Yesterday, ASIC provided an update on its surveillance activity on advertising and disclosure by investment funds, emphasising the importance of investment fund disclosure not being misleading and adequately addressing risk.
It is important for licensees to bear in mind that the stance and views taken by ASIC can be applied equally to other products, such as superannuation products (particularly on platforms) and insurance products. Accuracy of disclosure and advertising materials continue to be a key focus area for ASIC, particularly during COVID-19, where market conditions are rapidly evolving.
In particular, there is a very important provision contained in the PDS disclosure regime in section 1013D of the Corporations Act, which is relevant in this regard. This is section 1013D(1)(c), which requires disclosure of significant risks associated with holding the product. In the current market, COVID-19 has created new risks.
The PDS disclosure regime is not static. Rather, it is a dynamic one that requires product issuers to reflect on the dynamic content of their PDSs. The requirement of section 1013D is subject to the overriding requirement expressed in the preamble to section 1013D(1), which is to disclose such information that a retail client would reasonably require for the purposes of making a decision on whether to acquire the financial product. In the present circumstances, prima facie, changing risks in relation to illiquidity, other withdrawal restrictions and investment all seem relevant to a client’s acquisition decision.
It may be that some of these developments may fall within the exception to disclosure contained in section 1013F of the Corporations Act, which provides an exclusion from disclosure where it would not be reasonable for a retail client considering whether to acquire the product to find the information in the PDS and in this case, “the kinds of things such persons may reasonably be expected to know.” It is probable that while clients may be expected to know, in general terms, issues of illiquidity, there will be specific product aspects of general market conditions that will not be within the assumed knowledge of a client and therefore, will require specific disclosure.
This then reverts to the issue of whether ASIC Instrument relief can be utilised, or whether an SPDS or new PDS is required.
In addition to the above risks which materialise more frequently during COVID-19, it is important to note that there is always a degree of risk associated with product comparisons, which should be undertaken on a whole of product basis (rather than simply focusing on particular features).