ASIC Directs Investment Funds to Correct False Advertising

Source: Regulation Asia Editors, Regulation Asia 2020-06-17

Investment funds were falsely being promoted as having little or no risk of capital loss, where higher returns were highlighted without adequate disclosures of risk.

ASIC (Australian Securities and Investments Commission) has directed responsible entities of managed investment schemes to ensure their investment fund advertising provides clear, balanced and accurate information.

The regulator’s risk based surveillance of advertising material, website disclosure and product disclosure statements from managed funds during the Covid-19 pandemic found that some funds were providing inadequate information or were not accurately and clearly presenting key features of their investment products.

ASIC is particularly seriously concerned about:

Unbalanced comparisons, where one aspect of a fund (e.g. higher returns) was focused on without a fair and balanced indication of key differences and risks
Safety and stability representations, where some funds were promoted as having little or no risk of capital loss, despite their assets being subject to considerable risk and market volatility
Withdrawal representations, where some funds gave consumers the impression that their funds could be withdrawn on short notice with ease, despite asset liquidity not supporting this claim

ASIC has directly raised concerns with seven responsible entities about their advertising and disclosure in relation to 13 investment funds, accounting for about AUD 2.5 billion under management.

All seven REs have taken corrective action, including to cease advertising, review advertising content, cease issuing interests in funds, withdraw and replace product disclosure statements, provide more balanced and prominent risk disclosures, clarify actual withdrawal terms, and stop comparing funds to lower risk products on their websites.

ASIC reminds responsible entities to ensure their advertising and websites are not misleading or deceptive, and that “extreme care” must be taken when using any terms and phrases which might give the impression that a product is safe or that withdrawals will be available at short notice.

“Advertising needs to accurately represent the actual features of their investment products and through economic cycles,” said ASIC deputy chair Karen Chester. “Current market uncertainty and volatility brings a heightened imperative for [responsible entities] to ensure consumers are not misled or misinformed.”

ASIC will continue to monitor the advertising and disclosure by managed funds during Covid-19, and is considering enforcement action against funds that are falsely promoting their products as ‘high yield‘ or ‘low risk’.

Firms are encouraged to consult ASIC regulatory guide on advertising of financial products and services before such products and services are promoted.

ASIC Directs Investment Funds to Correct False Advertising

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