Three Aussie crypto funds halted as regulator cites non-compliance

Published at: Oct. 17, 2022

Australia’s chief financial market regulator has placed interim stop orders on three cryptocurrency-related funds set to be offered to retail investors, due to non-compliant target market determinations (TMDs).

In a media release dated Oct. 17 local time, the Australian Securities and Investments Commission (ASIC) said it has placed interim stop orders on three of Australian asset manager Holon's crypto funds — which separately aim to invest in Bitcoin (BTC), Ethereum (ETH), and FileCoin (FIL).

A target market determination is a document that describes who a product is appropriate for, based on likely needs, objectives, and financial situation as well as how the product can be distributed, according to Invest Smart.

In a statement to Cointelegraph, a spokesperson from ASIC said the TMDs were “too broad [...] given the volatility and speculative nature of crypto markets.”

They added the regulator's concern that Holon has “not appropriately considered the features and risks of the funds in determining their target markets.”

In its statement, ASIC said it considers the funds not suited to the wide target market defined in the TMDs, including those 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 who intend to use the fund for 75% to 100% of their investment portfolio.

ASIC added that cryptocurrency funds could see investors exposed to significant negative returns but stated the product disclosure statements (PDS) provided by Holon say they could face 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,” it said, adding that the order would be valid for 21 days unless revoked earlier.

The specifics of what ASIC has requested Holon to change are unclear and the ASIC spokesperson did not provide further details, however, the regulator said it expects Holon to consider the concerns and take immediate steps to ensure compliance.

The interim stop will prevent Holon from sharing a PDS, providing general advice on the funds, or issuing shares of the funds to retail investors.

The regulator also expects Holon to address the concerns “within a timely manner” otherwise a final stop order will be issued, though Holon will be given the opportunity to make submissions before such an order is made.

A spokesperson from Holon told Cointelegraph the company is not making comments on the matter “at this stage.”

The funds, named the Holon Bitcoin Fund, Holon Ethereum Fund, and Holon FileCoin Fund are all managed investment schemes that aim to give exposure to the price of the corresponding crypto and work by investors pooling money who in return receive a relative stake in the scheme.

In this case, the pooled money is used to purchase the digital asset named in the fund with custody handled by the Gemini crypto exchange according to a July blog from the company.