ASIC has outlined a number of options to address disclosure concerns within Australia's agribusiness sector that could result in cost increases for select responsible entities, financial advisers and retail investors.
The corporate regulator released details of three options yesterday as part of the regulation impact statement: 'Agribusiness managed investment schemes: Improving disclosure for retail investors'.
Under ASIC's proposal, the first option proposes the industry retain the status quo with current disclosure requirements continuing to apply.
The second option, ASIC's preferred option, calls on the corporate regulator to provide clarification on disclosure in product disclosure statements (PDSs).
This clarification includes benchmarks and disclosure principles that apply, including that of advertising and educational material for investors.
The third option suggests the current disclosure requirements continue to apply, but with increased levels of supervision of agribusiness scheme PDSs by ASIC.
Those affected by the proposed options will be around 70 responsible entities of agribusiness schemes; consultants to responsible entities; advisers of responsible entities of agribusiness schemes; agribusiness scheme investors and ASIC.
In terms of costs, option one would impose costs on investors as it will not "effectively address" industry concerns, ASIC said in the paper.
"Maintaining the status quo is likely to impose some costs to industry. Because some agribusiness schemes have recently experienced financial stress, doing nothing is likely to mean that some potential investors would avoid agribusiness schemes and pursue other investment opportunities," ASIC said.
"Over time, the lack of a regulatory response may compound the cost for industry and investors - that is, not intervening now may mean that the cost of any eventual intervention is much higher."
In terms of the second option, costings provided to ASIC from the Australian Forests Products Association (AFPA) estimated it would cost $170,000 initially with an annual payment of $90,000 for both closed and new agribusiness schemes to address the proposal, ASIC said.
The AFPA estimates are based on costs associated with a portfolio of 40 to 50 projects operated on behalf of 15,000 investors.
"In the main, these costs comprise obtaining, analysing and maintaining the information required by our proposals, as well as attending to inquiries from existing investors and advisers in relation to the information provided under our proposal," it said.
"We do not consider that the proposal would, in itself, have any significant cost impact on compliance plans, compliance committees and compliance plan auditors."
As well as industry incurring costs with option two, ASIC said it would also sustain addition costs of around $25,000.
"To implement this option - including the engagement of industry over the implementation of the proposals - we consider ASIC would incur additional costs in staff, estimated at a quarter of a full-time equivalent with the current level of products," it said.
As for option three, there may be additional costs incurred by individual responsible entities in responding to concerns identified by ASIC, the corporate regulator said.
Of all three options, the second option is the preferred one, ASIC said.
"We think that this option will have a direct positive impact on the ability of retail investors to make informed decisions about whether to invest in agribusiness schemes," it said.
"We consider that providing clarification to industry will bring about a more consistent, transparent and timely improvement to disclosure.
"In our experience, this approach assists entities in complying with their obligations, and tends to improve the overall standard of compliance more effectively than intervening on a case-by-case basis. We, therefore, consider it appropriate to issue the proposed clarification."
The release of the regulatory statement follows a consultation paper published by ASIC in April 2010.
