Australia: ASIC review leads to a re-think on ratings disclosure

ASIC Information Sheet 99

ASIC Information Sheet 99 (I.S 99) was released on 8 February 2010. I.S 99 explains how the type of Australian Financial Services Licence (AFSL) authorisation a CRA holds may now determine when ratings may be disclosed.

I.S 99 follows from Consultation Paper 117 ASIC released in September 2009, which called for submissions to consider whether or not to withdraw class order relief allowing issuers to cite credit ratings in a disclosure document or Product Disclosure Statement (PDS) without the consent of the CRA.

In accordance with s716(2) and 1013K of the Corporations Act, an issuer can only cite a rating in a retail prospectus or PDS if the CRA has provided consent to its use. I.S 99 explains that the form and context of a citation must be specifically consented to by the CRA and that all previous broader relief is withdrawn.

Accordingly, as Standard & Poor's (Australia) Pty Limited, Moody's Investors Service Pty Limited and Fitch Australia Pty Limited each hold an AFSL with wholesale authorisation only, they are precluded from consenting to issuers using their ratings in:

"any manner that could reasonably be regarded as being intended to influence a retail client in making a decision in relation to a particular product or class of financial product."

The practical effect is that, given s716(2) and 1013K, issuers will have to remove ratings from their disclosure documents and PDSs.

Although there is arguably uncertaintly in respect of mere 'brand marketing' and prior general consent, the intention in I.S 99 is reasonably clear; going forward, as required by law and, in any event, by 30 April 2010 all issuers should have reviewed and amended their documents (including PDSs) in accordance with the requisite consent requirements.

What this means for general insurers

If you refer to a credit rating in your PDSs, time is limited to remove such references or to lobby your CRA to obtain retail authorisation and consent to disclosure in the specific context of your PDSs. If CRA's are unable to obtain a retail authorisation, one might query the benefit of receiving a rating if it is unable to be disclosed.

PDSs in respect of products already issued should not require amendment (i.e. no supplementary PDS required) as the decision whether to acquire the financial product has already been made.

Recent proposed changes in the Corporations Amendment Regulations 2010 (see gadens lawyers January 2010 update here) could, if passed, also be addressed in conjunction with the removal of credit rating references required by 30 April 2010.

For more information, please contact: