ASIC has also updated “RG 221: Facilitating digital financial services disclosures” to reflect the changes made by the new instruments.
It should be noted that these changes are facilitative. In deciding whether to rely on the new methods for making disclosures to investors, licensees should consider the risks associated with any proposed delivery method.
In financial services disclosure, there is a distinction between “giving” information to members and making the information “available”.
In an electronic context, information can be “given” by, for example, embedding it in, or attaching it to, an email. In contrast, notifying a member in an email that information can be accessed via a website, or providing a link to a website, is merely making the information “available”.
Understanding this distinction is key to understanding the recent reforms.
Generally, prior to the release of the ASIC instruments referred to above, information could be “given” electronically (eg delivered by being attached to an email) to investors but could be “made available” only with the investor’s consent, which was typically obtained in the application form (which has its limitations, particularly in relation to employer-sponsored funds where the employee/investor may not complete a form).
One exception to the requirement to obtain consent was, and remains, superannuation fund annual reports that may be made available on a website maintained by or on behalf of the trustee. The investor must be notified that the annual report is available, how to access it and that the investor may request a hard copy free of charge (interestingly, the requirement to provide a hard copy of the annual report on request has been retained).
Generally, the new rules leave the existing delivery methods as they are and simply provide an additional delivery method.
So what has changed? There is a new delivery option that ASIC refers to (in RG 221) as the “Publish and Notify” method.
A provider may now use electronic delivery as the default and may now make relevant disclosures by making them “available” without the express consent of the investor.
The “Publish and Notify” method is available for Product Disclosure Statements, Financial Services Guides, periodic statements (including exit statements), annual reports, ongoing disclosure of material changes and significant events, additional product information on request and Statements of Advice.
In order to rely on the “Publish and Notify” method, the provider must give an initial notice (only once) stating that the provider may make disclosures available electronically unless the investor elects not to receive electronic disclosures. This notice is not required if the investor has previously agreed that the relevant type of disclosure could be made available by the proposed electronic means. If this initial notice is required, it must be “given” (ie an electronic notice would need to be sent to the investor’s email address) unless it is “made available” in a way previously agreed by the investor.
An investor may elect to opt-out at any time. The opt-out election applies to any future communication and to any communication made within 7 days of the initial notice being given.
Assuming the investor does not opt out, the provider may then make relevant disclosures available electronically. However, each time it does so, the provider must give the investor a notice in written or electronic form notifying them that the relevant communication is available and how the investor can obtain it. This notice may be provided at the same time as the initial notice, but if the investor opts-out within the 7 day period referred to above, the disclosure would need to be provided again using a method other than the “Publish and Notify” method.
Trustees of standard employer-sponsored superannuation funds will often obtain the email addresses of investors from the relevant employer rather than the investor. This has previously meant that the trustee could not “give” disclosures to the investors by sending them electronically.
Under the new regime, trustees may give disclosures (Product Disclosure Statements, ongoing disclosures of material changes and significant events, periodic statements (including exit statements) and annual reports) by sending them to an investor’s email address that is provided by the relevant employer. The disclosure must be accompanied by a statement that, if requested, the trustee will send the disclosure (and future disclosures) to another address nominated by the investor. Also, the trustee must have no reason to believe that the electronic address is not the current address of the investor and, if within 14 days of sending a disclosure electronically, the trustee has reason to believe the address is not current (eg an email bounce-back), it must attempt another method of delivery.
Where prescribed disclosures are made available to investors they will be exempt from the requirement to be satisfied, on reasonable grounds, that the investor (or the investor’s agent) has received the disclosures. This means that, where a disclosure is delivered via hyperlink, the provider will not be required to track whether investors have accessed the disclosure (ie whether they have clicked on the hyperlink).
This instrument is intended to facilitate the use of innovative disclosures.
For example, where an investor requests a copy of a digital PDS to be sent to a postal address, and some or all of the material in the PDS is of a kind that cannot be printed, the provider may notify the investor that they must either nominate an electronic means for receiving the PDS or they may request a copy of a different printed PDS for the relevant financial product.
Also, the page length requirements for PDSs apply only to the extent that material contained in the PDS is of a kind that is able to be printed. However, the clear, concise and effective requirement continues to apply.
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