ASIC’s new guidance – disclose more, write less!
On 12 April 2011, ASIC released a draft Regulatory Guide (RG) entitled ‘Prospectus Disclosure: improving disclosure for retail investors’. The RG includes further guidelines on prospectus content and presentation.
The draft RG is heavy on new disclosure requirements. In particular, it suggests that issuers should include a detailed explanation of the issuer’s business model. Specifically, ASIC suggests that an issuer should describe how it proposes to generate income or capital growth for investors and the linkages between various components of the business model and the disclosed risks.
There is also further guidance on the vexed issue of how risks should be disclosed. The RG suggests for example, that risks should be grouped into categories (eg industry risks, company specific risks, etc) and that issuers should provide an indication of the likelihood or otherwise of a risk materialising. This later requirement could prove a challenging exercise for due diligence committees, as industry practice has been to disclose risks which could have a catastrophic effect on the business (eg natural disasters) notwithstanding that they may be fairly remote.
Predictably, the draft RG also stresses the need to adopt plain English drafting, concise language and clearer definitions in prospectuses.
The message therefore seems to be ‘disclose more – but write less’. It would not surprise however if cautious issuers choose to respond to the new guidelines by including more rather than less information.
In bad news for the creative houses, ASIC has also voiced its disapproval of excessive photographs in prospectuses. The RG specifically notes that any pictures should not appear until after the investment overview. Readers who are prepared to plough on through the detail can apparently still be rewarded with modest graphic relief. Only time will tell whether readers will thank ultimately ASIC for their intervention on this point.