ASIC today released an investor guide and regulatory guidance with new disclosure benchmarks and principles for agribusiness managed investment schemes to improve investor awareness of the risks associated with these products.
These risks have been highlighted since 2008 when several operators of agribusiness schemes failed, causing investors significant losses. The collapses highlighted features of agribusiness schemes and raised concerns about whether these features and associated risks were adequately disclosed to investors.
Regulatory Guide 232 Agribusiness managed investment schemes: Improving disclosure for retail investors (RG 232) outlines five benchmarks and five disclosure principles that apply to all agribusiness schemes.
ASIC’s Senior Executive Leader Investment Managers & Superannuation, Ged Fitzpatrick, said, ‘ASIC’s new disclosure benchmarks for agribusiness schemes are one component of a multi faceted approach to holding the gatekeepers in this sector to account. Our initial focus was on surveillance of the sector when problems emerged and our investigations into the collapses of a number of agribusiness responsible entities are continuing.
‘ASIC has now introduced disclosure benchmarks to ensure people considering investing in agribusiness schemes are aware of the associated risks. Responsible entities of agribusiness schemes must ensure people better understand what they are getting into before they invest. ASIC’s priority is ensuring investors and financial consumers are confident and informed before investing in these schemes’, he said.
RG 232 is the latest in the series of ‘if not, why not’ disclosure benchmarks for sectors that pose particular risk to investors and financial consumers. It follows the issue of disclosure benchmarks for the infrastructure and over-the-counter contracts for difference sectors in Regulatory Guide 231 Infrastructure entities: improving disclosure for retail investors (RG 231) and Regulatory Guide 227 Over-the-counter contracts for difference: Improving disclosure for retail investors (RG 227).
Agribusiness schemes must disclose whether they meet the benchmarks and if not, why not. ‘Why not’ means explaining how they will deal with the business factor or the issue underlying the benchmark.
Agribusiness schemes pose particular risks because unlike many other types of managed investment schemes, they don’t generally use a traditional unit trust structure. For tax reasons, many agribusiness schemes are structured so that investors operate their agribusiness investment in their own right. Investors enter into contracts with the responsible entity or other parties to perform all the cultivation and management activities associated with the investor’s agribusiness enterprise. Investors need to understand these complex arrangements as an investment in an agribusiness scheme is a long-term commitment and investors may have ongoing obligations in relation to the operation of their agribusiness enterprise.
RG 232 also outlines the standards ASIC expects responsible entities to meet when advertising agribusiness schemes to retail investors and guidance as to clear, concise and effective disclosure of the benchmark and disclosure principle information.
Responsible entities of agribusiness schemes should disclose the benchmark and disclosure principle information in any product disclosure statement dated on or after 1 August 2012.
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