ASIC today released consultation papers and draft regulatory guides aimed at improving disclosure to retail investors by unlisted mortgage schemes and unlisted property schemes.

When ASIC released its report on new disclosure measures by unlisted and unrated debentures in April this year, it foreshadowed extending the concept of an ‘if not, why not’ approach to disclosure against key benchmarks to other areas of unlisted investments.

Debt and equity market turbulence since late 2007 and a cyclical softening in the real property market has increased the financial stress on some sectors where retail investors are exposed, such as the unlisted mortgage scheme and unlisted property fund sectors.

ASIC Chairman, Mr Tony D’Aloisio, said ASIC wanted to ensure that retail investors were better informed about the nature of these investment and risks associated with unlisted mortgage schemes and unlisted property schemes.

‘Our work with unlisted and unrated debentures highlighted to us the need to put greater ASIC resources into the unlisted and unrated areas of investment,’ Mr D’Aloisio said.

‘The proposals released today are the start of a process to assess in more detail with the market what scope there is to improve disclosure in these areas of unlisted investments’, he said

As with its work in the unlisted and unrated debentures, ASIC will be producing companion investor guides for both sectors to assist investors in understanding the enhanced disclosure and make better informed investment decisions.

ASIC encourages responsible entities to communicate the enhanced disclosure information to investors in the most effective way possible and using existing effective investor communication channels (e.g. by the scheme’s website and regular reports).

ASIC has also included draft guidance for advertising of these products and our expectations of compliance plans, compliance committees and compliance plan auditors.

Unlisted mortgage schemes

In formulating its proposed disclosure approach, ASIC has identified and profiled more than 200 unlisted mortgage funds, which represent about $42 billion in funds under management.

ASIC’s draft regulatory guide proposes a benchmark-based disclosure model for unlisted mortgage schemes. The eight benchmarks differ from the ones introduced for debentures to reflect the different risk profile of unlisted mortgage schemes and the different legal structures and rights associated with this type of investment.

It is proposed that issuers disclose against the benchmarks on the ‘if not, why not’ approach.

ASIC is proposing that responsible entities for existing mortgage schemes report against benchmarks to existing investors by 31 October 2008. From this date, new fundraising documents for new and existing mortgage schemes need to comply with the ‘if not, why not’ benchmarks.

Unlisted property schemes

ASIC analysed about 300 unlisted property schemes managed by upwards of 100 responsible entities in formulating its enhanced approach to disclosure. These schemes represented approximately $32 billion in assets.

The new proposals centre on eight disclosure principles that are designed to give issuers guidance on key areas that need to be prominently disclosed to existing and potential retail investors.

Clear and prominent disclosure of information referred to in the disclosure principles will allow retail investors to compare the relative risk and return of unlisted property scheme investments.

ASIC does not currently propose to extend the ‘if not, why not’ approach to unlisted property schemes. ASIC will be reviewing the unlisted property schemes sector to see whether our guidance has improved investor disclosures. ASIC will also analyse the impact on the sector of any changes in market conditions. Based on these factors, ASIC may consider whether there is a need to establish benchmarks for property schemes to disclose against on an ‘if not, why not’ basis.

ASIC is proposing that responsible entities for existing unlisted retail property schemes provide updated disclosure to existing investors applying in the new disclosure principle by 31 October 2008. From this date, responsible entities of all unlisted retail property schemes will need to apply the disclosure principles to PDSs and ongoing disclosures.

Background

The $42 billion under management in the unlisted mortgage scheme sector and the $32 billion unlisted property scheme sector are part of the $1.6 trillion total unconsolidated funds under management.

Comments on the consultation papers and draft regulatory guides are due by 5 August 2008.

ASIC consulted experts in both the mortgage scheme sector and the property scheme sector to ensure its proposals were viable from an industry perspective.

Download:

• Consultation Paper 99 Mortgage schemes – improving disclosure for retail investors(including the draft regulatory guide)
• Consultation Paper 100 Unlisted property schemes – improving disclosure for retail investors (including the draft regulatory guide)