Firstmac will pay a civil penalty of $8 million following its liability under Design and distribution obligations for its High Livez income fund.
In July, the Federal Court found Firstmac Limited breached provisions by failing to take reasonable steps that would have resulted in this investment product being consistent with its target market determination for the product.
The conduct occurred between October 2021 and September 2022.
This was the first finding by a court against a distributor of financial products for contravening the DDO provisions. The case was commenced by ASIC in the Federal Court in December 2022.
From 5 October 2021 to about April 2022, Firstmac engaged in 115 contraventions of the DDO by sending 115 separate emails to retail clients attaching the High Livez PDS. On or about 29 August 2022, Firstmac sent 751 letters to term deposit holders, of which 716 were “retail clients”, which resulted in 716 contraventions.
“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 Kylie Downes wrote in her judgement on the penalty on Friday.
“Firstmac did not have in place adequate systems, policies, practices and procedures to address identified or reasonably identifiable risks of retail product distribution conduct which was inconsistent with the High Livez.
“General deterrence requires that the penalty demonstrates that contraventions resulting from inadequate systems, policies, practices and procedures have serious consequences, particularly where they involve large lenders and create risk for a significant number of consumers.”
Firstmac reported operating income for the relevant period of between $143 million and $166 million, with a net profit of between $50.3 million and $74.9 million.
In 2022 and 2023, Firstmac had net assets of more than $232 million. It employs around 613 staff and has its own in-house compliance and legal functions.
Firstmac woun up the High Livez product in December 2024, and it was never much of a success, with client funds peaking at less than $100 million.
The actual loss suffered as a result of the contravening conduct was negligible, Justice Downes found.
Only one TD Holder who received the impugned communications invested in High Livez and that customer suffered a loss of about $184.71 (on an initial investment of $50,000).
“Firstmac took some positive steps to attempt to comply with the DDO” Justice Downes said.
“However, its overall conduct increased the risk that the High Livez PDS would be distributed to a person who fell outside the target market for High Livez.”
Still, it’s a damning judgement: “Firstmac did not have a corporate culture conducive to compliance.”