Hybrid securities under regulator’s microscope
Following a recent review into the sector, the Australian Securities and Investments Commission (ASIC) will continue its crackdown on the mis-selling of hybrid securities.
There have been more than $18 billion of hybrids issued by banks and corporates since November 2011 with approximately 75,000 investors in hybrid securities in 2012 alone. More than half of whom were self-managed superannuation funds (SMSFs), according to the regulator’s Report 365.
Based on the findings of the review, ASIC will now focus on possible misleading conduct in the sale of hybrids including inappropriate labeling of hybrids and unwarranted comparison of hybrids to different, less risky products such as covered bonds or senior debt.
The regulator will also be cracking down on issuers spruiking the potential higher returns of hybrids and the reputation of their own brand name without balancing that with the risks of the product.
In addition, ASIC stated that it would be exploring new ways to better educate investors in understanding hybrid securities before investing in them.
“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 them improve prospectus disclosure and ensure selling messages are not misleading.”
The regulator added that there was still more work to be done to ensure investors are not mis-led by hybrid issuers.
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