Speaking at the Stockbrokers Association of Australia annual conference in Melbourne last week, Mr Medcraft said hybrids are a “good example of financial innovation-driven complexity in products”.
“There are many reasons why ASIC has proactively focused on the sale of hybrids,” he said.
“A key reason is the potential for misleading conduct – for example, when promoters spruik the returns of hybrids without being upfront about the risks,” said Mr Medcraft.
The regulator is currently reviewing the promotional material issued by market participants for issues of hybrids, he said.
“To date, we have found some promotional material that did not include a balanced disclosure of features and risks. This has been disappointing,” said Mr Medcraft.
Specifically, ASIC has identified inadequate disclosure of risk; disclaimers that were not sufficiently prominent; hybrids being referred to as stocks or shares; and hybrids being classified as fixed income in a way that may be misleading, he said.
“The entities we have engaged with about their promotional material have been receptive to our recommendations,” said Mr Medcraft.
“Where issues were identified, they have implemented changes. This has avoided the need for ASIC to take enforcement action,” he said.
