ASIC proposes major improvements in quality of prospectuses

ASIC is proposing an overhaul of prospectuses that would make them much easier for retail investors to use and would improve the quality of information on the proposed business model and the associated risks.

ASIC Commissioner Belinda Gibson said the proposals – which are the subject of consultation with industry – were aimed at ensuring the focus of prospectuses is high-quality information that investors can understand, and which gives investors a full picture of the offer.

“Under ASIC’s proposals, prospectuses will focus on information that is relevant to the investment decision, will be easier to follow, will give investors a better picture of what they are being offered, how the company will make money and generate returns for investors, the associated risks, who will manage the company, and how they will run it”, Belinda Gibson said.

“First and foremost, a prospectus is a disclosure document aimed at informing investors. Sales and marketing statements – and the extensive use of promotional photography – are secondary,” Belinda Gibson said. “The consultation paper raises for discussion the proper balance that we should achieve”.

ASIC’s proposals are contained in two documents that have been released today – Consultation Paper 155 [CP 155] Prospectus disclosure: Improving disclosure for retail investors, and an accompanying draft regulatory guide.

Consultation with industry on the proposals in the paper will continue until 7 June 2011, after which ASIC will issue a new regulatory guide – taking into account the results of the consultation. ASIC has already undertaken extensive consultation in arriving at the proposals that it is making public, and it has drawn on consumer research.

The consultation paper and draft regulatory guide cover prospectuses issued under section 710 of the Corporations Act 2001. Generally, these are prospectuses for initial public offerings and for companies that propose to list. The guidance is also relevant to other types of prospectuses as well as some other documents. The table below summarises the shortcomings that ASIC has identified in prospectuses, and the proposed response:

click to view CP 155