." 

Here are our takeaways from the penalty judgment: 

1. Large penalties are warranted: His Honour found that a substantial penalty was necessary to promote the public interest in ensuring compliance with, and to deter potential future breaches of, the DDO. His Honour was also concerned to ensure the penalty wasn't seen as merely a "cost of doing business". 
2. Businesses must take their DDO responsibilities seriously: His Honour was exceedingly critical of Firstmac's inadequate systems, policies, practices and procedures while also at pains to point out the significance of the DDO's purpose – being consumer protection – which requires "product issuers and distributors to adopt a customer-centric approach to the design and distribution of financial products".
3. Contraventions add up quickly, as does the penalty: Despite Firstmac’s submission that it had only breached its DDO on two occasions – once for its email marketing and again for its letter marketing – his Honour found that each individual email and letter constituted a separate breach. However, ASIC accepted the theoretical maximum penalty of $9.22 billion was "not a yardstick" for setting the penalty and his Honour found the amount to be of little practical value when determining the penalty amount.
4. Being sorry is more important than saying sorry: His Honour found that Firstmac's failure to issue any formal apology could be overlooked because "actions speak louder than words" and the company had "demonstrated contrition and insight into the seriousness of its contravening conduct by taking significant steps to amend its operations, policies and procedures to ensure compliance with the DDO moving forward."
    

[1] Australian Securities and Investments Commission v Firstmac Limited (Penalty Hearing) [2025] FCA 12.
[2] A Target Market Determination describes who a product is appropriate for – identifying the target market – and any conditions and matters relevant to the product's distribution and review. A TMD is a document which is required under the DDO to be publicly available.
[3] Australian Securities and Investments Commission v Firstmac Limited (Liability Judgment) [2024] FCA 737.