ASIC warning about secured debt products
The corporate regulator has introduced changes to the naming of retail debt products amid concerns that the term 'secured' misinformed investors about the safety of these products.
The Australian Securities and Investments Commission (ASIC) deputy chairman Belinda Gibson said investors often think the 'secured note' description means the investment is low risk or safe.
"These investments are not in any way equivalent to a bank deposit in terms of risk, payment of interest or repayment of principal," Gibson said. "These products may pay a higher interest rate, [which] probably reflects the fact they are riskier."
ASIC announced a series of measures to help ensure manufacturers of notes and debentures provided enough disclosure for investors to make an informed decision.
All issuers now must make clear in their advertising that the products are not a bank deposit and should not suggest that they compare favourably to one.
The regulator will permit issuers of debt to name their product a secured note if there is a first-ranked security over some assets, so long as conditions about describing the security are met.
A product may be called a debenture if the security is over tangible property.
ASIC has also updated its Regulatory Guide 69 Debentures and notes: 'Improving disclosure for retail investors', and uploaded more information about secured debt products on its MoneySmart website.
Gibson advised investors and financial advisers to review the most recent disclosure when invited to roll over their investment.
"Read it carefully as this is where you are likely to find out any bad news," she added.
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