Due to non-compliant target market determinations (TMDs), Australia’s chief financial market regulator has placed temporary stop orders on three cryptocurrency-related funds for retail investors.
The Australian Securities and Investments Commission (ASIC) stated in a press release dated October 17 that it had imposed interim stop orders on three crypto funds managed by Australian asset management Holon, each of which aims to invest in Bitcoin, Ether, and FileCoin.
Crypto funds managed by Holon were halted. Image: CoinCulture
According to Invest Smart, a target market determination is a document that defines who a product is suitable for based on their expected needs, goals, financial status, and how the product might be delivered.
ASIC’s spokesman said the TMDs were “too broad […] given the volatility and speculative nature of crypto markets.”
They stated that the regulator is concerned that Holon has “not appropriately considered the features and risks of the funds in determining their target markets.”
ASIC stated that the funds are unsuitable for the broad target market defined in the TMDs, including investors with a “medium, high, or very high risk and return profile,” those intending to use the fund as a “satellite component” — up to 25% of their portfolio, and those intending to use the fund for 75% to 100% of their investment portfolio.
ASIC said that investors in cryptocurrency funds could be exposed to considerable negative returns, but Holon’s product disclosure statements (PDS) mention that investors could experience a “total loss of value.”
“ASIC made the interim orders to protect retail investors from potentially investing in funds that may not be suitable for their financial objectives, situation or needs.” The order would be valid for 21 days unless revoked earlier.
The particular changes ASIC has ordered Holon to make are unknown, and the ASIC representative declined to elaborate. The regulator stated, however, that Holon is expected to assess the concerns and take immediate action to ensure compliance.
The temporary halt will prevent Holon from disseminating a PDS, offering general advice on the funds, and distributing shares to individual investors.
The regulator also expects Holon to address the concerns promptly, failing which a final stop order will be issued; however, Holon will have the option to make representations before giving such an order.
A spokesman for Holon informed that the company had no comment at this time.
The funds, dubbed the Holon Bitcoin Fund, Holon Ethereum Fund, and Holon FileCoin Fund, are managed investment schemes that seek exposure to the respective cryptocurrency’s price. Investors pool their assets and obtain a proportional stake in the scheme in exchange.
According to a July blog post from the Gemini crypto exchange, the pooled funds are used to acquire the digital asset designated in the fund’s name.