The Australian Securities and Investments Commission
(ASIC) recently released a consultation paper
proposing new guidelines for prospectuses, with the aim of
improving disclosure to retail investors. While media attention has
focused on photos of Jennifer Hawkins used in the 2009 Myer
prospectus, the consultation paper has been issued in response to a
broad-ranging review of prospectuses, complaints, legal commentary
and consumer research reports since 2006, together with industry
The consultation paper proposes some significant changes to the
content and format of prospectuses to address concerns that they
are often unclear and difficult to read.
Here, partner Michael Hansel and associate Richard Hanel outline
ASIC's key concerns and the main changes recommended in the
What you need to know
ASIC's recommendations aim to ensure that prospectuses are
presented in a clear, concise and effective manner. They have made
a number of suggestions to help achieve this, focusing on two
central recommendations and offering guidance in a number of
specific subject areas.
While the formal regulatory guide will likely not be issued
until December 2011, given ASIC's increased monitoring of
prospectuses, we recommend that any prospectus prepared from this
point on take into account the recommendations and guidelines
contained in the draft regulatory guide. However, the guidance is
not mandatory, and companies and their advisors will need to
analyse how to best present the details of their offer.
The guide identifies a number of other documents where these
guidelines will apply in varying degrees, including takeover
documents, notices of shareholders meetings and independent expert
reports. Primarily, this relates to guidelines for "clear,
concise and effective" presentation, but some documents may
also be subject to some of the other recommendations.
ASIC is seeking feedback on the consultation paper and draft
regulatory guide (available to view
online). Submissions close on 7 June 2011.
HopgoodGanim will be coordinating a submission on the changes
proposed, and we invite you to contact us if you would like to make
a contribution to this submission.
Background: ASIC's key concerns
In releasing this consultation paper, ASIC hopes to address a
number of key concerns they have about prospectuses in general,
Front sections of prospectuses are often dominated by photos
and marketing statements rather than key information.
Disclosure of risk is too generalised and is generally not
presented at the front of the document in conjunction with the
benefits of the offer.
There is disclosure of simply descriptive information without
an analysis of relevance or impact.
Repetition and unnecessary information contributes to
Overuse of jargon and use of complex technical terms without
proper explanation is confusing.
In addition, a number of key observations have been obtained
from consumer research:
Prospectuses are difficult documents for retail investors to
Retail investors read the first few pages more thoroughly than
the rest of the prospectus.
Retail investors want to see more categories of information at
the beginning of the prospectus.
Professional and sophisticated investors place high importance
on the details of the use of funds.
Ensuring clear, concise and effective presentation
ASIC's draft guide outlines tools which will enable
prospectuses to be presented in a clear, concise and effective
manner. Suggestions include the following:
In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
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