Due to non-compliant target market determinations (TMDs) (1), Australia's primary financial market regulator has issued temporary stop orders for three cryptocurrency-related funds scheduled to be made available to retail investors.
The Australian Securities and Investments Commission (ASIC) (2) recently announced that it had issued interim stop orders on three of Australian asset management company Holon's cryptocurrency funds (3), each of which aims to invest in Bitcoin, Ethereum, and FileCoin. The announcement was made on October 17, local time.
According to Invest Smart, a target market determination is a document that specifies a product's suitability based on its expected needs, goals, and financial status for how the product might be marketed.
According to an ASIC representative, the TMDs are too broad, considering the speculative and volatile character of the cryptocurrency markets. The regulators worry that Holon has not properly taken into account the features and hazards of the funds when selecting their target audiences.
The company went on to say that it believes the funds are unsuitable for the broad target market outlined in the TMDs, which includes people with medium, high, or very high risk and return profiles, as well as people who plan to use the funds for between 75% and 100% of their investment portfolio and as satellite components for up to 25% of their portfolio.
ASIC later mentioned the product disclosure statements (PDS) (4) issued by Holon as they could experience a complete loss of value. However, before that, bitcoin funds could expose investors to negative returns.
ASIC imposed the interim orders to safeguard retail investors from participating in funds that would not be appropriate for their financial goals, circumstances, or needs. ASIC also stated that the order would be in effect for 21 days until canceled early.
Uncertainty surrounds the particular changes that ASIC has asked Holon to make. The regulator stated that it anticipates Holon will give its concerns some thought and take prompt action to ensure compliance. The temporary ban would bar Holon from distributing PDSs, offering general fund advice, or selling shares of the funds to individual investors.
The regulator also anticipates that Holon will respond to the issues promptly; otherwise, Holon will issue a final stop order and be given a chance to respond before such an order is made. Holon is not yet commenting on the situation, though.
The Holon Bitcoin Fund, Holon Ethereum Fund, and Holon FileCoin Fund are all managed investment strategies that seek exposure to the respective cryptocurrency's price. These strategies are carried out by investors pooling money in exchange for relative ownership in the strategy.
According to a company blog post in July, the pooled funds in this situation are utilized to buy the digital asset mentioned in the fund, with custody managed by the Gemini cryptocurrency exchange (5).