Disclosure by finance companies – discussion paper released

The Securities Commission has released a discussion paper setting out its preliminary views about required disclosure standards for finance companies under the Securities Act 1978 and the Securities Regulations 1983.

The Securities Commission deals with complaints and enquiries from members of the public who have concerns about the practices of finance companies. An increase in the number and profile of finance companies has seen a corresponding increase in the number of complaints.

The discussion paper comes as a result of the increase of complaints to the Securities Commission and its review of the debt security disclosure documents of 30 finance companies.

In order to comply with the Securities Act and the Securities Regulations, disclosure documents must not mislead investors. The Securities Commission reports in its discussion document that, while it has seen some disclosure documents that provide a lot of useful information, it has seen some that do not. It has accordingly taken the view that some finance companies are not meeting the minimum legislative requirements, and that these finance companies will need to make changes to comply with the legislation in future.

The discussion document covers the following issues that are most closely related to the complaints it has received:

• risk disclosure, principal risks, related party lending, the use of rating information and company activities;
  
  
• ranking of securities, including prior ranking claims;
  
  
• early termination rights and charges;
  
  
• inconsistent information; and
  
  
• advertising.

Submissions closed on 25 October. Following consideration of the submissions, the Securities Commission will publish a report setting out guidelines on its expectations for disclosure by finance companies.

The Securities Commission has stated its intention to carry out reviews of finance companies’ offer documents in future, and to take enforcement action where appropriate.

Click here to link to the Securities Commission’s website, where a copy of the discussion paper is available.

Enquiries and information

For more information on any of the cases, articles and features in Financial Services Quarterly, please email Rachel Gowing or call on 64 9 916 8825.