Jurisdiction - Australia
Australia – ASIC Releases Reports On Capital Protected Products.

12 May, 2013


Legal News & Analysis – Asia Pacific – Australia – Regulatory & Compliance


On the 1st May, ASIC released two reports relating to ‘capital protected’ and ‘capital guaranteed’ investment products:

These reports update and supplement Report 201 which was issued almost three years ago and which we reported on in our article ‘ASIC releases report on structured products disclosure’. (ASIC releases report on structured products disclosure).

These reports echo, and are a timely reminder of, a number of the themes from Report 201 and confirm that capital protected and capital guaranteed structured products remain on ASIC’s radar. Structured product issuers and advisers should familiarise themselves with these reports, and revisit their use of ‘protected’ or ‘guaranteed’ labels, particularly where the protection or guarantee is subject to conditions.

What was ASIC’s ‘health check’?

ASIC usually describes its activities as ‘enforcement actions’, ‘surveillances’ and the like, so some might wonder what a ‘health check’ is. To explain this terminology, ASIC describes its project as involving:

  • a market review;
  • risk identification;
  • qualitative investor research;
  • reviewing a sample of retail investor complaints; and
  • ‘identifying current practices in the labelling, description and promotion of, retail structured products.

What are the key issues identified in the health check?

The key findings from the ‘health check’ are that ASIC believes:


the terms ‘capital protected’ and ‘capital guaranteed’ are inconsistently applied and misunderstood by investors

those terms create a perception of safety and influence investment decisions, especially where the protection is provided by a trusted bank or large financial institution

where there are significant qualifications or conditions on the protection, labelling the product as protected or guaranteed may be inappropriate

  • additional risks arise where:
  • structured products retain the branding of an investment bank or financial institution and the issuer is a separate and unrelated company; and
  • the issuer is a SPV which may have little financial substance, may not produce financial reports and may not have an AFSL


capital protected structured products may involve ‘significant potential’ for investors to lose money

lengthy and complex disclosure documents may not be read in their entirety or may be hard to understand and it can be difficult to overcome the information asymmetries between issuers and investors

the opaque and complex nature of structured products can render their features and risks difficult for retail investors to understand


labelling and brand recognition may distract investors from investigating the underlying risks and appreciating the risk/return profile of the investment

research shows that investors often pay little attention to disclosure documents and are heavily influenced by terms such as ‘protected’ or ‘guaranteed’

  • consumers are heavily influenced by advertising and promotion in relation to financial services
  • inappropriate promotion has occurred where risks have been understated, jargon has been used, labelling has misled or case studies illustrated only positive performance

PDS content

some risks are extremely difficult for retail investors to understand and assess eg in relation to circumstances triggering early maturity

  • Issuers are encouraged to disclose:
  • the proportion of funds invested to create the capital protection (eg in zero coupon bonds) and the proportion invested in riskier assets 
  • the risk in relation to the time value of money, supported by a simple example


    • the likelihood of the risk occurring, so that investors can assess the weight to apply to the risk in decision-making
    • there needs to be more consistency between the PDS and the marketing material


ASIC’s next steps

In a change of approach from Report 201, ASIC’s next steps from the ‘health check’ are:

  • finalising its review of a sample of advice files
  • further enforcement action and surveillances, individual feedback to licensees, and a public report about ASIC’s advice review findings
  • contacting product issuers and distributors about its concerns in relation to advertising and promotion.

These reports, and ASIC’s next steps, confirm that ASIC is maintaining its regulatory interest in capital protected structured products.



For further information, please contact:

Fiona Smedley, Partner, Herbert Smith Freehills

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