ASIC maintains a broad definition of marketing financial products and strict regulation of any breaches. These are usually based upon the type of client firms seek to induce to use their services. Before attempting to induce clients a person/firm must hold either an Australian Financial Services Licence (AFSL) or relevant exemption under s 911D of the Corporations Act 2001 (Cth) (‘the Act’). It is important to ensure that marketing activity remains within the client base established by the relevant AFSL or exemption, as exceeding this authority attracts criminal sanction. This article will outline the main restrictions on marketing financial products for small-scale exemptions, wholesale offerings, and retail offerings.
A. Offers under the Small-scale AFSL Exemption
If offering products as a small-scale offering, also known as the 2/20/12 rule, no external promotion is permitted under ss 708 and 734 of the Act. Offers must be made in person to friends, family, professional associates or someone you personally know who has shown an interest in the products. No offers can be made as a result of an unsolicited meeting or phone call. No disclosure form is needed for these personal offers to clients, although investors must be informed of the fund’s status as a small scale offering to qualify for the disclosure relief (see ASIC v Cycclone Magnetic Engines (2009) 224 FLR 50). The maximum allowed to be raised using this method is $2 million from 20 issuings within a 12 month period.
B. Marketing Financial Products for Wholesale Offerings
Wholesale investment funds are only allowed to attempt to induce wholesale clients as a condition of the AFSL or relevant exemption. Any marketing that has the potential to induce retail clients, for example holding open investment seminars (see Re Idyllic Solutions Pty Ltd; ASIC v Hobbs  NSWSC 1276), will contravene ASIC’s marketing rules. Therefore, it is important to restrict marketing to arenas where only wholesale clients can access the product. According to s 708 of the Act, disclosure statements or a prospectus are not required when marketing to sophisticated or professional investors.
C. Marketing Financial Products for Retail Offerings
The primary restrictions on firms’ marketing financial products to retail clients concern the requirement for a disclosure form or prospectus. No public statements can be made, other than so-called ‘tombstone’ announcements, of intended offers in the pre-prospectus stage under s 734 of the Act. Section 710 of the Act requires these disclosure statements to contain any information that investors would be required to make an informed assessment of:
- The rights and liabilities attached to the securities offered
- The assets and liabilities, financial position (including profits and losses), and prospects of the body issuing the shares, debts or interests
Any offer of securities must be made in, or accompanied by, a disclosure document under s 721 of the Act.
The complex rules regarding different client types and ASIC’s broad definition or marketing therefore highlight the need for a cautious approach to marketing new financial products in the Australian market. General outlines are no substitute for legal advice. If you require more information about Financial Services law check out our Resource Centre. If you have any concerns about marketing financial products in Australia please get in touch today using the form at the bottom of this page.
This article was authorised by Warwick Heeson.