Relief from Product Disclosure Statement requirements where s761E(6) of the Corporations Act 2001 deems multiple persons to be issuers of a derivative
Regulation impact statement (RIS)
December 2006
Under subsection 761E(6) of the Corporations Act 2001, where more than one financial services licensee is involved with making arrangements for a derivative to be entered into, or acquired, on a financial market on behalf of a retail client, each of those licensees is deemed to be the issuer of the derivative. Where there is more than one deemed issuer, each issuer must prepare a Product Disclosure Statement (PDS) for the derivative. This can result in unnecessary duplication of information, difficulties for the issuers with compliance with the content requirements, and potentially the provision of confusing information to retail clients. This RIS examines how ASIC can address these issues without compromising disclosure to retail clients. This RIS examines whether ASIC should grant relief to one of the financial services licensees affected by subsection 761E(6) from the obligation to prepare a PDS for the derivative (and, if so, which licensee should have the benefit of the relief), and relief to the other licensee from some of the PDS content requirements.
What this regulation impact statement is about............... 2
Issue/problem........................................................... 3
Objectives................................................................. 5
Options.................................................................... 5
Impact analysis......................................................... 6
Consultation.............................................................. 15
Conclusion and recommended option.......................... 17
Implementation and review.......................................... 19
1. Subsection 761E(6) of the Corporations Act 2001 (“the Act”) provides that where a derivative is entered into, or acquired, on a financial market, through arrangements made by a financial services licensee, that licensee is taken to be the issuer of the derivative. Derivatives acquired on financial markets are also referred to as "exchange traded derivatives".
2. Where the financial services licensee ("market participant") is a participant of the relevant financial market on which the exchange traded derivative is available, and is the only licensee with whom the client has arrangements for entering or acquiring the exchange traded derivative, that licensee is the only deemed issuer.
3. However, it is common for exchange traded derivatives to be acquired by retail clients through a series of arrangements where:
a) a financial services licensee ("intermediary licensee") makes recommendations to the retail client to acquire the exchange traded derivative, but that licensee is not also a participant on a relevant financial market; and
b) a separate entity that is a market participant then acquires the derivative for the retail client on the relevant financial market.
4. As a result of subsection 761E(6) of the Act, both the intermediary licensee and the market participant are deemed to be issuers of the derivative. As a result of being deemed issuers of the derivative:
(a) under subsection 1013A(3) of the Act, a Product Disclosure Statement (“PDS”) must be prepared by, or on behalf of, each of those issuers; and
(b) under section 1013D of the Act, each PDS would need to contain information about each of those issuers.
5. The intermediary licensee and the market participant can comply with the PDS requirements by either:
(a) each preparing their own PDS; or
(b) preparing a joint-PDS.
6. It appears to be common practice for licensees affected by subsection 761E(6) of the Act to prepare separate PDSs. This practice appears to have arisen for commercial reasons and/or from a mistaken belief that the preparation of joint-PDSs by joint-issuers of a single product is not permitted by the Act (except where relief applies).
7. It also appears to be common practice for the PDS to only include information about the deemed issuer who prepared the PDS. This practice does not comply with the PDS requirements.
8. The following problems arise where each deemed issuer prepares a separate PDS for the derivative that is to be acquired:
(a) There is higher potential for retail clients to receive conflicting information about the same derivative because:
(i) the PDSs will identify different persons as the issuer of the derivative;
(ii) intermediary licensees (unlike market participants) may not have access to all current market information, which may result in information disparities between the PDSs that may cause confusion about the terms of the derivative; and
(iii) as there is no requirement for structural or stylistic consistency, the information is likely to be presented differently by the different issuers.
These inconsistencies may result in the client spending additional time in reading and comparing multiple PDSs for a derivative, and being uncertain about the terms of the derivative, the identity of the issuer of the derivative and the client's rights of redress.
(b) Where an intermediary licensee has arrangements for the acquisition of derivatives with several market participants (and vice versa), they are likely to have difficulty in complying with the requirement under section 1013D of the Act for the PDS to contain information about the other deemed issuer of the derivative. A different PDS would have to be prepared for derivatives acquired through each different intermediary licensee/market participant arrangement.
(c) There is unnecessary duplication of effort and costs on the part of the issuers (as the PDS content requirements will result in some of the same information being provided in each PDS, and in the Financial Services Guides ("FSGs") of the issuers), and these costs are likely to be passed on to clients.
9. Where the deemed issuers prepare a joint-PDS, a cooperative effort between the deemed issuers is required, and both or all deemed issuers must accept joint liability for the information in the PDS. This may involve a significant burden where these entities are not related, other than by reason of their commercial relationship.
10. ASIC is concerned with how these problems can be addressed without compromising the level of disclosure to retail clients. Within this overall problem there are two issues:
(a) Which deemed issuer should be granted relief?
(b) If relief is to be granted, what type of relief should be granted?
11. Consultation with industry indicates that there are divergent views about which deemed issuer should be relieved from the requirement to prepare a PDS. Proponents for relief to the intermediary licensee submit that the market participant is in the best position to provide accurate and up-to-date product information. Proponents for relief to the market participant submit that the intermediary licensee has the closest relationship to the client, which places it in the best position to give the PDS to retail clients.
12. The objective of relief is to reduce unnecessary duplication of disclosure and the risk of retail clients receiving confusing and inconsistent information, while ensuring that retail clients receive information that they reasonably require to make decisions about acquiring derivatives on a financial market.
Issue 1 – Which deemed issuer should be granted relief?
13. The following options are:
· Option 1 – no relief for either deemed issuer.
· Option 2 – relief to the intermediary licensee. This Option would result in the market participant being solely responsible for the preparation of the PDS for a derivative of which both the market participant and one or more intermediary licensees are deemed to be issuers by subsection 761E(6) of the Act.
· Option 3 – relief to the market participant. This Option would result in intermediary licensees being solely responsible for the preparation of the PDS for a derivative of which both a market participant and one or more intermediary licensees are deemed to be issuers by subsection 761E(6) of the Act.
Issue 2 – If relief is to be granted, what type of relief should be granted?
14. The following options are:
· Option 1 – grant relief to one issuer from the requirement to prepare a PDS. This Option would involve one issuer being relieved of both the obligation to prepare a PDS and liability (as the person who prepared the PDS) for the information contained in the PDS that is given to the retail client by modifying s1013A of the Act.
· Option 2 – grant relief to one issuer from the requirement to prepare a PDS and grant limited relief from the PDS content requirements for the other issuer. This Option would involve relief to the deemed issuer who is required to prepare the PDS from the full effect of the content requirements by modifying s1013D(1) of the Act to only require the inclusion of statements that alert the retail client to the possibility that there may be additional risks, fees or costs, features or characteristics, and available dispute resolution schemes that relate only to the deemed issuers that have not prepared the PDS, and a statement that more detailed information can be obtained from those other deemed issuers.
· Option 3 – grant relief to one licensee from the operation of subsection 761E(6) of the Act. This would involve only one licensee being deemed to be the issuer of the derivative, and the other licensee being relieved of all obligations under the Act that apply to issuers of financial products.
Affected parties
15. Relief would affect financial services licensees that are involved in making arrangements for retail clients to enter into, or acquire, derivatives on a financial market.
a) The number of market participants is limited (there are currently about 84 participants on the ASX and 22 participants on the SFE).
b) There is potentially a large number of intermediary licensees that can give recommendations on derivatives and make arrangements for retail clients to enter into, or acquire, derivatives on a financial market through arrangements with market participants (such as financial planners). ASIC does not have specific details of the numbers of non-market participant financial services licensees that currently act as intermediaries in this way. However, ASIC's records indicate that currently 1192 financial services licensees in total are authorised to deal in derivatives or specified types of derivative (e.g. electricity, grain and wool derivatives). It is noted that this number only gives a general indication of the number of intermediary licensees likely to be affected because:
i) it includes the market participants referred to above; and
ii) some of these licensees may deal only in over-the-counter ("OTC") derivatives, and therefore would not be affected by relief.
16. Relief would also affect retail clients that use both an intermediary licensee and a market participant to enter into, or acquire, derivatives on a financial market. Exchange traded derivatives are generally acquired by clients to either hedge financial risks or for speculative purposes. Although retail clients that deal in exchange traded derivatives will often be more financially sophisticated individuals and small businesses, this will not invariably be the case. Although an estimate of the number of retail clients dealing in exchange traded derivatives is not possible, to give an example, in the case of ASX warrants, it is understood that over 95% of all transactions (by volume, not dollar value) are undertaken by retail clients and the number of warrants listed for trading on ASX has increased from under 300 in 1996, to around 3000 in 2005/06 (sources: ASX Warrants Market Wrap March 2006 and ASX publication Warrants: Understanding trading and investment warrants, Edition 11, September 2006).
17. It is noted that relief would be limited to circumstances in which subsection 761E(6) of the Act applies. It would therefore only apply in relation to derivatives entered into, or acquired, on a financial market (such as exchange traded options, futures and some warrants), where more than one financial services licensee is involved, and would not provide any relief in respect of OTC derivatives.
Costs and benefits of each option
Issue 1 – Which deemed issuer should be granted relief?
Option 1 – no relief for either deemed issuer
Costs
18. From industry submissions, it appears that the current practice is for market participants and intermediary licensees to prepare separate PDSs, either for commercial reasons or as a result of a mistaken belief that joint-PDSs are not allowed (except where relief allows). On the basis of example PDSs provided by a relief applicant, and a pro forma PDS prepared by the Sydney Futures Exchange ("SFE") for use by its members, it appears that the separate PDSs generally do not contain any reference to other persons that are deemed to be issuers under subsection 761E(6) of the Act, and the effect of this on the product. Continuation of this practice would result in the continued provision of information to retail clients that may be inconsistent and confusing to those clients.
19. Costs for retail clients are intangible and cannot be quantified, but would include:
a) Increased time and difficulty in reading and comparing multiple PDSs for a single derivative. This difficulty would be exacerbated where those documents contain inconsistent information.
b) Difficulty in understanding that there are multiple issuers of the derivative to be acquired, and the effect that this has on matters such as the features, costs and risks of the derivative and the client's rights of redress in relation to the derivative.
20. Costs for the deemed issuers may vary between issuers of different sizes and experience and cannot be clearly quantified, but would include:
a) Time, effort, compliance costs (such as legal expenses, fees) and printing costs involved in the preparation of different PDSs for the derivatives that may be acquired through each different intermediary licensee/market participant relationship.
b) Time, effort and other costs (such as legal expenses) involved in either agreeing to prepare a joint PDS for derivatives that may be acquired through the particular intermediary licensee/market participant relationship, or collating information about the other deemed issuer for inclusion in a separate PDS.
b) If a joint PDS is prepared, assumption of joint and several liability for the information contained in the PDS. If a separate PDS is prepared by each deemed issuer, assumption of liability for information obtained and included about the other deemed issuer.
Benefits
21. It is arguable that the Act already allows sufficient flexibility to enable multiple deemed issuers of a single derivative to meet their obligations by preparing a joint-PDS (in one part or two parts given at the same time) for the derivative. If the deemed issuers choose to prepare a joint-PDS, the client would only receive a single PDS, containing complete and accurate information about the derivative.
Option 2 – relief to the intermediary licensee
Costs
22. The costs of preparation of the PDS (including time, effort, legal expenses, other compliance costs and printing costs) would fall solely on the market participant. As noted in paragraph 20, these costs cannot be quantified. However, as market participants are already subject to an obligation to prepare a PDS, this Option would not substantially change their current cost burden.
23. As the sole responsible person for preparing the PDS, the market participant will generally be the only person liable to the client for the information contained in the PDS. This may limit the retail client's options for recovery of loss or damage caused by relying on a defective PDS. However, if the intermediary licensee is involved in the preparation of the PDS prepared by the market participant (for example, by providing information about the intermediary licensee as an issuer of the derivative), the intermediary licensee may still have some liability under subparagraph 1022B(3)(b)(ii) of the Act.
Benefits
24. This Option would entirely remove the cost incurred by the intermediary licensee in preparing a PDS for the derivative (including time, effort, legal expenses, other compliance costs and printing costs). Quantification of this benefit is difficult as it would vary depending on the size and experience of the intermediary licensee. ASIC has received submissions from a relief applicant that intermediary licensees tend to be smaller businesses than market participants, and that the costs of PDS preparation for exchange traded derivatives represent a more significant burden to intermediary licensees. This is because they are less likely to have the detailed knowledge of the financial market on which the derivative will be traded and mechanisms for compliance already in place.
25. The market participant has the closest relationship to the financial market on which the derivative is traded, and should therefore be aware of, and in a position to give, more up-to-date and accurate information about the product than the intermediary licensee. This should result in a better level of disclosure to retail clients.
Option 3 – relief to the market participant
Costs
26. Intermediary licensees are not participants on the financial markets on which derivatives are traded, and therefore may not have access to the same level of information about terms and conditions of the derivatives provided to participants by market operators. As information need only be included in a PDS to the extent to which it is actually known to the responsible person, retail clients may therefore not receive from intermediary licensees the most up-to-date and accurate information about the derivative (unless the market participant has also participated in the preparation of the PDS). Paragraph 9 notes that there may be commercial difficulties in cooperation between multiple deemed issuers in the preparation of a PDS where the deemed issuers are not related entities. Although, the extent to which this problem would occur in practice is not known to ASIC, it is expected that it could affect the quality of information available to retail clients.
27. Similarly, time lags before intermediary licensees receive information from market operators about changes to products may also affect timely provision to retail clients of Supplementary PDSs.
28. This Option will not address the problem of PDS preparation by multiple deemed issuers where there is a chain of instructions through more than one intermediary licensee. In this situation, retail clients may continue to receive more than one PDS, that is, a separate PDS from each intermediary licensee that is involved in making arrangements for the acquisition of the derivative by the retail client through a market participant. This would involve continuation of costs to retail clients as noted in paragraph 19.
29. The costs of preparation of the PDS (including time, effort, legal expenses, other compliance costs and printing costs) would fall solely on the intermediary licensee. As noted in paragraph 20, these costs cannot be quantified. However, as intermediary licensees are already subject to an obligation to prepare a PDS, this Option would not substantially change their current cost burden. However, ASIC has received submissions from a relief applicant that intermediary licensees tend to be smaller businesses than market participants, and that the cost of PDS preparation will represent a greater burden to intermediary licensees (see paragraph 24).
Benefits
30. This Option would entirely remove the cost incurred by the market participant in preparing a PDS for the derivative (including time, effort, legal expenses, other compliance costs and printing costs). Quantification of this benefit is difficult because it would vary depending on the size and experience of the market participant.
31. This Option is consistent with Parliament's reasons for removing the requirement for secondary service providers to give a FSG (and ASIC's reasons for its earlier relief to secondary service providers in relation to the requirement to give a FSG). However, it is noted that considerations about the difficulty for secondary service providers in giving a FSG (resulting from the lack of a direct relationship with the retail client) do not apply to the same extent in the case of PDS disclosure because:
a) the position of market participants is not strongly distinguishable from that of other product issuers (who effectively rely on intermediary licensees to give to the client the issuer’s PDS, and put in place appropriate arrangements to ensure that, at the time of issue, the issuer has reasonable grounds to believe that the client has already been given an up-to-date PDS); and
b) the practical difficulties that market participants may have in giving a PDS, or identifying whether a client is retail and requires a PDS, can effectively be addressed by the operation of subsection 1012D(1) of the Act (which provides that there is no requirement to give a PDS where the person has reasonable grounds to believe that the client has already received an up-to-date PDS for the product).
Issue 2 – If relief is to be granted, what type of relief should be granted?
Option 1 – grant relief to one issuer from the requirement to prepare a PDS
Costs
32. This Option would involve one deemed issuer being relieved of both the obligation to prepare a PDS and liability (as the person who prepared the PDS) for the information contained in the PDS that is given to the retail client. A cost for retail clients resulting from this Option may therefore be some reduction in the client's avenues for recovery of loss or damage caused by a defective PDS. However, the deemed issuer that has the benefit of relief may still have some liability for information contained in the PDS that is prepared by the other issuer, and given to the client, if they were involved in the preparation of that PDS.
33. Costs for the deemed issuer that retains the obligation to prepare a PDS for the derivative are:
a) This deemed issuer would continue to bear costs of preparing the PDS (time, effort, legal costs, printing costs, lodging in-use notices for the PDS and liability for information contained in the PDS). As noted in paragraph 20, these costs cannot be clearly quantified. However, as each deemed issuer is currently required to prepare a PDS, this Option does not alter the current compliance burden.
b) This deemed issuer would also bear costs of collating information about the deemed issuer that has the benefit of relief, and liability for accuracy of that information. However, as strict compliance with the PDS content requirement would require this information to be included regardless of relief from the PDS preparation requirement, this Option does not alter the existing compliance burden.
Benefits
34. Relief would result in greater clarity about who is responsible for preparing the PDS. This would:
a) reduce duplication of time and effort on the part of the deemed issuers. In particular the deemed issuer that has the benefit of the relief would not incur costs of preparing the PDS (time, effort, legal costs, printing costs, lodging in-use notices for the PDS and liability for information contained in the PDS); and
b) reduce the risk of retail clients receiving multiple PDSs for a single derivative. The retail client would therefore be less likely to receive conflicting or otherwise confusing information about that derivative.
Option 2 – grant relief to one issuer from the requirement to prepare a PDS and grant limited relief from the PDS content requirements for the other issuer
Costs
35. In relation to relief from the PDS preparation requirements, this Option would involve the same costs identified in paragraphs 32 and 33(a).
36. In relation to relief from the PDS content requirements, a cost to retail clients of this Option is that the client will not receive in the PDS for the derivative to be acquired specific information that relates to each of the deemed issuers of the derivative. The retail client would need to read the PDS for the derivative together with the FSGs or other information received from the deemed issuers to obtain all of the information that they would otherwise receive in the PDS in accordance with section 1013D of the Act.
37. Costs to the retail client of this Option would therefore include increased time and effort in reading and understanding two or more documents (the PDS and the FSGs/other information for the deemed issuers that have the benefit of the PDS preparation relief). These costs are intangible and cannot be quantified. However, these costs may not be significant in comparison to the current situation, where retail clients may be given, and need to read, compare and understand, two or more PDSs for a single derivative. Further, the retail client will in any case receive FSGs for each deemed issuer, and, if relief is not granted, will receive some duplicated information.
Benefits
38. In relation to relief from the PDS preparation requirements, this Option would involve the same benefits identified in paragraph 34.
39. In relation to relief from the PDS content requirements, this Option would:
a) avoid the obligation on the deemed issuer that is responsible for preparing the PDS to prepare numerous PDSs specific to each different market participant/intermediary licensee relationship. This would be required by strict compliance with section 1013D of the Act, which involves inclusion of information specific to the other deemed issuer or issuers of the derivative.
b) reduce duplicated disclosure between PDSs and FSGs. Under the Act, the retail client must receive a PDS for the derivative and, unless an exemption applies, a FSG for each of the deemed issuers. Information specific to deemed issuers will be product-related information (for example, it may be relevant to features, risks and costs of the derivative, returns from the derivative and available dispute resolution systems), but may also be service-related information disclosed in the deemed issuer's FSG (for example, name of issuer, type of service, remuneration and relevant dispute resolution systems).
40. This Option would therefore involve benefits to both the deemed issuer responsible for preparing the PDS and retail clients. That is:
a) The deemed issuer would be relieved from preparing multiple PDSs for substantially the same derivative, and from duplicating information that the retail client will obtain from other sources. Although the cost of PDS preparation cannot be clearly quantified, preparation of multiple PDSs in relation to derivatives that are, other than in relation to the identity of other deemed issuers, substantially the same would involve a significant cost burden on the deemed issuer responsible for preparing the PDS. This cost burden is likely to be disproportionate where the information is already available to the retail client.
b) The retail client would receive less paperwork, without reduction in the level of information received. This Option would reduce the need for the retail client to read, compare and understand more disclosure documents than necessary to understand the derivative and financial services to be acquired.
Option 3 – grant relief to one licensee from the operation of subsection 761E(6) of the Act
Costs
41. This Option would also affect who is responsible, as the issuer of the derivative, for other obligations under the Act (such as obligations in relation to licensing, financial services disclosure, some ongoing disclosure, and holding of client money). Although the costs of this Option cannot be quantified, there would be potential for the protections to retail clients' under these provisions to be undermined, and therefore a risk of significant detriment to those clients. For example, if a licensee is no longer deemed to be an issuer of a derivative, notwithstanding that the conduct engaged in is unchanged, that licensee would not need to: obtain an authorisation to provide the service of issuing derivatives, comply with obligations (such as competency and resource obligations, and maintenance of dispute resolution systems) in relation to that service, or provide disclosure to retail clients about that service.
42. The other issuer would continue to bear the costs related to licensing, disclosure and money handling. However, this Option does not alter the current compliance burden on that issuer under the Act.
Benefits
43. As with Options 1 and 2 of Issue 2, relief would result in:
a) Greater certainty for the client as to which financial services licensee is the issuer of the derivative that they will be acquiring (as only one licensee would be deemed to be the issuer of the derivative). The retail client would therefore be less likely to receive conflicting or otherwise confusing information about that derivative.
b) Less duplication of time and effort on the part of the financial services licensees involved in making arrangements for the acquisition of derivatives on a financial market.
44. ASIC has received and considered:
a) Written submissions from an applicant for individual relief, which sought relief for the intermediary licensee from the requirement to prepare a PDS;
b) Written submissions from a legal adviser that describe the common structures for intermediary licensee/market participant arrangements, and the implications of subsection 761E(6) of the Act for compliance with the PDS requirements in Part 7.9 of the Act; and
c) Written submissions from the SDIA and ASX in response to ASIC correspondence seeking comments on a proposal to grant relief to market participants from the requirement to prepare a PDS. These submissions were generally supportive of the proposal (which was not the same as the form of relief currently preferred by ASIC). However:
i) The ASX noted that it may be necessary to consider disclosure obligations if there is a chain of instructions between more than one intermediary licensee prior to final instruction to the market participant. This factual situation tends to support relief to intermediary licensees rather than the market participant (see paragraph 28).
ii) The SDIA primarily referred to difficulties in the market participant giving a PDS to retail clients, due to the lack of a direct relationship with the client. ASIC does not consider that the existence of a direct relationship to the client affects capacity to prepare a PDS (see paragraph 31). In any case, the SDIA also noted that as the practice of leaving the PDS and other matters like margins to the introducing licensee is not without risk, market participants always insist on having a direct relationship with the end client.
45. ASIC also sought comments from the SFE, and other individual industry participants, on the proposal to grant relief to market participants from the requirement to prepare a PDS, but did not receive any comments from either the SFE, SFE members, or the other industry participants to whom the consultation letter was sent.
46. ASIC has not received any submissions from industry for relief from provisions other than the PDS requirements. ASIC has therefore not considered whether wider relief for deemed issuers would be necessary or appropriate given the potential for detriment to retail clients. This affects ASIC's view on whether relief to one financial services licensee from the operation of subsection 761E(6) of the Act would be appropriate.
47. Having regard to the relative costs and benefits of each of the options outlined above in relation to Issues 1 and 2, ASIC considers that:
a) Option 2 in Issue 1; and
b) Option 2 in Issue 2;
will most effectively achieve the objective of reducing unnecessary duplication of disclosure and the risk of retail clients receiving confusing and inconsistent information, while ensuring that retail clients receive information that they reasonably require to make decisions about acquiring derivatives.
Issue 1 – Which deemed issuer should be granted relief?
48. ASIC considers that Option 2 (relief to the intermediary licensee) will best meet the objective stated above because this option places the obligation to prepare the PDS for a derivative acquired on a financial market on the person who has the closest relationship to that market, and best access to accurate and up-to-date product information from the market operator.
49. The other options considered are not preferred by ASIC for the following reasons:
a) Option 1 (no relief to either deemed issuer) is not preferred because it does not address the risk that market participants and intermediary licensees will continue the current practice of preparing separate PDSs, and the resultant risk that retail clients will continue to receive inconsistent and confusing disclosure.
b) Option 3 (relief to the market participant) is not preferred because market participants are likely to be in a better position than intermediary licensees to be aware of, and include in a PDS, accurate and up-to-date information about derivatives traded on the financial market of which they are a participant. The primary reasons for granting relief to the market participant (practical difficulties in giving a PDS to retail clients with whom they have no direct contact) can be addressed other than by relief (i.e. by appropriate arrangements with intermediary licensee and the operation of subsection 1012D(1) of the Act).
Issue 2 – If relief is to be granted, what type of relief should be granted?
50. ASIC considers that Option 2 (relief to one issuer from the obligation to prepare a PDS and limited relief to the other issuer from the PDS content requirements) will best meet the objective stated above, because this option:
a) recognises that commercial decisions are likely to be made by market participants and intermediary licensees to prepare separate PDSs rather than a joint-PDS; and
b) recognises the risk that retail clients will receive duplicated disclosure from both market participants and intermediary licensees with whom they have arrangements, and that the information received from those persons will not necessarily be consistent and may therefore be confusing; and
c) recognises that there may be some overlap between the information required to be contained in the PDS and the FSGs of the deemed issuers, and therefore reduces unnecessary duplication of disclosure without undermining the level of total information that the retail client will receive.
51. Together with ASIC's preferred Option 2 in relation to issue 1, this Option would involve relief to the intermediary licensee from the requirement to prepare the PDS, and relief to the market participant from the full operation of the PDS content requirements.
52. The other options considered are not preferred by ASIC for the following reasons:
a) Option 1 (relief to one issuer from the obligation to prepare a PDS) is not preferred because it does not address the risk of disproportionate burden on the deemed issuer that is required to prepare the PDS, in circumstances where specific information relevant to the other deemed issuers for the derivative will be included in the FSGs of, or otherwise available from, those issuers.
b) Option 3 (exemption from subsection 761E(6)) is not preferred because it would affect obligations that fall on issuers of derivatives, other than the PDS obligations, and ASIC has not received any submission from industry that suggest such relief is necessary or appropriate.
53. To give effect to Option 2 in relation to each of Issues 1 and 2, ASIC will:
a) grant to intermediary licensees class order relief under paragraph 1020F(1)(c) of the Act from the requirement to prepare a PDS, by modifying section 1013A of the Act; and
b) grant to market participants class order relief under paragraph 1020F(1)(c) of the Act from the requirement under subsection 1013D(1) of the Act to include in the PDS information about specific intermediary licensees, by modifying relevant paragraphs in subsection 1013D(1) of the Act to only require inclusion in the PDS of:
i) statements that there may be additional risks, fees or costs, rights, terms, conditions or obligations that attach to the derivative, and available dispute resolution schemes that relate only to the intermediary licensees; and
ii) a statement that details of these matters are available from the relevant intermediary licensee; and
c) grant to market participants consequential relief from the content requirements for Short-Form PDSs, by modifying section 1017I of the Act (as notionally inserted by Part 3 of Schedule 10BA of the Corporations Regulations 2001); and
d) grant to market participants consequential relief from the content requirements PDSs, by modifying section 1013E of the Act; and
e) insert a new requirement (new section 1012L of the Act) for intermediary licensees to give to retail clients to whom the intermediary licensee offers to issue, arrange for the issue of, or makes a recommendation to acquire, the derivative, in writing, the information or statements that relate only to the intermediary licensee that would otherwise have been required to be included in the PDS, or a Short-Form PDS, for the derivative.
54. These declarations will only apply where:
a) there is both a market participant and one or more intermediary licensees who are deemed by subsection 761E(6) of the Act to be the issuers of a derivative; and
b) the intermediary licensee and market participant have entered a written agreement, under which the intermediary licensee will take all reasonable steps to ensure that retail clients to whom the intermediary licensee offers to issue, arrange for the issue of, or makes a recommendation to acquire, the derivative are given:
(i) the PDS prepared by the market participant; and
(ii) additional product-related information that is specific to the intermediary licensee, either in the intermediary licensee's FSG or a separate document.
55. When the class order is effective, ASIC will publish an Information Release on its website announcing its release.
56. ASIC will monitor compliance with the relief, including any compliance difficulties, through its ordinary industry liaison processes, surveillance and consumer complaints, and consider whether there is any need to revise the relief in light of any particular difficulties that become apparent during implementation.