ASIC today announced relief from the product disclosure statement (PDS) provisions of the Corporations Act (the Act) for financial services licensees who are deemed to be issuers of exchange traded derivatives by s761E(6) of the Act. This relief is provided in ASIC Class Order [CO 06/682].

The relief applies in the situation where exchange traded derivatives are acquired by retail clients through a series of arrangements involving both:

• a financial services licensee (an intermediary licensee) who is not a participant on a relevant financial market and who makes recommendations about the acquisition of a derivative and introduces the client to a financial services licensee (market participant) who is a participant on the relevant financial market; and
• the market participant who acquires the derivative for the client on the relevant financial market.

Currently, the law states that generally both of these licensees must prepare a PDS for the derivative. The PDS must contain statements and information about each licensee.

Although the Act permits preparation of a joint PDS where a financial product is jointly issued, the common practice is that the intermediary licensees and market participants prepare separate PDSs for exchange traded derivatives.

‘Two PDSs for the same product increases the amount of paperwork the consumer needs to read and understand in order to make a decision about acquiring the derivatives. There is greater risk of consumer confusion because the PDSs provided are likely to contain inconsistent information’, ASIC’s Director of Applications and Licensing, Mr John Price said.

‘We have issued this class order so that consumers receive a single PDS. The class order ensures that consumers still get all the information they need but means it is provided in a more practical manner’, Mr Price said.

Note: The class order will commence after it has been gazetted and recorded on the Federal Register of Legislative Instruments (FRLI) in electronic form. The FRLI may be accessed at www.frli.gov.au.

Download [CO 06/682] or call the ASIC Infoline on 1300 300 630.

Background

The effect of [CO 06/682] is that:

• the intermediary licensee is not required to prepare a PDS for the derivative (the market participant will need to prepare the PDS, and make it available to intermediary licensees to distribute to retail clients); and
• the market participant is not required to include in the PDS (or a short-form PDS) information specific to each intermediary licensee that is also a deemed issuer of the derivatives described in the PDS. The market participant can instead comply with the PDS content requirements by including in the PDS:
• (a) statements that there may be additional risks, fees or costs, rights, terms, conditions or obligations that attach to the derivative, and available dispute resolution schemes that relate only to the intermediary licensees; and
• (b) a statement that details of these matters may be obtained from the relevant intermediary licensee; and
• the intermediary licensee must give to retail clients to whom the intermediary licensee offers to issue, arrange for the issue of, or makes a recommendation to acquire, the derivative, in writing, the information or statements that relate only to the intermediary licensee that would otherwise have been required to be included in the PDS, or a Short-Form PDS, for the derivative. The intermediary licensee can include this information either in their Financial Services Guide, or in a separate document.

A consequential modification has been made to section 1013E of the Act to ensure that information that relates only to the intermediary licensee would not have to be included in the PDS, or a Short-Form PDS, prepared by the market participant on the basis that it is information that would reasonably be expected to have a material influence on decisions made by retail clients about the acquisition of the derivative.

The relief will only be available where the intermediary licensee and the market participant have entered into a written agreement under which the intermediary licensee agrees to take reasonable steps to ensure that retail clients to whom the intermediary licensee offers to issue, arrange for the issue of, or makes a recommendation to acquire the derivative are given the market participant’s PDS and the additional product-related information that relates to the intermediary licensee.