ASIC puts the brakes on defective PDS

ASIC has issued interim stop orders on PDSs issued by Keystone Asset Management Ltd in respect to all four classes of units offered in Shield Master Fund, prohibiting Keystone from offering, issuing, selling or transferring interests in the Fund.

ASIC found that the disclosures in the PDSs were not to be true-to-label on numerous elements, including containing misleading statements about the level of diversification of the assets of the Fund, not adequately disclosing conflicts of interests or performance fees and giving the impression that investors could make weekly withdrawals.

ASIC has previously foreshadowed a focus on appropriate and accurate advertising for managed funds, particularly in relation to safety and stability representations such as diversification levels or withdrawal representations. The Shield Master Fund stop orders demonstrate that ASIC has now actively sought action in relation to these true-to-label issues and continue to do so with increased focus on greenwashing misconduct, with sustainable finance being named an enforcement priority for 2024.

It serves as a reminder that ASIC has, and will utilise, its wide discretion to issue stop orders if it believes that a PDS contains misleading or deceptive statements or fails to include any information that might reasonably have a material influence on a reasonable person's decision to acquire the product in an effort to protect retail investors.

ASIC's culture of compliance

At ASIC's 2023 Annual Forum, ASIC Deputy Chair Sarah Court said, "Our goal is to create a culture of compliance across Australia’s financial system and the corporate sector more generally through decisive and high-profile enforcement action." While ASIC has recently focused its stop orders on deficient product design and target market determinations, the stop orders issued against Shield Master Fund demonstrate that ASIC remains vigilant of any potential for consumer or investor detriment. It has also shown that it will not hesitate to undertake more severe enforcement action against misleading statements, as demonstrated when it commenced civil penalty proceedings against Mercer Superannuation (Australia) Limited last year.

Managed fund providers must, during the due diligence stage, consider whether all statements made in promotional materials are verifiable and accurate. PDS disclosures must also be worded and presented in what ASIC considers to be a clear, concise and effective manner.

Please contact our Financial Services team who can assist in reviewing your compliance with your regulatory disclosure obligations.