Following recent ASIC action, we have seen an improvement in the disclosure of the risks of hybrids. But there is still work to be done to make sure these complex financial products are not mis-sold to investors.
ASIC will now focus on possible misleading conduct in the sale of hybrids. This includes inappropriate labeling of hybrids and unwarranted comparison of hybrids to different, less risky products e.g. covered bonds or senior debt
Spruiking the potential higher returns of hybrids and the brand name or reputation of the issuer without balancing that with the risks of the product can also cause investors to be misled
Investor education about these products is critical. ASIC will explore whether new strategies can be developed to help investors check their understanding of hybrids before investing in them
ASIC today released Report 365 Hybrid securities (REP 365) which discusses recent offers of hybrids in Australia.
There has been more than $18 billion of hybrids issued by banks and corporates since November 2011. There were approximately 75,000 investors in hybrid securities last year, two thirds of whom were self-managed superannuation funds (source: Investment Trends).
ASIC has reviewed the selling methods and sales processes of issuers and brokers. REP 365 discusses the findings of the review in detail.
‘Investor education is critical while those distributing these products need also to do the right thing,’ ASIC Commissioner John Price said.
‘We have responded to the increased issuance and popularity of hybrids by working with issuers and their advisers, as gatekeepers, to help improve prospectus disclosure and ensure selling messages are not misleading.
‘But there is more work to be done and we will investigate any reports of misconduct (e.g., misleading promotion or inappropriate comparisons with other products), crackdown on misleading ads, and consider what names or labels hybrid products are given to ensure they do not confuse investors.’