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<!DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"> <html xmlns="http://www.w3.org/1999/xhtml"> <head> </head> <body> <div style="font-family:Verdana, Geneva, sans-serif; font-size:12px; text-align:justify"> <table width="800" border="0" style="border:1px solid #ccc;padding:5px;" align="center" cellpadding="6" cellspacing="0"> <tr> <td align="left" valign="top"> Issuers must cease retail product distribution within 10 business days if they know that the target market determination (TMD) is no longer appropriate, unless the TMD is reviewed - (24 Jul 2024) </td> </tr> <tr> <td align="left" valign="top">Australian Securities and Investments Commission v American Express Australia Limited</td> </tr> <tr> <td align="left" valign="top" style="background-color:#FDEDCE">The Federal Court of Australia ordered American Express Australia Limited (Amex) to pay $8 million in civil penalties for breaching the design and distribution obligations (DDO) outlined in Part 7.8A of the Corporations Act 2001 (Act), specifically sub-section 994C (4). This case marks the second judicial outcome for the Australian Securities and Investments Commission (ASIC) regarding DDO compliance, following the decision in ASIC v Firstmac Limited on 10 July 2024.

In the judgment, Amex admitted to contravening sub-sections 994C (4) and (5) of the Act in relation to two co-branded credit cards, the David Jones American Express Card and the David Jones American Express Platinum Card (together, the DJs Cards), which were primarily distributed through David Jones department stores.

Sub-section 994C (4) of the Act requires issuers to cease retail product distribution within 10 business days if they know, or ought reasonably to know, that an event or circumstance has occurred suggesting the target market determination (TMD) is no longer appropriate, unless the TMD is reviewed, and a new one is prepared if required.

The Court found that Amex had created TMDs for the DJs Cards and offered these cards for acquisition to retail clients. By 11 May 2022, Amex should reasonably have known that the high cancellation rates for the DJs Cards applications indicated that the TMDs were no longer appropriate. Despite this, Amex did not review the TMDs between 11 May and 24 May 2022. 
Additionally, the distribution of the DJs Cards did not fall under excluded conduct as defined in section 994A of the Act.

However, the Court did not find Amex in breach of subsection 994C (5) of the Act, which broadly requires issuers to take all reasonable steps to ensure distributors are informed not to engage in retail product distribution conduct until the TMDs are reviewed and updated. The Court concluded that paragraph 994C(5)(c) requires actual knowledge of the event or circumstance suggesting the TMDs are no longer appropriate. It was an agreed fact that Amex did not have actual knowledge that the cancellation rates were such a circumstance.

This case highlights the critical importance of having effective systems in place to monitor the appropriateness of TMDs in financial product distribution. With ASIC’s active enforcement stance, compliance with the DDO is paramount. Financial institutions must ensure robust processes to avoid substantial penalties and regulatory actions.</td> </tr> <tr> <td align="left" valign="top" ></td> </tr> <tr> <td align="left" valign="top" >Tags : TMD, DDO, Design and distribution obligations</td> </tr> <tr> <td align="left" valign="top">&nbsp;</td> </tr> <tr>  <td align="left" valign="top">Source : newsroom.manupatra.com</td> </tr> <tr> <td align="left" valign="top">&nbsp;</td> </tr> <tr> <td align="left" valign="top">Regards</td> </tr> <tr> <td align="left" valign="top">Team Manupatra</td> </tr> <tr> <td align="left" valign="top">&nbsp;</td> </tr> </table> </div> </body> </html>