Post a comment
Print articleDisclosure Standards for Retail Investment Products
October, 2008 - Rory Gallaher
The SFC recently issued a press release and a circular on risk disclosure. The circular reminds issuers of retail investment products, including authorised funds, of their duty to include in offering documents sufficient relevant risk information for investors to make an informed investment decision, and for marketing materials to be "clear, fair and present a balanced picture with adequate and prominent risk disclosure".
Addressing recent market events, the circular also advises issuers that marketing materials should contain "upfront, prominent and adequate" warnings of all relevant risks "including any new risks that may have emerged in the prevailing market circumstances". The press release focuses on the adequacy of risk disclosure covering bankruptcy and extreme market conditions.
For authorised funds, the promoter is required to review the risk statements in the prospectus and marketing materials and consider whether they should be enhanced in the current market conditions. An area which is likely to be given attention is any information describing the fund’s use of financial derivative instruments and the associated risks.
In the case of product authorisation applications which are pending with the SFC, the circular prompts applicants to "revise their documents in the light of recent market events".
For products currently in the market, the circular advises that marketing materials should be reviewed. If the offering documents and marketing materials for a retail fund do not make adequate, balanced and prominent disclosure and warning of risks in light of the prevailing market circumstances and public concerns, immediate steps should be taken to amend the documents.
It is incumbent on issuers to ensure their offering documents continue to be up-to-date and to contain sufficient information necessary for investors to make an informed investment decision given the new circumstances. In addition, marketing materials issued must be clear, fair and present a balanced picture with adequate and prominent risk disclosure in compliance with all applicable regulations.
Accordingly, investment product issuers should ensure that their current offering documents and marketing materials in issue contain upfront, prominent and adequate warnings of all the risks associated with their products, including any new risks that may have emerged in the prevailing market circumstances.
What is expected of retail investment product issuers in the SFC circular issued on 3 October 2008 is not just a review of new offering documents or marketing materials that are seeking SFC authorisation but also those with pre-existing authorisation from the SFC who would like to continue the marketing of their products with previously authorised documents.
The press release and the circular are available on the SFC’s website.
Addressing recent market events, the circular also advises issuers that marketing materials should contain "upfront, prominent and adequate" warnings of all relevant risks "including any new risks that may have emerged in the prevailing market circumstances". The press release focuses on the adequacy of risk disclosure covering bankruptcy and extreme market conditions.
For authorised funds, the promoter is required to review the risk statements in the prospectus and marketing materials and consider whether they should be enhanced in the current market conditions. An area which is likely to be given attention is any information describing the fund’s use of financial derivative instruments and the associated risks.
In the case of product authorisation applications which are pending with the SFC, the circular prompts applicants to "revise their documents in the light of recent market events".
For products currently in the market, the circular advises that marketing materials should be reviewed. If the offering documents and marketing materials for a retail fund do not make adequate, balanced and prominent disclosure and warning of risks in light of the prevailing market circumstances and public concerns, immediate steps should be taken to amend the documents.
It is incumbent on issuers to ensure their offering documents continue to be up-to-date and to contain sufficient information necessary for investors to make an informed investment decision given the new circumstances. In addition, marketing materials issued must be clear, fair and present a balanced picture with adequate and prominent risk disclosure in compliance with all applicable regulations.
Accordingly, investment product issuers should ensure that their current offering documents and marketing materials in issue contain upfront, prominent and adequate warnings of all the risks associated with their products, including any new risks that may have emerged in the prevailing market circumstances.
What is expected of retail investment product issuers in the SFC circular issued on 3 October 2008 is not just a review of new offering documents or marketing materials that are seeking SFC authorisation but also those with pre-existing authorisation from the SFC who would like to continue the marketing of their products with previously authorised documents.
The press release and the circular are available on the SFC’s website.
