On 2 February 2011, the International Organisation of Securities Commissions (IOSCO) published its Final report on point of sale (POS) disclosure principles for collective investment schemes (Funds).
The report highlights that transparency in the market place, particularly the disclosure of information to investors, has always been a high priority goal of regulators in seeking to ensure that markets run efficiently and with integrity. The financial crisis highlighted the critical role that accurate, understandable and meaningful disclosure can play.
The report sets out principles that are designed to assist markets and market authorities when considering POS disclosure requirements. The report highlights the following:
- No matter what POS disclosures are mandated, they will not have the intended effect if the investor does not read or understand the information provided. Because of this, regulators should consider steps to improve retail investor education.
- New POS disclosure requirements should not be imposed without the benefit of consumer testing or assessment, to help to determine the likely effectiveness of new requirements.
- Chapter 7 of the report specifically addresses issues concerning retail investors but the principles may also be applicable to non-retail investors.
- Some members of the Funds industry believe that subjecting Fund products to enhanced POS disclosure requirements may place them at a competitive disadvantage in relation to other financial products. IOSCO does not analyse the merits of this argument in great detail in the report, due partly to the difficulty in identifying truly comparable products that are as popular with retail investors.
The report does not consider issues relating to the suitability of Funds and it does not deal with all intermediary disclosure obligations. While the report examines issues concerning Funds, IOSCO encourages regulators to consider how the principles could be adopted for products which are similar to Funds.