Australian Regulator Suspends Three Crypto Funds Over Non-Compliance

Due to non-compliant Target Market Determinations (TMDs), Australia’s top financial markets regulator has placed temporary stop orders on three cryptocurrency-related funds for retail investors.

The Australian Securities and Investments Commission (ASIC) said in a Press release dated October 17 that it had imposed interim stop orders on three crypto funds run by Australian asset management firm Holon, each of which aims to invest in BitcoinEther and FileCoin.

Crypto funds managed by Holon have been shut down. 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 situation, and how the product could be delivered.

The ASIC spokesperson said the TMDs were “too wide […] given the volatility and speculative nature of the crypto markets.

They said the regulator was concerned that Holon “did not properly consider the characteristics and risks of the funds in determining their target markets”.

ASIC said the funds are not suitable for the broad target market defined in the TMDs, including investors with a “medium, high or very high risk and reward profile”, those who intend to use the fund as a “satellite component” – up to 25% of their portfolio and those who intend to use the fund for 75% to 100% of their investment portfolio.

ASIC said investors in cryptocurrency funds could be exposed to significant negative returns, but Holon’s product disclosure statements (PDS) mention that investors could experience a “total loss of value.”

“ASIC has issued the Interim Orders to protect retail investors from potentially investing in funds that may not be suitable for their objectives, circumstances or financial needs.” The order would be valid for 21 days unless previously revoked.

The particular changes ASIC ordered Holon to make are unknown, and the ASIC representative declined to elaborate. The regulator, however, said Holon should assess the concerns and take immediate action to ensure compliance.

The temporary shutdown will prevent Holon from issuing a PDS, offering general fund advice and distributing shares to individual investors.

The regulator also expects Holon to respond quickly to the concerns, failing which a permanent stop order will be issued; however, Holon will be given the opportunity to make representations before issuing such an order.

A spokesperson for Holon said the company had no comment at this time.

The funds, called Holon Bitcoin Fund, Holon Ethereum Fund, and Holon FileCoin Fund, are managed investment programs that seek exposure to the price of the respective cryptocurrency. Investors pool their assets and get a proportionate stake in the scheme in exchange.

According to a July blog post from crypto exchange Gemini, the pooled funds are used to acquire the designated digital asset in the name of the fund.

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