ASIC has released guidelines for non-standard margin lending facilities aimed at improving the disclosure regimes of these products.
The type of margin lending products covered by the guidelines are those where securities are used a collateral instead of one where a loan agreement is put in place. These facilities have been used in the past by organisations such as Opes Prime Stockbroking and Tricom Equities.
ASIC has set out the level of disclosure it requires a product provider to include in any product disclosure statements issued for these facilities in, RG219 Non-standard margin lending facilities: Disclosure to investors.
The regulator's expectations include providing a description of how the product differs from a standard margin lending offering, an explanation of the transfer of securities from the borrower to the product provider and the associated risks, a warning directed at the client regarding their responsibility to monitor the facility's margin, and an explanation of the tax consequences of the transaction and a recommendation for the client to seek proper tax advice.
In preparing the guidelines ASIC wanted to seek greater comfort the significant risks associated with the nature of these products was better understood by investors.
"Given the complexity and risk inherent in non-standard margin lending facilities, investors need to be in a position to assess whether these types of products are likely to be appropriate for their investment objectives, needs and risk profile," ASIC deputy chair Belinda Gibson said.
"While this guidance can't prevent investments failing, improved disclosure will help retail clients make better risk-reward decisions," she said.
