The Australian Securities and Investments Commission (ASIC) today delivered a further instalment on its commitment to require better disclosure to retail investors who invest in unlisted and unrated debentures.
On 29 May 2007, ASIC Chairman, Tony D’Aloisio, outlined a three-point action plan over 12 months to provide investors with greater disclosure about the risks involved. The plan covered new and existing debenture issuers in the retail sector and investor education.
‘In implementing that plan, ASIC produced a new Regulatory Guide requiring issuers to disclose against a series of benchmarks on an ‘if not, why not’ basis and new guidelines on the advertising of these types of products’, Mr D’Aloisio said.
‘Today, the final stage of the plan sees the release of a report on the implementation of the new regulatory measures. The findings indicate issuers have heard ASIC’s call for the risks associated with these products to be better disclosed to investors’, he said.
The report, Report 127 Debentures – Improving disclosure for retail investors presents the findings of a review into disclosures made by each of the unlisted, unrated debenture issuers against the new disclosure regime.
The disclosures are based on benchmarks on issues ranging from equity capital levels to enhanced transparency of valuations.
Mr D’Aloisio said the new guidance from ASIC had greatly improved the quality of disclosure to retail investors. Importantly, each issuer has, or is in the process of, providing all its investors with a specific report for their investment on how it meets the benchmarks in ASIC’s Regulatory Guide on an ‘if not, why not’ basis.
‘Investors are now presented with improved information on the fundamentals of this type of investment. This information will assist them to make choices about their investment and better assess risks, particularly the risk of capital return.’
ASIC has also complemented the improved disclosure required from issuers with a new publication, Investing in debentures? Independent guide for investors reading a prospectus for unlisted debentures, designed to provide further explanation of the new benchmarks.
‘ASIC takes the approach that Australia’s retail investors, when given clear information such as the type now required of unlisted and unrated debentures, are capable of making sound decisions,’ Mr D’Aloisio said.
The regulator also commissioned research to better understand the profile and motivations of investors in unlisted and unrated debentures. It released a report today on the research, Understanding investors in the unlisted unrated debenture market.
The research showed that the most important investment features for unlisted unrated debentures were the return/interest rate, the perceived low level of risk and the protection of funds invested. Nearly half the investors in this type of product were investing to produce income for their retirement or long-term savings.
ASIC is using the results of this research to improve investor education. The new investor guide on debentures is the first example of new initiatives in investor education.
ASIC will continue to monitor the disclosures made by debenture issuers over the next 12 months and develop further investor education initiatives.
ASIC will conduct further visits with debenture issuers in October this year and will provide a further report in April 2009 that follows up on the impact of the three point-plan and the decisions made by investors.
In relation to past property failures, ASIC has continued to investigate wrongdoing and taken successful actions such as banning advisers. Importantly, ASIC has launched a series of actions under s50 of the ASIC Act seeking compensation for investors in Westpoint.
Background
In October 2007 ASIC released Regulatory Guide 69 Debentures – Improving Disclosure for Retail Investors, requiring debenture issuers to disclose against eight benchmarks on an ‘if not - why not’ basis in their prospectuses and on-going disclosures.
ASIC has also developed and implemented advertising guidance, Regulatory Guide 156 Debenture Advertising for all debenture issuers and publishers, setting out standards that we expect the issuers to meet when advertising debentures that are offered to retail investors. These guidelines became effective at the end of January 2008, and ASIC continues to monitor the standard of advertising among the debenture issuers.
Copies of Report 127 Debentures – Improving disclosure for retail investors, Research report Understanding investors in the unlisted unrated debenture market, and the investor guide Investing in debentures? Investor guide for reading a prospectus for unlisted debentures are available from www.asic.gov.au/uud.
Further information on ASIC’s Westpoint compensation actions can be found at www.asic.gov.au/westpoint
End of release
Download: