ASIC updates its guidance for use of electronic disclosure documents - March 2014

ASIC has issued its updated Regulatory Guide 107 (Fund Raising: Facilitating electronic offers of securities) (RG 107) with respect to the use and distribution of electronic disclosure documents following the release of a consultation paper in July 2013.

Companies looking to raise capital quickly will benefit from an ease in compliance requirements, with this updated guidance to facilitate and encourage the use of the internet and other interactive media for making of offers of securities.

A review of these arrangements was necessitated by rapid developments in the internet and other electronic communications since the commencement of the Corporations Act 2001 (Cth).

ASIC Commissioner John Price said: ‘Investors have increasingly been using the internet and electronic devices to receive important information. We want to ensure that our policy reflects these developments and assists companies using these platforms to comply with the law.’

‘Consistent with our focus on confident and informed investors, our good practice guide aims to encourage disclosure in a way that promotes investor confidence.’

The updated guidance includes:

• an explanation of ASIC’s view on the way the internet and other electronic means can be used in making offers of securities;
• a ‘good practice guide’ to assist offerors, distributors, publishers and other parties involved in distributing offers; and
• continuation of relief for the use of personalised or Australian financial services (AFS) licensee created application forms.

Key Points

• Companies are encouraged to use electronic disclosure documentation. However, they will need to ensure that the electronic disclosure document is not materially different in content or format to the paper version and it will need to reflect the 15 principles for ‘good practice’ contained in RG 107 and found at Part D.
• Companies considering the use of electronic media to promote or distribute disclosure documents will need to remain aware of their general obligations, and the requirements of the ASX, with regards to continuous disclosure and the advertising of offers.
• Companies must keep investors’ email details up-to-date and follow-up investors by another method if they become aware that the electronic version has not been delivered.

RG 107 –Executive Summary

RG 107 now acknowledges the use and distribution of electronic disclosure documents without relief from ASIC.

However, the Corporations Act 2001 (C’th) specifies lodgement of a paper document with ASIC, which means that focus continues to remain on the paper version. It is imperative to ensure that the electronic version is not materially different in content or format to the paper version. However certain features which improve the functionality of the electronic version and assist the investor in their interaction with the document are permitted without the need for relief and ASIC encourages the use of such features.

Several key proposals from the consultation paper have been excluded from the draft version of RG 107, namely the requirement to monitor online forums (and to make corrective disclosure) and the ban on targeted pre-offer promotion. However, companies will still need to be aware of their general obligations, and the requirements of the ASX, with regards to continuous disclosure and the advertising of offers when considering the use of electronic media to promote or distribute disclosure documents.

The 15 ‘Good Practice’ Guidance Principles

To overcome certain risks that ASIC believe may arise from the use of electronic disclosure documents, RG 107 contains 15 principles for ‘good practice’ guidance aimed at encouraging, and providing assistance for, the use of electronic media. Such as:

• Method of distribution: Must enable the investor to access the disclosure document in the future, e.g. by being able to easily download, save or print the document. An example is an email or notification with an attachment (eg PDF or TIFF), a hyperlink or a reference to a website/electronic facility where the document is available. The investor should also be directed to electronically save or print the disclosure document.
• Information protection: Steps should be taken to ensure that the website is secure and an email attaching a hyperlink should specify whether the link is a secured link and that personal information will be kept confidential by the company or offeror. Companies should also ensure that appropriate firewalls and protection tools are also in place to protect investor information – provided that they do not inhibit efficient access to the disclosure document.
• Use of hyperlinks: Hyperlinks should not go directly to a generic company page. It should go to the document cover page or to a dedicated page established specifically for the document, whether directly or via a page that first confirms eligibility to participate.
• Future access: The company will need to ensure access to electronic versions for at least 2 years and retain the electronic version, a copy of the screen pages which facilitated an application being made online and a record of details used to confirm that an electronic application was received for seven years.
• Interactive functions: Electronic versions can contain immaterial differences which reflect necessary adjustments/formatting or provide improved functionality due to the electronic media being used. ASIC acknowledges that interactive functions in an electronic document can improve an investor’s engagement with the document. Examples include navigational tools such as hyperlink (but only within the document or to documents incorporated by reference), format changes to address compatibility issues, inclusion of search tools and features such as “pop ups” for defined terms. This also enables inclusion of a prompt to read the disclosure document before completing the application form. ASIC relief is required for other enhancements or use of emerging new technologies. Otherwise, the same content must be presented in the same sequence and with the same prominence as in the paper version.
• Video content: Video presentations or other content in non-text form cannot be added to the electronic version without ASIC relief, which is available if the content is consistent with that contained in the paper version. ASIC encourages companies to seek this relief and to use such presentations where it will assist investors to understand the information contained in the paper version.
• Online application forms: Application forms can be accessed and completed on-line provided that the company is satisfied, before accepting an application, that the application form was included in or accompanied by the relevant disclosure document. Application forms can be provided by way of a separate electronic document, but mechanisms must be implemented to enable verification of receipt and access to the disclosure document before accessing the application form,  using a certification process or personalised reference numbers to be inserted into the application form and which are derived from the disclosure document.
• Electronic payment: The current practice involving electronic payment processes such as BPAY, which utilise appropriate verification/identification mechanisms without delivery of a separate application form, is acceptable to ASIC, although electronic payment processes with different characteristics will require case-by-case relief.

Important Practical Issues and Steps from the Updated RG 107

ASIC also released Report 385 Response to submissions on CP 211 Facilitating electronic offers of securities: Update to RG 107 (REP 385) highlights the key issues that arose from the submissions ASIC received in response to Consultation Paper 211 Facilitating electronic offers of securities: Update to RG 107 (CP 211).

In REP 385 a number of practical issues are highlighted by ASIC, including:

• to ensure applications are not submitted based on an outdated version of the disclosure document, offerors should remove outdated documents from their website and ensure clear directions are included on their website for investors to access the current disclosure document;
• electronic application forms and electronic disclosure documents do not need to be contained in the same document (eg the same PDF);
• it is acceptable to follow industry practice of using an interactive html website to enable investors to apply for securities;
• investors should not be able to access electronic application forms without having first received and accessed the applicable electronic disclosure document;
• investors should only be provided with a hypertext link from the disclosure document to the application form after the investor has ‘accessed’ (rather than merely ‘viewed’ or ‘read’) the disclosure document;
• offerors are not required to confirm that an investor has read the document in its entirety or use additional software to monitor whether investors have done so; and
• offerors are not required to actively monitor websites or social media pages, other than their own, which contain information about the offeror.

Conclusion

In its updated RG 107, ASIC has taken a sensible, practical approach to the permitted use of the internet in the context of fund raising. The 15 ‘good practice’ principles highlight the need to do this in a careful and considered way. Companies implementing such facilities will need to keep investors’ email details up-to-date and follow-up investors by another method if they become aware that the electronic version has not been delivered.

Companies wishing to improve their utilisation of the electronic media for the distribution of disclosure documents must give consideration to the good practice principles contained in RG 107. Please feel free to contact the One Investment Group team to discuss how we may able to assist you with your capital raising objectives.