ASIC enforcement priorities: greenwashing, fund product design and distribution

summary

The Australian Securities and Investments Commission (“ASIC”) outlined its enforcement priorities on 3 November 2021 and has increased its surveillance and enforcement focus on fund managers, superannuation trustees and responsible entities more recently, amongst its other priorities, on greenwashing and product design, and distribution obligations.

greenwashing

The term “greenwashing” refers to the practice of marketing financial products, such as funds, as environmentally friendly or sustainable, without adequately supporting these claims. ASIC has been monitoring the issue of greenwashing in the funds management industry and has taken steps to ensure that fund product design and distribution practices are transparent and comply with legal and regulatory requirements. This includes monitoring the claims made by funds about their environmental, social, and governance (“ESG”) credentials and ensuring that these claims are supported by appropriate evidence and disclosures.

ASIC’s focus on greenwashing, fund product design, and distribution is aimed at protecting investors and promoting transparency and integrity in the funds management industry.

Financial firms can take action to avoid greenwashing when offering or promoting sustainability-related products by ensuring claims of sustainability can be substantiated. ASIC’s Information Sheet (“INFO 271”) provides financial firms with information on how to avoid ‘greenwashing’ when offering or promoting sustainability-related products.

fund product design and distribution 

ASIC is focussed on reducing the risk of harm to consumers of financial and credit products, caused by poor governance, poor product design and inappropriate distribution and marketing. ASIC issued interim stop orders to a number of fund managers/responsible entities in relation to deficiencies in their Target Market Determinations (“TMD”). The recent deficiencies identified by ASIC include:

• Inappropriate product design: financial product issuers have not defined appropriately the likely target markets for their funds.
• Objectives, financial situation and needs of consumers not properly described: TMDs were primarily focussed on the features of the products and did not adequately and objectively describe the objectives, financial situation and needs of consumers in the likely target market.

Issuers and distributors need to ensure:

• not to engage in product distribution without a TMD;
• not to engage in product distribution when the TMD is no longer appropriate;
• to provide the issuer with relevant distribution information;
• to notify the issuer with any inconsistencies in the TMD and any significant dealings or complaints;
• to amend and review the TMD as required.

next steps for firms

Financial firms should review and update any offer documents, disclaimers and marketing materials to ensure they avoid enforcement action. We are well-placed to assist firms with this review and can advise on next steps.

For more information, and any guidance or advice on complying with the disclosure and obligations regulations, Cleveland & Co External in-house counsel™, your specialist outsourced legal team, are here to help.

ESG continues to be a priority area for regulators globally, and we will follow it closely. To learn more about what UK and US regulators are doing in this area, please see our articles: US developments in ESG regulation and UK sustainability disclosure requirements.

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