Date issued: 4 October 2007

CPA Australia, Australia's largest professional accounting body, has provided a submission to the Australian Securities and Investment Commission (ASIC) raising concerns about its proposals to improve disclosure requirements for unlisted, unrated debentures. 

While welcoming ASIC's proposals in principle, CPA Australia warns against relying primarily on disclosure improvements to achieve the desired outcome of retail investors understanding the inherent risks of investing in unlisted, unrated debentures. 

ASIC's consultation paper identifies a range of significant potential risks of these types of investments and proposes that issuers of unlisted, unrated debentures be required to disclose eight relevant benchmarks for these on an 'if not, why not' basis. 

According to CPA Australia's financial planning policy adviser Kath Bowler, benchmarks are not always a reliable indicator of value and require expert knowledge to interpret. 

'Although unlisted, unrated debentures are high-risk and often complex investments, many retail investors are attracted to them because they may appear on the surface to resemble term deposits,' said Ms Bowler.

'Requiring product providers to disclose appropriate benchmarks will certainly help professional financial planners better assess such investments.  But it is unrealistic to expect individual investors to understand benchmark figures, or even read them. Indeed, in the absence of expert professional advice, providing benchmarks may inadvertently add to the impression of a safe and comfortable investment option when recent experience has certainly demonstrated otherwise.'

CPA Australia notes that ASIC is currently undertaking research among retail investors who have invested in unlisted, unrated debentures, and recommends that it await the findings before implementing any actions in respect of this area of investment.

CPA Australia emphasises that improving disclosure is only one element of assisting retail investors make better investment decisions. While retail investors must take responsibility for their investment decisions and ensure that they seek further information or professional financial advice where appropriate, ASIC, professional financial planners and credit ratings agencies also all have a role to play.

To view CPA Australia's submissions on this and other topics, please visit the advocacy section of the website.

Media enquiries