A review of ‘capital protected’ and ‘capital guaranteed’ retail structured products by the Australian Securities and Investments Commission (ASIC) found the labelling of some products is “confusing or potentially misleading”.
Such messages are likely to lead consumers to believe they have no chance of losing their capital, said ASIC at the time.
ASIC said in May it had written to a “number of issuers” about the issue “resulting in amended promotional materials”.
In a statement released yesterday, the regulator highlighted two particularly egregious claims that have since been amended.
A CBA flyer for a ‘protected loan’, which claimed that investors could ‘walk away with no loss’, compared investing $100,000 directly in listed shares with using a $100,000 protected loan to buy the same shares.
But the comparison in the flyer did not take the interest costs associated with the loan into account, according to ASIC.
“Warnings that outlined returns may be negative because of interest costs were not prominent enough, appearing at the end of the [CBA] booklets,” said ASIC.
HSBC was taken to task by ASIC for including “inappropriate” materials on its website about certain structured products.
“HSBC claimed that its structured products were suitable for 'traditional deposit investors looking for a way to enhance their returns through exposure to financial markets, but are unwilling to put their capital at risk should the market not perform as expected’,” said ASIC.
ASIC said the HSBC statement was “inappropriate and potentially misleading due to the risk of capital loss with certain HSBC structured products being promoted”.
ASIC deputy chairman Peter Kell said advertisements that create unrealistic expectations about a product’s features are “unacceptable”.
“Ads must not be misleading as to a product’s nature or features, and appropriately outline the risks to investors. Our regulatory guidance clearly states the impact of fees and costs should not be hidden or difficult to understand,” he said.
