Preventing an ASIC Interim Stop Order on DDO & TMDs for an Australian Private Credit Fund

Introduction

Since the Corporations Act 2001 (Cth) (‘Corporations Act‘) Design and Distribution Obligations (DDO) regime commenced in October 2021, the Australian Securities and Investments Commission (ASIC) has issued over 95 stop orders against financial services firms. In late 2025, ASIC increased its scrutiny on the private credit sector, issuing an interim stop order against more than one Australian credit fund for deficiencies in their Target Market Determinations (TMD).

This article explains the DDO framework for a private credit fund so you can prevent an interim stop order. It provides a practical drafting guide for a compliant TMD, examines high-risk wording, and outlines remediation steps to take when ASIC issues DDO stop orders against a credit fund, drawing lessons from past stop orders against La Trobe Financial.

Interactive Tool: Check Your Private Credit Fund’s ASIC Stop Order Risk

Understanding DDO & TMDs for Private Lenders & Non-Bank Finance Companies

The Purpose of Target Market Determinations

The DDO regime requires financial services firms to design products that meet the needs of a specific target market.

At the core of this framework is the TMD, which defines the specific class of consumers a financial product is designed for, establishes the conditions under which the product should be distributed, and outlines the requirements for monitoring and reviewing these distribution practices. Furthermore, according to the Corporations Act, a TMD must include specific content, such as:

• review triggers;
• mandatory review periods; and
• reporting requirements for distributors.

Ultimately, product issuers have an obligation to design products for consumers with particular attributes. Issuers must then take reasonable steps to ensure their products are distributed to consumers who fit this profile.

Retail Versus Wholesale Fund Distinctions

The structure of a private credit fund determines the specific statutory obligations that apply, particularly concerning DDO. This framework also mandates that products are distributed appropriately to that market, aiming to improve consumer outcomes. Consequently, there is a significant difference in regulatory requirements for funds offered to retail investors compared to those offered exclusively to wholesale investors.

Registered managed investment schemes, which are typically offered to retail investors, are subject to the statutory DDO duties outlined in Part 7.8A of the Corporations Act. These schemes must have a TMD and comply with its conditions.

In contrast, unregistered managed investment schemes, which are generally offered only to wholesale clients, are not subject to the same legislative DDO obligations. However, operators of these wholesale funds must still comply with their general Australian Financial Services Licence (AFSL) obligations, which include duties related to:

• governance;
• managing conflicts of interest; and
• valuation practices.

Common Triggers for an Interim Stop Order Against an Australian Credit Fund

High-Risk Wording & Capital Preservation Claims

Identifying an investor attribute as ‘capital preservation’ has drawn attention from ASIC. While a private credit fund may aim to maintain a stable unit price, this wording can be problematic. However, an argument exists that the term is appropriate for investors seeking to reduce volatility, provided the TMD clearly states capital is at risk and not guaranteed.

Ultimately, this approach carries increased regulatory risk. For example, in late 2025, ASIC issued an interim stop order against a contributory mortgage fund described as suitable for ‘investors seeking capital preservation’. The regulator’s concern was that investors’ capital was at risk and not guaranteed, making the term inappropriate.

Unrealistic Portfolio Allocation Examples

The suggested percentage of an investor’s assets to be invested in a product, known as the ‘intended product use/portfolio allocation’, is another area of focus for ASIC. Fund managers who have suggested a material portion of investable capital is suitable for products exposed to a single asset class have consistently been subject to a stop order. As a result, allocations above 25 per cent often attract regulatory action.

ASIC’s view is that managers must consider a product’s diversification. Therefore, a fund with exposure to a single asset will have a narrower target market and a lower acceptable investment allocation than a highly diversified product.

An allocation of up to 25% may be acceptable, but very high-risk products may require a lower percentage. For instance, one issuer of a private credit product had to reduce the portfolio allocation in its TMD from 35 per cent to 10 per cent to have a stop order lifted.

Misaligned Risk & Return Ratings

The risk and return attribute in a TMD has also been a consistent trigger for an interim stop order from ASIC. Furthermore, the regulator has expressed clear views on how these ratings should be aligned to prevent mis-selling to unsuitable investors.

ASIC’s expectations on this theme include:

• High returns require high-risk ratings: Products that target high returns must be assigned a correspondingly high-risk rating in the TMD.
• Contributory mortgage funds: The risk/return rating for these products when offered to retail investors should be ‘medium to high’, not ‘low to medium’.
• Property funds: A rating of ‘low’ or ‘potentially low’ is not considered appropriate for a property fund.
• High-risk equity funds: A fund investing in microcap equities or using leverage should be rated as ‘very high to extremely high’.

Model TMD Architecture & Distribution Conditions for Private Credit Funds

Structuring Specific Distribution Conditions

To meet the obligation to take reasonable steps in distributing a financial product, fund managers must include specific distribution conditions within the TMD itself. Furthermore, these conditions must clearly and adequately describe how the product will be directed to the intended class of consumers.

ASIC has indicated that simply requiring investors to “self-certify” that they fall within the target market is insufficient. Instead, the conditions must be practical and specific. Ultimately, this ensures an active process is in place to align the product with suitable investors, reducing the risk of mis-selling that could lead to an ASIC interim stop order.

Implementing Internal Policies & Questionnaires

Beyond outlining conditions in a TMD, fund managers must establish and maintain internal policies and procedures to implement them effectively. These procedures are the operational backbone that ensures the distribution conditions are met in practice.

For example, if a TMD for a private credit fund requires the use of an investor questionnaire, this process must be properly managed as follows:

• The questionnaire must be given to all relevant investors.
• The fund manager is responsible for ensuring the questionnaire is completed.
• Trained staff must analyse and assess the answers provided by the potential investor.
• This assessment must be completed before the investor’s application is accepted.

Case Studies of Stop Orders Against La Trobe Financial & Other Entities

When ASIC Issues DDO Stop Orders Against La Trobe Financial

As part of the late 2025 regulatory sweep mentioned earlier, ASIC took action against La Trobe Financial regarding how it was offering its products to investors.

The regulatory action against the La Trobe Australian credit fund highlighted ASIC’s attention on how financial services firms market their products to retail investors. Consequently, the issues identified by the regulator served as a clear signal to the market about the importance of aligning product offerings with the defined target market to prevent potential consumer harm.

Lessons from Enforcement Actions Against TruePillars & Oak Capital

Around the same time as the La Trobe Financial intervention, ASIC also addressed issues with TruePillars Investment Trust concerning its product offerings. This action reinforced the regulator’s commitment to supervising the private credit sector and ensuring adherence to DDO requirements.

Further lessons can be drawn from the ASIC v Oak Capital (‘Oak Capital‘) enforcement action. This case provides a practical example of how ASIC applies the obligation for financial services licensees to act “efficiently, honestly and fairly.” For private lenders, this case underscores the need for legal guidance on documented assessment processes and loan terms that are proportionate to the borrower’s capacity and risk profile.

Remediation Checklist After an ASIC Query or Stop Order for Family Offices & Lenders

Immediate Steps Following Regulatory Intervention

When ASIC issues an interim stop order, a fund manager’s first priority is to address the specific concerns raised by the regulator to have the order lifted. A key area of focus is often the ‘intended product use/portfolio allocation’ detailed in the TMD.

As noted earlier, promptly amending problematic metrics—such as reducing an unrealistic portfolio allocation—can be an effective initial response to regulatory action.

Updating the DDO Framework & Product Work Plans

After addressing the immediate trigger for an ASIC stop order, operators of a credit fund should conduct a thorough review of their broader DDO framework. This involves more than just amending the TMD; it requires updating the internal policies and procedures that support ongoing compliance.

Key actions to take include:

• Review DDO policies and work plans: Systematically assess and update all documentation related to product governance to align with ASIC’s expectations and prevent future breaches.
• Develop scripts for staff: Prepare clear and compliant scripts for consumer-facing employees to ensure all communications with potential investors are consistent with the revised TMD.
• Create advertising checklists: Implement checklists for all advertising and promotional materials to verify that marketing campaigns accurately reflect the product’s target market and risk profile.
• Draft filtering questions: Design specific questions for investor questionnaires that effectively filter for consumers who fit within the defined target market.
• Implement due diligence processes: Establish formal procedures, such as a platform due diligence checklist, to ensure any third-party distributors understand and adhere to the product’s distribution conditions.

Conclusion

Understanding the DDO and common TMD deficiencies is critical for private credit funds to manage the risk of an ASIC interim stop order. By implementing compliant TMD architecture, learning from past enforcement actions, and preparing a clear remediation plan, fund managers can better meet their product governance duties.

If your credit fund requires assistance with its DDO framework or TMD, contact the financial services lawyers at GRM Law. We provide guidance on establishing compliant product governance to protect your fund and its investors, so reach out today for support.

Frequently Asked Questions

Disclaimer: This is general information only and is not legal advice. For advice on your circumstances, contact GRM LAW.