ASIC Regulatory Guide 228

Prospectuses: Effective disclosure for retail investors

On 10 November 2011, the Australian Securities and Investments Commission (ASIC) released Regulatory Guide 228 "Prospectuses: Effective disclosure for retail investors" (RG 228) to provide guidance on the preparation of prospectuses which are more user-friendly for retail investors. The release of RG 228 follows industry consultation on Consultation Paper 155 "Prospectus disclosure: Improving disclosure for retail investors".

Guidance provided by ASIC in RG 228 includes:

1. Investment overview: an investment overview should be the first substantive section of a prospectus. An investment overview should highlight information key to a retail investor’s investment decision and help investors navigate a prospectus.

2. Business model: a prospectus should explain the business model of the company. This includes information about how the company proposes to make money and generate income for investors, or, if a company does not expect to make money in the short term, an explanation of the company’s short term objectives.

3. Risk disclosure: companies should ensure that key risks associated with the business, the offer and the company’s securities are highlighted. Disclosure should include key risks which are specific to the company and an explanation of what may happen if the risk occurs.

4. Clear, concise and effective disclosure: a prospectus should be clear, concise and effective. Companies should ensure that they highlight key information in an investment overview, use plain language, ensure the prospectus is as short as possible, explain any complex information such as technical terms and ensure the prospectus is easy to navigate.

5. Content of prospectuses: ASIC also provides guidance on the inclusion in prospectuses of information required by investors to assist them in making an informed investment decision. This includes financial information, experience and background of directors and key management, interests and benefits received by persons connected with the company, related party transactions and the effect of the offer on the company and the terms and conditions of the offer.

RG 228 provides general rather than prescriptive guidance. While ASIC has indicated that it will use RG 228 as a guide rather than as a checklist when reviewing prospectuses, we recommend that the guidance in RG 228 be followed as closely as possible when preparing a prospectus. Certain sections of RG 228 also apply to other disclosure documents.

If you would like further information on the practical impact of RG 228, please contact David Nolan, Partner – Corporate Advisory, on (02) 8289 5800.