ASIC to prepare new guidelines on prospectuses
ASIC is proposing an overhaul of prospectuses to make them easier for retail investors to use and to improve the quality of information on the proposed business model and the associated risks.
Proposed changes are outlined in two documents - Consultation Paper 155 Prospectus disclosure: Improving disclosure for retail investors, and an accompanying draft regulatory guide.
Shortcomings in current prospectus formats identified by ASIC include:
- The front sections are often ineffective and repetitive, and over-emphasise the benefits of the offer with th use of marketing statements and photographs;
- Prospectuses are often long and complex;
- Risk disclosure is too general and may resemble a ‘shopping list’;
- Fragmented information on risks and associated returns requires investors to piece together the picture; inadequate information on how the business will generate a return or meet defined short-term objectives; and
- Absence of complete disclosure on directors and key managers who are leading or managing the company, and relevant benefits or interests they have
ASIC Commissioner Belinda Gibson said the proposed changes were aimed at ensuring that the focus of prospectuses is high-quality information that investors can understand, and which gives investors a full picture of the offer.
"Under ASIC's proposals, prospectuses will focus on information that is relevant to the investment decision, will be easier to follow, will give investors a better picture of what they are being offered, how the company will make money and generate returns for investors, the associated risks, who will manage the company, and how they will run it", Belinda Gibson said.
"First and foremost, a prospectus is a disclosure document aimed at informing investors. Sales and marketing statements – and the extensive use of promotional photography - are secondary," Belinda Gibson said. "The consultation paper raises for discussion the proper balance that we should achieve".
Consultation with industry on the proposals in the paper will continue until 7 June 2011, after which ASIC will issue a new regulatory guide – taking into account the results of the consultation.
ASIC has already undertaken extensive consultation in arriving at the proposals that it is making public, and it has drawn on consumer research.
The consultation paper and draft regulatory guide cover prospectuses issued under section 710 of the Corporations Act 2001. Generally, these are prospectuses for initial public offerings and for companies that propose to list. The guidance is also relevant to other types of prospectuses as well as some other documents.
The discussion paper is at http://www.asic.gov.au/asic/asic.nsf/byheadline/Consultation+papers?openDocument