Incorporation by reference – at last!

As reported in our update on 26 March 2007 regarding the proposed regulatory amendments to allow incorporation by reference into a Product Disclosure Statement (PDS), the Corporations Amendment Regulations (No. 10) 2007 No. 259 commenced on 22 August 2007.

Similar to the draft regulations, the regulations allow for information that is in writing and publicly available to be incorporated in a PDS by reference if sufficient details are provided to enable the reader to identify the document referred to, locate the specific statement and to decide whether or not to obtain and read the information referred to.

What has changed from the draft regulations is that the general exemption of incorporation by reference now extends to any requirement in Part 7.9 of the Corporations Act 2001. This expansion to the draft regulations is only limited by the requirement to ensure that the PDS includes a description and summary of the purpose, key features and risks of the product, regardless of any reference.

However, certain information cannot be incorporated by reference. This includes the information in relation to fees and costs and associated worked examples, the dispute resolution process in place and any cooling-off regime.

The regulations in relation to SoAs have similarly been broadened and have only been limited to not allow incorporation by reference in relation to warning a client that the advice is based on incomplete or inaccurate information and the additional requirements where the advice recommends replacement of one product with another.

We expect that the new regulations will provide significant scope to simplify PDSs (and SoAs), and allow product issuers to focus on the features of the relevant products that are most important to investors.