ASIC Regulation on Product Disclosure Statements (PDS)

Introduction

The Australian Securities and Investment Commission (ASIC) plays a crucial role in providing regulatory guidance that applies to the content of Product Disclosure Statements (PDS). This paper refers to Regulatory Guide 97 (RG 97) in addressing the key principles of disclosure and ASIC's position on them. It also considers whether those principles are consistent with ASIC's own Good Disclosure Principles, and examines how specific sections of a Product Disclosure Statement relate to the key principles set out in the Regulatory Guide.

Key Principles of Disclosure Under Regulatory Guide 97

The key principles of disclosure provided in RG 97 include a general principle governing the disclosure of fees in the PDS. One area covered is the regulation of multiple investment options. In this context, RG 97.15 argues that the fees and costs template in the product should encompass information about other multiple investment options only in cases where such information would not confuse the customer. Where confusion is likely, RG 97.16 provides that fees and costs be reflected in a different section of the PDS (ASIC, 2011a, pp. 8–10).

The next principle addresses products with more than a single balance investment option. The regulation under RG 97.19 requires that the person issuing the product consider displaying the costs of the investment option in which most funds are invested. Additionally, RG 97.21 provides that the issuer should include the fees and costs of the available default investment option (Colonial First State Investments Limited, 2012, p. 11).

A further principle addresses the inclusion of additional voluntary information. As set out in RG 97.22, no additional voluntary information should be added within the fees paid per year section. Any additional information provided must be clear and concise, ensuring that the inclusion of large amounts of information does not render the disclosure confusing.

Another principle relates to the omission of prescribed information. Here, RG 97.28 states that no circumstance warrants the omission of prescribed information from the fees and costs template. There is also guidance for PDSs related to the management of investment products. For instance, RG 97.56 addresses the disclosure of transaction-specific fees in the event of a contributory mortgage, where the issuer may wish to separate general and defined fee disclosures. The guideline advises that all required fee information should be set out in the supplementary PDS (Colonial First State Investments Limited, 2012, p. 6).

These Regulatory Guide principles are consistent with ASIC's own Good Disclosure Principles. Those principles include the principle on timeliness, which requires that all disclosure be made on time (RG 168.60). Another principle requires that disclosure be complete and relevant to the customer (RG 168.64). A third principle demands that disclosure be structured in a way that promotes understanding (RG 168.71). This is followed by a principle requiring that disclosure promote comparison of alternative products — for instance, among competing financial products. Finally, disclosure should highlight critical information, which may include information on benefits and risks (ASIC, 2011b, pp. 11–25).

Consistency with ASIC's Good Disclosure Principles

The RG 97 principles are consistent with ASIC's Good Disclosure Principles because all of them are designed to protect the interests of both the issuer and the prospective customer. The regulation requiring that fees and costs be outlined for multiple investment options, for example, is consistent with the Good Disclosure Principle requiring issuers to disclose all pertinent information. It is also consistent with the principle prohibiting the omission of prescribed information. There are therefore close ties between the ASIC Regulatory Guide principles and the Good Disclosure Principles.

Furthermore, the principle in RG 97.56 — which requires the issuer to split fee disclosure in the case of a contributory mortgage into general and specific components, with all required fee information set out in a supplementary PDS — aligns directly with the third Good Disclosure Principle (RG 168.71), which requires that disclosure be structured to promote understanding. When a customer reads the supplementary PDS, the complete and clearly organized information fosters comprehension. This also makes the regulation consistent with the second Good Disclosure Principle (RG 168.64), which requires that disclosure be complete and relevant to the customer.

The relevant sections of a Product Disclosure Statement that comply with the Regulatory Guide key principles include the section on investments and risk. This section complies with the principle addressing products with more than a single balance investment option: both the risks and the investment benefits of investing in the fund are outlined within it.

The second section that complies with the Regulatory Guide key principles is the section on fees and costs. In this section, the PDS outlines the fees of the product paid to the issuer of the fund. No omissions are made, in line with RG 97.28, which states that no circumstance warrants the omission of prescribed information from the fees and costs template.

Conclusion

ASIC, 2011b, Regulatory Guide 97: Disclosing fees and costs in PDSs and periodic statements, November 2011, pp. 1–23.

Colonial First State Investments Limited, 2012, Financial Services Guide and Product Disclosure Statement, dated 12 March 2012, pp. 1–52.