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July 17, 2013

Capital guaranteed investments: ASIC surveillance continues

ASIC has followed up its recent review of capital guaranteed products (see here) with an announcement that Commonwealth Bank of Australia (CBA) and HSBC Bank have changed their advertising for certain retail structured products following ASIC concerns that the materials were potentially misleading.

According to ASIC, CBA’s flyer for its ‘Protected Loan’ compared investing $100,000 directly in listed shares with using a $100,000 Protected Loan to buy the same shares. However, the comparison and accompanying claims about the relative benefits of the gearing strategy failed to subtract the interest costs of the loan, and ASIC was concerned this may not have been clear to consumers.

Further, ASIC was concerned that CBA’s ads stating Protected Loan customers could 'walk away with no loss' at maturity if share prices fell were potentially misleading as the costs of the loan and protection had not been considered. Warnings that outlined returns may be negative because of interest costs were not prominent enough according to ASIC, appearing at the end of the booklets.

ASIC was concerned that HSBC’s website materials for certain structured products were inappropriate as they created the impression the investments were low-risk and comparable to relatively safe investments such as bank deposits, when for some products this was not the case.

HSBC claimed that its structured products were suitable for 'traditional deposit investors looking for a way to enhance their returns through exposure to financial markets, but are unwilling to put their capital at risk should the market not perform as expected.'

ASIC viewed this statement as inappropriate and potentially misleading due to the risk of capital loss with certain HSBC structured products being promoted.

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Posted 17th July 2013 by admin in Financial Services, Investments, Marketing