A Guide to Product Disclosure Statement (PDS) Requirements & ASIC RG 168

Introduction

Issuing a financial product to retail clients in Australia involves significant disclosure obligations, governed primarily by the Corporations Act 2001 (Cth). The central requirement is the provision of a Product Disclosure Statement (PDS), a crucial document that must provide consumers sufficient information to make an informed decision before purchasing a financial product.

For any business that issues a financial product, preparing a compliant PDS is a fundamental obligation. This guide offers practical guidance on navigating the PDS requirements as detailed in the Australian Securities and Investments Commission’s (ASIC) Regulatory Guide 168 (RG 168), ensuring your disclosure documents are clear, concise, and effective.

What is a Product Disclosure Statement (PDS) & Why is it Important?

The Purpose of a PDS for Retail Clients

A PDS is a legal document required under the Corporations Act 2001 (Cth). Its primary purpose is to provide retail clients with sufficient information to make an informed decision before purchasing a financial product.

This disclosure document is prepared by, or on behalf of, the issuer or seller of the financial product. The broad objectives of a PDS are to help consumers:

• Understand the financial product’s features
• Compare different financial products effectively
• Make informed decisions about their financial purchases

To achieve these goals, the statement must clearly outline the significant benefits, risks, costs, and key features associated with the product. By presenting this essential information upfront, a PDS aims to create transparency and build consumer trust in the financial services sector.

ASIC’s Good Disclosure Principles

ASIC has established six “Good Disclosure Principles” in its RG 168 to guide businesses in preparing an effective PDS. These principles are designed to improve the quality of disclosure and help consumers make better financial decisions.

ASIC’s principles for a good PDS are:

Principle	Description
Timely Disclosure	The PDS should be provided to consumers with enough time for them to read and consider the information before they apply for the financial product.
Relevant & Complete Disclosure	The information must be relevant to the decision of whether to acquire the product and should cover all key areas, including significant benefits, risks, costs, and dispute resolution procedures.
Promote Product Understanding	The PDS must be worded and presented in a clear, concise, and effective manner, using plain language and avoiding jargon.
Promote Product Comparison	The document should be structured in a way that makes it easier for consumers to compare similar financial products or different options available under one product.
Highlight Important Information	Key information, such as warnings, unusual product features, and significant risks or costs, should be given prominence to ensure consumers do not miss critical details.
Regard for Consumers’ Needs	The person preparing the PDS should consider the information needs of the target audience, which may involve consumer testing or incorporating feedback to improve clarity.

When is a PDS Required?

Recommendations to Acquire a Financial Product

Under the Corporations Act 2001 (Cth), a regulated person must provide a retail client with a PDS at or before the time they make a recommendation to acquire a financial product. This obligation ensures that the client receives all necessary information to make an informed decision based on the advice provided.

This requirement applies when personal advice is given that includes a specific recommendation to purchase a particular financial product. The PDS must be:

• Up-to-date
• Presented in a clear, concise, and effective manner
• Designed to allow the client to understand the product’s features, benefits, and risks before acting on the recommendation

Offers to Issue or Sell a Financial Product

A business also has a disclosure obligation to provide a PDS when it makes an offer to issue a new financial product to a retail client. This requirement ensures that potential customers have access to essential product information before they apply for or purchase the product.

The PDS must accompany or be provided before the application form. This obligation extends to situations involving an offer to sell a financial product, particularly in circumstances known as secondary sales.

These rules are designed to prevent financial products from being issued to wholesale clients and then quickly sold to retail clients to bypass the standard disclosure obligations. For some products, like general insurance, even providing a quote may be considered an “offer to issue,” triggering the requirement to provide a PDS.

Core Content Requirements for a Compliant PDS

Significant Benefits & Risks

A compliant PDS must provide a balanced view of the financial product, detailing both its significant benefits and its key risks. This information is crucial for retail clients to make informed decisions and must be presented with similar prominence to avoid creating misleading impressions.

The disclosure obligations under the Corporations Act 2001 (Cth) require this information to be relevant, complete, and easy to understand. According to ASIC guidance in RG 168, the PDS should clearly outline:

Content Area	Required Disclosure
Potential Advantages	The significant benefits a consumer might gain from purchasing or using the financial product.
Key Associated Risks	Any market, legal, or financial risks that could materially impact the client’s decision.
Explanation for Complex Products	For financial products not well understood by consumers, a sufficient explanation of risks to ensure clients understand how they work.
Details of Guarantees	If a product is described as ‘guaranteed,’ an explanation of the nature and extent of that guarantee, who provides it, and the likelihood of it not being met.

Fees, Costs & Significant Tax Implications

The PDS must transparently disclose all costs associated with the financial product. Information about fees and charges is a primary consideration for consumers, and ASIC guidance emphasises that this disclosure must be clear, concise, and effective to help clients understand what they will pay.

A compliant PDS document must include comprehensive details on:

Disclosure Requirement	Description
All Applicable Costs	All fees, charges, expenses, and commissions related to the financial product.
Payment Details	Who the fees are paid to, what they are for, and how and when they are paid.
Impact on Returns	How the various fees and costs will affect the investment’s returns.
Fee Variability	If fees are subject to change, an explanation of how and when they might vary.
Significant Tax Implications	Information about any significant tax consequences associated with acquiring and holding the financial product.

Key Features & Dispute Resolution

Beyond benefits, risks, and costs, a PDS must describe the significant characteristics of the financial product and provide essential administrative information. This ensures that clients understand the product’s operational details and know how to seek recourse if problems arise.

These details are a core requirement and cannot be omitted or merely incorporated by reference from another document. This section of the PDS must clearly present:

Required Information	Details
Significant Product Features	A description of the product’s key characteristics, including important terms, rules, or limitations.
Issuer and Contact Details	The name and contact information for the issuer of the financial product.
Dispute Resolution System	Information about the dispute resolution system that covers complaints from product holders.
Access to Dispute Resolution	An explanation of how clients can access the dispute resolution process.
Cooling-Off Period	Information about any applicable cooling-off regime that allows clients to reconsider their decisions.

Ensuring a Clear, Concise & Effective PDS

Using Plain Language & Avoiding Jargon

Under section 1013C(3) of the Corporations Act 2001 (Cth), all information in a PDS must be worded and presented in a clear, concise, and effective manner. Adhering to this requirement serves two important purposes:

• It helps your business meet its disclosure obligations
• It promotes genuine product understanding among retail clients

ASIC may issue a stop order for a PDS that fails to meet this standard, a common trigger for an AFSL investigation, which could significantly impact your business operations.

To enhance clarity in your PDS document, consider these key strategies:

• Use plain language and avoid industry and legal jargon wherever possible
• Clearly explain technical terms when they are necessary, perhaps through a glossary
• Incorporate simple, practical examples to illustrate complex points

The complexity of the financial product itself can create barriers to consumer comprehension. For products that are not generally understood by consumers, such as new or particularly complex offerings, a greater level of disclosure is necessary.

It is also important to avoid including extraneous material, like advertising, which can distract from the essential information and potentially mislead consumers.

Structuring a PDS for Comparison & Understanding

The structure of a PDS plays a crucial role in helping consumers understand the financial product and compare it with other options. A well-organised document makes it easier for clients to assess competing products or evaluate different features available under a single product.

To achieve this, ASIC encourages the use of various communication and structural tools in your PDS. These include:

• Visual aids: Incorporating tables, diagrams, and graphs can help explain complex information more effectively than text alone
• Navigational tools: A table of contents and clear signposting throughout the document allow consumers to find specific information quickly and efficiently

When presenting information designed to help with comparison, it should be clearly identified so that consumers recognise its purpose. For instance, if a consumer has the option to pay fees in two different ways, the PDS could include a table comparing the relative charges for each option over several years.

Updating a PDS with a Supplementary Document

Correcting Misleading Statements or Omissions

A Supplementary Product Disclosure Statement (SPDS) is a document used to correct misleading or deceptive statements or material omissions in an existing PDS. Under section 1014A of the Corporations Act 2001 (Cth), the person who prepared the original PDS can issue an SPDS to ensure the information provided to retail clients remains accurate and compliant.

When a PDS is found to be defective, the responsible person must cease processing applications. They must then either:

• Issue an SPDS or a new PDS to the applicant, providing a one-month window for them to withdraw their application and receive a refund.
• Refund any money received from applicants.

An SPDS is designed to be read alongside the original PDS. In some situations, issuing an entirely new or Replacement PDS (RPDS) may be a better alternative than issuing a supplementary document, especially if the changes are extensive.

Updating Information in the Original PDS

An SPDS is also the mechanism for updating information that has changed since the original PDS was issued. This ensures that the product disclosure provided to consumers is always current, reflecting the most up-to-date details about the financial product.

However, an SPDS cannot be used for every type of PDS. For financial products subject to a tailored disclosure regime that mandates a maximum page length, such as a Shorter PDS, an SPDS is not permitted. If information in these documents needs to be corrected or updated, the responsible person must issue an entirely new PDS.

Navigating the ASIC Lodgement & Notification Process

Lodging a PDS with ASIC

Not every PDS needs to be lodged with ASIC before it is used. The requirement for pre-lodgement is reserved for specific types of financial products to allow for regulatory oversight before they are offered to consumers.

Under section 1015B of the Corporations Act 2001 (Cth), a PDS must be lodged with ASIC before its release if it is for:

• A managed investment product that states or implies it will be able to be traded on a financial market
• Securities in a sub-fund of a Corporate Collective Investment Vehicle (CCIV) that are intended to be traded on a market
• Products related to Australian passport funds or foreign passport funds

Once lodged, there is typically a 7-day exposure period before the financial product can be issued. This period allows ASIC to review the document for any compliance issues.

In-Use Notices & Other Notifications

For the majority of financial products that do not require pre-lodgement, there is a separate notification process. Instead of lodging the PDS beforehand, the responsible person must notify ASIC after the PDS is already in circulation. This is known as an “in-use notice.”

This notification must be provided to ASIC:

• As soon as practicable
• No later than five business days after the PDS is first given to a retail client

This is done by lodging a Form FS88 PDS in-use notice through ASIC’s online portals.

There are also ongoing notification obligations for a PDS that is in use. You must notify ASIC of specific changes using the appropriate forms:

ASIC Form	Purpose
Form FS89	Used to notify ASIC of a change to the fees and charges detailed in the PDS.
Form FS90	Used to notify ASIC when a financial product covered in the PDS is no longer available.

If other material changes are made to a PDS, such as correcting a misleading statement or adding previously omitted information, this effectively creates a new PDS. In this situation, a new Form FS88 must be lodged with ASIC.

Minor updates, like correcting typographical errors or making small formatting changes, are considered immaterial and do not require a new notification.

Conclusion

Preparing a compliant PDS is a critical obligation for any business issuing a financial product to retail clients, governed by the Corporations Act 2001 (Cth) and ASIC’s RG 168. This involves meeting core content requirements, ensuring the document is clear and effective, and adhering to specific processes for updates and lodgement with ASIC.

Navigating these detailed disclosure obligations requires careful attention to legal and regulatory standards. For expert guidance on preparing and maintaining a compliant PDS, contact the specialists at AFSL House to ensure your disclosure documents meet all requirements.

Frequently Asked Questions (FAQ)