A notable feature of the Australian financial services regime is that financial products are not generally required to be approved or proactively scrutinised by the Australian Securities and Investments Commission (ASIC) before they are issued to consumers. Although financial products may be subject to certain filing or registration requirements, the regime primarily relies on licensing and disclosure obligations to ensure that consumers are aware of the risks and opportunities that a particular product might provide.
A recent case commenced by ASIC in the Federal Court highlights the importance of not over-egging the pudding when it comes to explaining the level of regulatory oversight or approval to consumers.
ASIC commenced a proceeding seeking civil penalties against Huntley Management Limited (Huntley), regarding marketing material from Huntley which stated that it ‘acts as the responsible entity, custodian, trustee and/or manager for over 40 managed investment projects approved by the Australian Securities and Investments Commission.’
Huntley was an Australian financial services licence (AFSL) holder and the responsible entity of managed investment schemes. There is no suggestion that its operation of the schemes was not entirely proper.
However, ASIC’s complaint (which Huntley has conceded) was that the marketing material was false or misleading because ASIC does not approve managed investment schemes, it merely registers them if they meet certain basic legislative criteria.
The context in which the proceeding was brought should be noted. In a series of parliamentary enquiries over the past decade, submissions from financial consumers have indicated a significant misunderstanding of the level of scrutiny and approval that is applied by ASIC to financial products before they are sold. ASIC’s proceeding may be regarded as part of a general effort to bridge the gap between perception and reality. For that reason, any representations similar to those made by Huntley are likely to attract ASIC’s attention.
- The mere fact that:
- a managed investment scheme is registered with ASIC
- a product disclosure statement (PDS) or an in-use notice has been filed with ASIC in respect of a particular financial product, or
- a financial product has been issued by an AFSL holder
does not indicate ASIC’s approval of the product. Section 1013J of the Corporations Act 2001 (Cth) requires any PDS which has been lodged with ASIC to bear a disclaimer that ASIC takes no responsibility for the content of that document.
- ASIC does not carry out any approval process in respect of financial products, or in respect of the PDS that is provided to consumers – indeed, for many products a PDS will not be filed with ASIC at all.
- ASIC may take action concerning products it regards as non-compliant (for example, where it receives complaints regarding a defective PDS), but this primarily occurs once the products are in the market.
- Representing that a particular financial product has been ‘approved by ASIC’ may comprise misleading or deceptive conduct (among other potential breaches of the law), and expose the party making the representation to civil penalties or liability to consumers.
Accordingly, it is important for financial product issuers and other parties not to over-sell their level of regulatory approval, to fairly disclose their financial products’ features and risks, and to let the product speak for itself.
Likewise, investors should review the PDS, ensure they are properly informed, and seek independent advice if necessary.