ASIC Consultation Paper 121: Facilitating Online Financial Services Disclosure

In April 2008, the Australian Securities and Investments Commission (ASIC) released its Consultation Paper 93 Facilitating Online Financial Services Disclosures (CP 93) which proposed to introduce measures to facilitate the electronic dissemination of financial services disclosure required under Part 7.6 – 7.9 of the Corporations Act 2001 (Cth) (Corporations Act). The proposals in CP 93 related to:

• relief for financial services providers (providers) to make financial disclosure to clients via email or the internet and the conditions for such relief and
• relief for superannuation trustees to use the website of the superannuation entity as the default method of delivering annual superannuation information to product holders.

Whilst the proposals for relief in CP 93 were widely welcomed by the financial services industry, industry participants expressed uncertainty about:

• the condition for relief for providing financial services disclosure via email hyperlink and references to websites, and the conditions attaching to such relief and
• whether a client’s consent should be sought before disclosure is made to the client electronically.

In response, ASIC released its consultation paper 121: Facilitating Online Financial Services Disclosure (CP 121) in October 2009 seeking to address and seek further feedback on some of the concerns raised. This article looks at the background and details of the proposals set out in CP 121.

Proposed relief for online disclosure by website and hyperlink

Under the current law, it is unclear whether disclosure documents such as Statements of Advice (SoAs), Financial Service Guides (FSGs) and Product Disclosure Statements (PDSs) can be disseminated via hyperlink or by reference to websites containing the documents because such methods may not result in the document being given in a way that allows the clients to “have ready access to it in the future” (see regs 7.7.01 7.9.02B, 7.9.63I and 7.9.75B of the Corporations Regulations 2001 (Cth)).

CP 93 proposed that, subject to certain conditions, relief should be given to a provider to provide disclosure under Parts 7.6 – 7.9 of the Corporations Act to retail clients via:

• a hyperlink in an email or
• notification that the relevant financial services disclosure is available from the provider’s website.

CP 121 maintains that relief should be given to providers to deliver PDSs, FSGs and SoAs via hyperlink and references to website addresses and proposes a set of principle based “good practice guidance” (Guidance), which address some of the concerns raised in the submissions. These principles are broadly based on the conditions for relief set out in CP 93 and include:

• Disclosure documents should be easy to retrieve and read.

ASIC recommends that in order to satisfy this requirement, the provider needs to provide clear and easy to understand instructions on how to access the disclosure or the facility through which the disclosure is provided and easy access to the disclosure or the facility on its website. Where the provider gives access to the disclosure via a hyperlink, that hyperlink must be linked directly to the specific disclosure document.

• Retail clients should be able to identify the disclosure.

For example, electronic disclosure should specifically state whether the disclosure is a FSG, SoA, PDS, annual superannuation information, transaction confirmation, etc.

• Providers should be satisfied on reasonable grounds that the retail client or their agent has received a copy.

This may involve tracking whether an email has been successfully delivered to clients. By law, providers must ensure that this requirement is satisfied in respect of certain documents such as FSG, SoAs and PDSs and notices of material change and significant events.

• Retail clients should be able to keep a copy so they can access the disclosure in the future.

In order to achieve this, ASIC recommends that providers should always direct retail clients to take an electronic and, if practical, hardcopy of the disclosure and ensure that disclosures continue to be accessible from the same hyperlink for a reasonable period (ie two years unless the disclosure is superseded).

• Retail clients should be able to prove which version of the disclosure they relied on.

This would require providers to maintain all versions of documents and, where possible, maintain records of when each version was available.

• Retail clients should be able to change their mind about receiving disclosures online at any time and at no cost.

ASIC maintains that, except in the case of fully online products, providers should always give clients the option of unsubscribing from receiving disclosures online and receiving paper copies of disclosures at no additional cost.

• Disclosure documents should be delivered in a way that does not expose a client to security risks.

In order to address industry concerns about security issues arising from the use of hyperlinks, ASIC recommends that providers should avoid hyperlink disclosures or ensure that hyperlinks do not request clients to provide their personal information.

Despite refining proposals made in CP 93, a number of outstanding concerns remain in relation to web-based and hyperlink disclosure. In particular:

• electronic disclosure by hyperlink and referencing to websites may be ignored by consumers, particularly those who are not accustomed to using technology as a means of accessing information
• the initial set up costs of providing electronic disclosure in accordance with the Guidance could also be prohibitive for small to medium sized providers. For example, providers may need to install email tracking software, (to comply with the requirement to ensure that documents were received by clients) client tracking software (to track which disclosure documents were disseminated to clients) or increase storage capacity of their systems (to retain copies and records of disclosure documents provided) and
• given the principles basednature of the Guidance, it is likely that providers will comply with the Guidance in many different ways. This potentially causes further confusion for consumers. For example, some providers may use email or hyperlinked disclosure whilst other may require clients to log on to a secured portal within their website. To this extent it may be useful for ASIC to recommend standardised disclosure methods and formats in relation to certain documents.

Ultimately it should be the client who has the choice and that choice should be properly communicated to the client.

Client consent to online disclosure

Under the current law, providers who wish to provide online financial services disclosure to a client or their agent must have the client’s or their agent’s express consent (eg sections 940C(1)(a)(ii) and 940C(1)(a)(iii)). Consequently, providers will commonly deliver paper disclosure unless the client has actively decided to provide express consent to receiving online disclosure. CP 93 supports this view and goes further to add that consent to online disclosure should be “positive, expressed and clear” (for a discussion of what constitutes “positive, expressed and clear” request see ASIC’s Regulatory Guide 38: Hawking Provision).

Submissions to CP 93 argued that there are practical difficulties of obtaining a retail client’s express consent and that online disclosure should be the default disclosure method for financial products unless the client elects otherwise.

In CP 121, ASIC examined the pros and cons of implementing a default electronic disclosure method (ie a client who provides their email details is deemed to have consented to receiving disclosure electronically). On the one hand ASIC believes that such a method would substantially reduce printing and mailing costs for providers but ASIC is also concerned about the risks of an investor not being aware of their rights to receive a paper copy of the disclosure or failing to check their email for electronic disclosure.

To this extent, ASIC has not determined whether it will provide relief for default online disclosure and seeks public opinion on whether such relief should be given and the conditions of such relief (particularly for clients who do not wish to receive electronic disclosure).

Conclusion

Whilst the proposals in CP 121 broadly refined the operation of relief proposed in CP 93, a number of issues including protection to consumers who do not wish to use electronic disclosure and the costs of implementing electronic disclosure remain unaddressed.  ASIC has requested further public submissions to address these issues.

In light of the above discussions, it is recommended that the proposed conditions for relief set out in the Guidance could be augmented by:

• including guidance on how providers can obtain reasonable comfort that clients  have read the electronic disclosure documents and
• setting out standardised electronic disclosure methods in relation to different types of disclosure documents.

ASIC should also consider deeming that the provision of an email address by a client is default consent for providing disclosure in relation to certain types of simple and well understood financial products. In the case of complex and higher risk financial products, the requirement of express consent to electronic disclosure should be retained.

The period for submissions on CP 121 closed on 11 December 2009.