In its release to the market on 3 March 2014, the Australian Securities & Investments Commission (ASIC) has expressly recognised that companies who look to raise capital quickly and maximise opportunities in the market will benefit from an ease in compliance requirements. One way this can be achieved is through further use of the internet and other interactive media when it comes to offering securities. Indeed, ASIC further recognised that there are advantages to using the internet in terms of making information easier to access, read and understand for investors. This comes at a time when another key player in the Australian equity markets scene, the Australian Securities Exchange, has also continued to facilitate the enhanced use of electronic communication methods, as recently seen in its proposal to streamline the processing of announcements on key corporate actions.1

Notwithstanding the transition of so many business practices to the internet and other interactive media, ASIC remains concerned that offering securities in this electronic environment increases the risk of investors making investment decisions and applying for securities without actually reading the applicable disclosure documents. For this reason, in its updated Regulatory Guide 107Fundraising: Facilitating electronic offers of securities (RG 107), ASIC has included a ‘good practice guide’ to assist offerors and other market participants in understanding and implementing the proper steps to minimise this risk. 

Steps taken in releasing updated RG 107 and new CO 14/26

The release of updated RG 107 (formerly known as RG 107: Electronic Prospectuses) comes after ASIC released a consultation paper2 on facilitating the use of the internet in making offers of securities under Chapter 6D of the Corporations Act 2001 (Cth), which included a draft of the updated RG 107. ASIC received four responses to the consultation paper and has made a number of amendments to RG 107 based on the concerns and feedback provided. 

At the same time, ASIC has revoked Class Order [CO 00/44] Electronic disclosure documents, electronic application forms and dealer personalised applications (CO 00/44) on the basis of its view, which was supported by the consultation paper responses it received, that electronic disclosure documents and electronic application forms can be made available to investors through the internet and other electronic means in compliance with Chapter 6D without relief. However, for the continuation of relief for personalised or AFS licensee created application forms, ASIC has issued a new Class Order [CO/14/26]Personalised or Australian financial services licensee created application forms (CO 14/26). Similar to the requirements in CO 00/44, CO 14/26 includes the important conditions that the person issuing or transferring the securities has reasonable grounds to believe that:

  • when the applicant received the application form, the applicant was given access, at the same time and by the same means, to the disclosure document; and

  • the application form included certain proscribed information, including a prominent statement to the effect that there is a disclosure document with information about investing in the securities and it is advisable to read that disclosure document before applying for the securities.

Good practice guidance

An important inclusion in RG 107 is the chapter on ‘good practice guidance’, which ASIC encourages all offerors, distributors and publishers to follow when any electronic method of distributing disclosure documents and application forms is used. While this guidance is specifically directed to prospectuses and other Chapter 6D disclosure documents, ASIC notes that the principles can be applied to other ‘prospectus-like’ documents, such as those used in connection with rights offers.

The ‘good practice guidance’ is comprised of 15 principles, which also include ASIC’s views on the legal requirements that apply to the offer of securities under Chapter 6D. The 15 principles are:

  1. Electronic disclosure documents should be easy to access, retrieve and read.

  2. Electronic disclosure documents should be distributed in a way that does not unreasonably expose investors to security risks.

  3. Offerors and distributors that distribute electronic disclosure documents for an entitlement offer to existing investors of a company should take reasonable steps to ensure that investors receive the electronic disclosure document.

  4. Offerors, distributors and publishers should take reasonable measures to ensure that electronic disclosure documents received by investors are complete and have not been altered or tampered with.

  5. Offerors and distributors that distribute electronic disclosure documents and electronic application forms should make available free paper copies of disclosure documents and application forms on request by an investor.

  6. Offerors and distributors of electronic disclosure documents should make updated disclosure documents available in both paper and electronic format.

  7. Investors should be able to keep a copy of the electronic disclosure document so that they can access it in the future.

  8. Offerors, distributors and publishers should retain copies and records of all electronic disclosure documents so that investors are able to prove which version of the disclosure document they relied on.

  9. Electronic disclosure documents should have the same content, presentation and prominence of information as paper versions.

  10. Hypertext links to, from or within the electronic disclosure document should not be used to take investors to material not forming part of the electronic disclosure document, other than jurisdictional confirmations or educational material.

  11. Electronic application forms must be included in, or accompanied by, the electronic disclosure document.

  12. Electronic application forms should contain appropriate warnings to ensure that investors are informed of the importance of reading the disclosure document before applying for securities.

  13. Electronic application forms should contain verification processes and should be secure.

  14. Reasonable measures should be taken to ensure that offers are only made in jurisdictions where the offer complies with the relevant securities laws.

  15. Promotional material should not be published in a way that may cause it to be confused with all or any part of the electronic disclosure document.

Key practical issues and steps

In ASIC’s report following the consultation process, which included submissions by the Corporations Committee of the Business Law Section of the Law Council of Australia and the Australian Financial Markets Association, a number of practical issues were highlighted and discussed by ASIC, including:

  • to ensure applications are not submitted based on an outdated version of the disclosure document, offerors should remove outdated documents from their website and ensure clear directions are included on their website for investors to access the current disclosure document;

  • electronic application forms and electronic disclosure documents do not need to be contained in the same document (eg the same PDF);

  • it is acceptable to follow industry practice of using an interactive html website to enable investors to apply for securities;

  • investors should not be able to access electronic application forms without having first received and accessed the applicable electronic disclosure document;

  • investors should only be provided with a hypertext link from the disclosure document to the application form after the investor has 'accessed' (rather than merely 'viewed' or 'read') the disclosure document;

  • offerors are not required to confirm that an investor has read the document in its entirety or use additional software to monitor whether investors have done so; and

  • offerors are not required to actively monitor websites or social media pages, other than their own, which contain information about the offeror.

In its updated RG 107, ASIC has taken a sensible, progressive approach to the permitted use of the internet in the context of fund raising. However, it is evident from the development of its 15 ‘good practice’ principles that the continued progression away from an old paper-only environment is an area of concern. For this reason, offerors, market participants and their advisers must be ever conscious of ensuring that the principles embodied in RG 107 are followed when making use of electronic disclosure documents and electronic application forms. Any slip-up in this regard will do more than cause problems with investors - it may also result in the regulator being on the offeror’s doorstep!