ASIC to examine long range forecasts
TheAustralian Securities and Investments Commission(ASIC) will crack down on the misuse of long-range financial forecasts in prospectuses and product disclosure statements (PDSs) during the watchdog’s latest “ongoing targeted campaign”.
ASIC director, financial services regulation, Ian Johnston says the campaign will focus on a selection of prospectuses and PDSs containing forecasts for up to 20 years and beyond, typically relating to agricultural schemes involving crops with long life-cycles.
Johnston says ASIC’s concern is that promoters may be using highly speculative long-range information to entice investors, while lacking the reasonable grounds to back up their claims.
“Our fundamental concern is that a forecast said to be derived from expert opinion must not ‘go beyond’ the opinion. For example, an opinion regarding general expectations for inflation and exchange rates is unlikely to provide reasonable grounds for a table of yearly cash flow information,” Johnston says.
A report released by ASIC says disclosure documents often claim they are based on independent expert opinions about the variables, however, the long-range forecasts are misleading if they are not consistent with the expert opinions on which they are based.
“We will take corrective action where issuers base forecasts on long-term guesses about exchange rates, inflation and pricing,” he says.
Issuers found guilty of providing investors with misleading forecasts will face an interim “stop order”, preventing any subscriptions being accepted until ASIC deems that its concerns have been addressed.
To avoid regulatory action, long-range forecasts must not be misleading or outside reasonable grounds in accordance with PS 170.
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