Debenture schemes will have new guideline issued for advertising to retail investors under a plan by ASIC.
Under ASIC's Three Point Plan for unlisted and unrated debentures, new standards will be applied by the regulator to advertising aimed at retail investors across all media.
ASIC highlights that advertisements for debentures offered to retail investors should include a prominent statement to the effect that investors risk losing some or all of their principal investment.
According to ASIC, primary responsibility for advertising material rests with the organisation placing the advertisement, while the publisher or other media channel may also have some responsibility for its content.
ASIC has appointed a team to work with issuers and publishers to aid compliance issues.
"Advertising of these products has played an important role in attracting retail investment to this sector," ASIC chairman Tony D'Aloisio said.
"We will now work with debenture issuers and publishers to assist them to comply with the new guide."
ASIC outlines that publishers should have systems and controls to detect and refuse advertisements for debentures that do not comply with advertising standards.
The guide also notes that advertisements for debentures should only quote an interest rate if it is accompanied by prominent disclosure of either the current credit rating for the debenture and what that means or where to find this information or, where the debenture does not have a rating, what this means.
Advertisements should state that the debenture is not a bank deposit. They should also avoid the use of terms such as secure, secured and guaranteed and avoid the term 'no fees', as these statements may convey a misleading impression as to the risk profile of the debenture.
Advertisements for debentures should not state or imply that the investment is suitable for a particular class of investor and advertisements for debentures should be consistent with the corresponding disclosures in the prospectus.
Statements made in response to inquiries are subject to the same regulation regarding misleading and deceptive conduct as the advertisements.
The guide also makes it clear that ASIC expects publishers to have systems and controls to detect and refuse advertisements for debentures that do not comply with these advertising standards.
ASIC will expect advertising by issuers to comply with the guide from late January 2008.
A debenture is a long-term debt instrument used by governments and large companies to obtain funds. It is similar to a bond except the securitization conditions are different.
A debenture is usually unsecured in the sense that there are no liens or pledges on specific assets. It is however, secured by all properties not otherwise pledged. In the case of bankruptcy debenture holders are considered general creditors.
