ASIC concerns prompt banks to change promotional materials

Investment banks Credit Suisse Investments Services (Australia) Limited and UBS AG (Australia branch) have changed their promotional materials for complex financial products following ASIC concerns that they were potentially misleading.

Boutique structured products investment manager Instreet Investment has also made changes to its materials promoting a product issued by UBS following similar ASIC concerns.

The actions come after ASIC earlier this year raised issues with Commonwealth Bank and HSBC Bank ads for certain retail structured products (refer to our previous Alert)

‘Today’s outcome should provide further encouragement for industry to take a strong role in ensuring ads and product labeling help consumers make confident and informed decisions,’ ASIC Deputy Chairman Peter Kell said.

ASIC was concerned that Credit Suisse’s and UBS’ use of the terms ‘contingent capital protection’ and ‘conditional protection’, respectively, in their promotional material for ‘capital at risk’ structured products, was inappropriate.

The materials could be downloaded from the companies’ websites, and were also provided to consumers by third party financial advisers. Following ASIC’s concerns, the banks dropped the terms.

‘Words like “protection” imply a level of safety that is inconsistent with the nature of these structured products,’ Mr Kell said. Investors generally bear the downside risk of the product’s worst performing reference share, when any of these reference shares falls below a “knock in” price. The yield paid to investors to take on this risk may seem attractive, but as pointed out by ASIC released earlier this year some recent “reverse convertibles” had lost up to 70% of their original value by maturity.

‘Investors in these products have limited or no exposure to the positive performance of shares when prices rise, but downside risk in a falling market, often concentrated to the product’s worst performing reference share. In this context, any product labels or descriptions that imply investors’ money in such products is “protected” or “safe” are highly problematic,’ Mr Kell said.

Instreet Investment, which distributes a structured product issued by UBS, removed materials from its website that claimed the investment offered ‘conditional protection’, and stopped distributing the materials through financial  advisers.

ASIC acknowledges the cooperative approach taken by Credit Suisse, UBS and Instreet Investment in these matters and their prompt actions to rectify the materials.