ASIC has recently released Consultation Paper No. 93 which proposes the use of email and the internet to provide financial services information required under Parts 7.6—7.9 of the Corporations Act 2001 (Act). ASIC recognises that many financial consumers and product issuers are seeking to communicate through electronic means. In releasing the consultation paper, ASIC's objective is to make disclosure more interactive, innovative, cost effective and user friendly while minimising the exposure of consumers to risks, including internet scams and fraud. ASIC also recognises that online financial services disclosure has the potential to deliver cost savings for businesses in meeting legal requirements.
Under the current law, information can be sent as email text, an email attachment or a fax where the client has nominated an electronic email address or fax number. However, sending information in this form may present difficulties. For example, sending information to clients in an email may be impractical where the amount of data is large. This may cause delivery problems between the provider and the client and may be difficult for the client to download (due to excessive megabytes).
To overcome this difficulty, ASIC is proposing relief to enable financial service providers to make their disclosures by:
- sending clients an email with a hyperlink to the relevant information; or
- sending clients an email with a website address and instructions on how to find the relevant information on the website; or
- in the case of superannuation entities, making annual superannuation information available from a website.
Currently, the law does not permit the sending of information via the above methods. ASIC is of the view that this does not currently meet the needs of industry and is proposing relief to enable information to be sent via a hyperlink or website address.
ASIC proposes that industry should apply the following principles in sending information via email and the internet:
- consent by clients to electronic delivery of information must be positive, express and clear;
- providers should allow clients to change their mind about receiving information electronically at no cost (eg. ability to "unsubscribe");
- information should be in a format that can be printed easily; and
- if information is undelivered, providers should take reasonable steps to deliver the information to the client (eg. sending it to an alternative email address or sending a hard copy).
Emails referring clients to information available from a website or via hyperlink should also include a statement that the client can request a paper copy of the information at no cost.
Obligations under other laws
In making electronic disclosures, providers would need to consider their obligations under privacy laws. Providers would need to take reasonable steps to ensure that private disclosures are stored on a website in such a way that is not accessible by the public (eg. by using individualised electronic passwords). It is important for providers to maintain security given the risks of internet scams and fraud.
In addition, ASIC's proposed relief will not affect the requirement to keep a record of documents for at least seven years. Financial services disclosures delivered via a website or hyperlink will need to be stored for this period.
ASIC is considering relief to enable trustees of superannuation entities to use a website as the default method of delivering annual superannuation information to product holders. The trustee would need to notify product holders that the annual superannuation information is available on a website and refer them to where it can be found. However, product holders would still have the choice to receive a hard copy of the information.
The reason for this proposal is that the current law allows companies, registered schemes and other disclosing entities to choose to deliver their annual reports to members by publishing them on their website as the default method of delivery. In other words, companies and registered schemes only need to provide a hard copy of their annual report to members who choose to receive a hard copy. ASIC considers that there would be merit in extending this relief to superannuation entities.
ASIC has invited comments on the proposals in the consultation paper. At this stage, ASIC has limited the proposed relief to financial services information. However, ASIC is also interested in feedback on whether relief could facilitate greater use of online disclosure in other areas of the law.
Submissions were due to ASIC on 28 May 2008. From there, ASIC will determine whether to provide similar relief in respect of disclosure obligations in other areas of the law.
Rick Goldberg is a Partner at Madgwicks and has over 18 years experience in corporate and commercial law. His particular areas of practice include funds management, superannuation and regulatory compliance.
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