ASIC has released a report Review of disclosure for capital protected products and retail structured or derivative products (Report 201) outlining its key findings from a review of selected Product Disclosure Statements (PDSs) for capital protected products and other structured or derivative products marketed to retail investors.

ASIC recommends issuers:

• clearly explain counterparty risk, and include supporting financial information, to ensure retail investors can assess the issuer’s financial ability to meet its counterparty obligations of capital protected products,
• ensure disclosure is sufficient so that investors can assess the likelihood of early termination or any other significant limitations of these products
• provide better disclosure of break costs that may apply where an investor seeks to terminate or redeem a product before its maturity date.

This article by David Jacobson was first published in Retail Banking Review.

Did you know that ASIC monitors online, print, TV and radio ads as well as seminars promoting financial products?

The information ASIC gathers is included in its research reports and if ASIC identifies a breach of the law or a potential breach it will pursue this with the promoter. ASIC has extensive investigatory powers if a company does not co-operate.

ASIC can either prosecute breaches or accept an enforceable undertaking from a company to comply with the law and, when relevant, to refund money to or compensate consumers. Occasionally a genuine dispute will come before the courts. ASIC’s powers are separate from a consumer’s rights.

Changes from 1 July 2010
On 1 July 2010 ASIC became both the national regulator for consumer credit (under the National Credit Code) as well as the supervisor for an expanded financial services consumer protection scheme (under the ASIC Act).

These roles are in addition to its existing duties as the financial services regulator for deposit-taking facilities and other financial products and securities markets.

ASIC’s role includes enforcing prohibitions on misleading representations, unconscionable conduct and misleading or deceptive conduct in relation to all financial services, including deposit and credit products.

Its duties involve monitoring how financial service providers market and disclose their product terms as well as ensuring that fees are calculated in accordance with contracts and are not unfair.

Examples of ASIC’s activities can be found in its report on term deposits and its proposals in respect of mortgage exit fees.
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