Vasco prevented from offering or distributing fund for 21 days
A new stop order from ASIC will prevent Vasco Responsible Entity Services (Vasco) from offering or distributing its Pivotal Diversified Fund to retail investors.
ASIC issued the interim stop order on January 9, which prohibits Vasco from issuing interests in, providing a product disclosure statement for, or providing general advice to retail clients recommending an investment in its Pivotal Diversified Fun. The order lasts for 21 days unless revoked earlier.
The order was made pursuant to the design and distribution obligations (DDO), which require firms to design financial products that meet consumer needs and clearly define the target markets of their products, given these products’ risk profiles and other relevant features. DDO also require that firms have distribution conditions in place that ensure their financial products are directed to the intended class of consumers.
ASIC said it made the interim order to Vasco to protect retail investors from potentially investing in a fund that may not be suitable for their financial objectives, situation or needs.
The Pivotal Diversified Fund is invested in various managed funds, including hedge funds, a fund invested in residential and commercial real estate developments and a private equity fund.
ASIC found that the underlying investments in the hedge funds were exposed to a very high risk strategy that generates absolute returns by trading in listed equities and by using short selling, leverage and derivatives.
The fund invested in property development projects was also subject to project financing and construction risks, while the private equity fund was found to be illiquid and leveraged.
ASIC said it was concerned that Vasco had not appropriately considered these risks in determining the target market for the fund. It said the target market inappropriately included investors with a potentially high risk and return profile and those with a medium investment timeframe of up to six years.
The regulatory body also considered that the target market determination was not appropriate under the DDO because it did not include any distribution conditions.
Under the interim stop order issued, Vasco must now take the proper steps to ensure full compliance with design and distribution obligations.
ASIC said it would consider making a final order if the concerns were not addressed in a timely manner.
To date, ASIC has issued 22 DDO stop orders to prevent the improper offer of financial products to consumers, including its stop order on Vasco.
Meanwhile, in December, ASIC started Federal Court proceedings against Finder Wallet, a subsidiary of comparison website Finder.com. ASIC alleged that Finder Wallet provided unlicensed financial services, breached product disclosure requirements and failed to comply with DDO obligations related to its crypto asset-related product, Finder Earn.
In October, ASIC announced it was suing Latitude Finance and Harvey Norman for allegedly misleading advertising involving the promotion of interest-free payment methods.
