The Australian Securities and Investments Commission (ASIC) has updated the guidance around investing in mortgage schemes which it said aims to improve risk awareness of these products by increasing disclosure requirements.
Revised disclosure benchmarks and separate disclosure principles for unlisted mortgage schemes are contained in updated Regulatory Guide 45 Mortgage schemes: improving disclosure for retail investors (RG45) and also outlined in an accompanying investor guide.
Since the original RG45 was published, the sector experienced a large scale redemption freeze when the global financial crisis caused a liquidity squeeze.
ASIC has since formally consulted with industry on extending and strengthening existing regulatory guidance on disclosure for unlisted mortgage schemes in RG 45.
ASIC said it also modified the law to facilitate partial investor access to funds in cases of hardship, and to simplify the procedures for periodic withdrawal offers out of available cash.
ASIC Commissioner Greg Tanzer said ensuring investors are fully informed is especially important when considering risky investments like unlisted mortgage funds.
"People need to understand the risks, particularly in relation to asset liquidity and withdrawal arrangements. It is important that investors understand that the assets of these schemes are less liquid than other investments, and this affects any rights they have to get their money back," he said.
Responsible entities of existing unlisted mortgage schemes should disclose the benchmark and updated disclosure principle information to investors and include the information in new product disclosure statements by 1 January 2013, ASIC stated.
The changes to RG45 include revised benchmarks which focus on the key characteristics of the business models of unlisted mortgage schemes and associated risks, additional information requirements under separate disclosure principles to ensure that key risks are disclosed, and guidance on how ASIC expects feeder funds to address the benchmarks and disclosure principles at the feeder fund level.
