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No excuse for flawed fund advertising and disclosure materials during COVID-19

28 July 2020

#Corporate & Commercial Law, #COVID-19

Published by:

Ushna Bashir

No excuse for flawed fund advertising and disclosure materials during COVID-19

Since late March 2020, the Australian Securities and Investments Commission (ASIC) has been providing guidance to businesses and the market about disclosure and the impact of COVID-19, which you can find here. ASIC also announced it would be undertaking market surveillance to maintain integrity of reporting in these uncertain times. Some fund managers clearly missed the memo.

If your managed investment scheme is advertised as ‘high yield’ or ‘low risk’, it might be time to reconsider your advertising material, website disclosure and product disclosure statements.

ASIC has put responsible entities of managed investment schemes ‘on notice’ to ensure that their investment fund is advertising accurate and balanced information. This follows ASIC’s discovery that funds were providing inaccurate and unbalanced information to investors.

Is ASIC taking action in this area?

Seven responsible entities have already been contacted by ASIC and have ceased issuing interests in funds or advertising the funds until they comply with ASIC’s requirements. You can read the full text here.

Although ASIC acknowledges that disclosure alone may not entirely protect an investor’s interests, it is imperative that importance is placed on information provided to investors, particularly as the investment landscape during the COVID-19 pandemic is constantly evolving.

What are the key concerns?

Fund managers and responsible entities should be particularly concerned with ensuring the following in their fund materials:

  • balanced comparisons – whilst highlighting the positives of the fund (such as higher returns) is not discouraged, a fair and balanced indication of risks should also be provided
  • safety and stability representations – if the fund’s assets are subject to risk and market volatility (as is especially the case in today’s climate), this needs to be clear
  • withdrawal representations – if the liquidity of the fund assets does not allow for withdrawals on short notice, investors should not be given this impression.

COVID-19 has brought about unprecedented market uncertainty and volatility, and whilst most investors are aware of these risks, investment fund managers must do their bit to protect investors and protect themselves.

Does this have wider implications?

ASIC’s action in relation to managed funds is in line with its focus on maintaining market integrity during COVID-19 and ensuring accurate disclosure by all entities in the market.

Authors: William Kontaxis & Ushna Bashir

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Ushna Bashir

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