Australian regulator orders Holon to stop offering funds on Bitcoin, Ethereum, and Filecoin to retail investors

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The finan­cial watch­dog called Holon to take imme­di­ate steps to ensure com­pli­ance oth­er­s­wise it will place final stop orders on the funds. 

The Aus­tralian Secu­ri­ties and Invest­ments Com­mis­sion has ordered Holon Invest­ments Aus­tralia Lim­it­ed (Holon) to stop issu­ing inter­ests in, giv­ing a prod­uct dis­clo­sure state­ment for or pro­vid­ing gen­er­al advice to retail clients rec­om­mend­ing invest­ments in the three cryp­to funds direct­ed at retail investors.

Accord­ing to ASIC, Holon was dealt an inter­im stop order to sus­pend its offer and dis­tri­b­u­tion of these funds to retail investors because of non-com­pli­ant tar­get mar­ket deter­mi­na­tions (TMDs).

The order is valid for 21 days unless revoked ear­li­er and the funds includ­ed in the inter­im stop order are:

  • Holon Bit­coin Fund ARSN 659 090 294
  • Holon Ethereum Fund ARSN 659 090 516, and
  • Holon File­coin Fund ARSN 659 090 614 (togeth­er, the Funds).

Holon dis­closed investors risk los­ing every­thing, but ASIC finds issue with tar­get markets

The Aus­tralian reg­u­la­tor said it act­ed to pro­tect retail investors from poten­tial­ly invest­ing in funds that may not be suit­able for their finan­cial objec­tives, sit­u­a­tion or needs.

The above­men­tioned funds are invest­ed in an indi­vid­ual cryp­to-asset – bit­coin, ether and File­coin, which are are high­ly volatile and com­plex, mak­ing con­cen­trat­ed invest­ments in indi­vid­ual cryp­to-assets very risky and speculative.

In its prod­uct dis­clo­sure state­ments, Holon has dis­closed the risk that assets in the Funds could face a total loss of val­ue. Still, ASIC is con­cerned that Holon has not appro­pri­ate­ly con­sid­ered the fea­tures and risks of the Funds in deter­min­ing their tar­get markets.

ASIC con­sid­ers that the Funds are not suit­ed to the wide tar­get mar­ket defined in the TMDs, which includes investors:

  • with a poten­tial­ly medi­um, high or very high risk and return pro­file; and
  • intend­ing to use the fund as a satel­lite com­po­nent (up to 25%) of their invest­ment port­fo­lio; and
  • intend­ing to use the fund as a solution/standalone com­po­nent (75–100%) of their invest­ment portfolio.

The finan­cial watch­dog called Holon to take imme­di­ate steps to ensure com­pli­ance oth­er­s­wise it will place final stop orders on the funds.

The design and dis­tri­b­u­tion oblig­a­tions (DDO) requires firms to design finan­cial prod­ucts that meet the needs of con­sumers, and to dis­trib­ute those prod­ucts in a tar­get­ed manner.

An impor­tant require­ment under DDO, a TMD is a manda­to­ry pub­lic doc­u­ment that sets out the class of con­sumers a finan­cial prod­uct is like­ly to be appro­pri­ate for (tar­get mar­ket) and mat­ters rel­e­vant to the product’s dis­tri­b­u­tion and review.

To date ASIC has issued ten DDO inter­im stop orders, includ­ing the Holon funds, and six remain in place. Four inter­im stop orders have been lift­ed fol­low­ing actions tak­en by the enti­ties to address ASIC’s concerns.

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