ASIC today released revised disclosure benchmarks and separate disclosure principles for unlisted mortgage schemes to improve awareness of the risks of investing in these products.
An accompanying investor guide has also been released to assist investors to use the benchmark and disclosure principles in identifying and assessing the risks of unlisted mortgages schemes.
Since the publication of the original RG 45, the unlisted mortgage scheme sector has experienced a substantial increase in the number of redemption requests where the responsible entities could not realise sufficient assets to satisfy. This resulted in a large scale suspension of redemptions.
ASIC responded by making urgent modifications to the law to facilitate partial investor access to funds in cases of hardship and subsequently, to simplify the procedures for periodic withdrawal offers out of available cash. ASIC also liaised with individual responsible entities of frozen funds to explore options for affected investors and where possible, facilitate access to funds (refer: 10-109AD).
ASIC then consulted industry formally through Consultation Paper 141 Mortgage Schemes: Strengthening the disclosure benchmarks (CP 141) on extending and strengthening our existing regulatory guidance on disclosure for unlisted mortgage schemes in RG 45 to protect future investors.
ASIC Commissioner Greg Tanzer said: ‘ASIC’s first priority is to ensure consumers and financial investors are fully informed and can make confident investment decisions. This is especially important when considering risky investments like unlisted mortgage funds. People need to understand the risks, particularly in relation to asset liquidity and withdrawal arrangements. It is important that investors understand that the assets of these schemes are less liquid than other investments and this affects any rights they have to get their money back.’
RG 45 is one of the series of the ‘if not, why not’ benchmark model of disclosure for sectors that pose particular risk to investors and financial consumers. Unlisted mortgage schemes must disclose whether they meet the benchmarks and if not, why not. This means they must explain how they will deal with the business factor or the issue underlying the benchmark.
The revised regulatory guidance follows the publication of new disclosure benchmarks and disclosure principles for other high risk investments in:
- Regulatory Guide 46 Unlisted property schemes: Improving disclosure for retail investors (RG 46)
- Regulatory Guide 231 Infrastructure entities: Improving disclosure for retail investors (RG 231)
- Regulatory Guide 227 Over-the-counter contracts for difference: Improving disclosure for retail investors (RG 227) and
- Regulatory Guide 232 Agribusiness managed investment schemes: Improving disclosure for retail investors (RG 232).
The changes to RG 45 include:
- revised benchmarks which focus on the key characteristics of the business models of unlisted mortgage schemes and associated risks;
- additional information requirements under separate disclosure principles to ensure that key risks are disclosed;
- guidance on how we expect feeder funds to address the benchmarks and disclosure principles at the feeder fund level; and
- guidance to industry on compliance with the ‘if not, why not’ approach to address issues surrounding the comparability and consistency of disclosure applied by responsible entities.
RG 45 also outlines the standards ASIC expects responsible entities to meet when advertising mortgage schemes to retail investors.
Responsible entities of existing unlisted mortgage schemes should disclose the benchmark and updated disclosure principle information to investors by 1 January 2013. For new product disclosure statements, prominent and clear disclosure of the benchmark and disclosure principle information should be included in those PDSs issued on or after 1 January 2013.
- Investor Guide: Investing in mortgage schemes (from our MoneySmart website)
- Regulatory Guide 45 Mortgage schemes: Improving disclosure for retail investors(RG 45)
- Report 285 Response to submissions on CP 141 Mortgage schemes: Strengthening the disclosure benchmarks (REP 285)
- Regulation Impact Statement: Mortgage schemes: Strengthening disclosure under RG 45.