Comment Letter

July 24, 2000

Ms. Dhammika Amukotuwa
Principal Lawyer
Regulatory Policy Branch
Australian Securities and Investments Commission
GPO Box 9854
Melbourne VIC 3000
Australia

Dear Ms. Amukotuwa:

The Investment Company Institute¹ appreciates the opportunity to comment on the Commission's policy proposal regarding the operation of Internet discussion sites (IDS). The Commission's proposal would require a facility that provides for the exchange or dissemination of information, opinions, and advice about securities on an IDS either to obtain a license to engage in "investment advice business" or to operate under the proposed guidelines.

The proposed guidelines would require an IDS operator to provide certain disclosures and warnings to (1) persons viewing the information, opinions, and advice posted on an IDS and (2) persons making or altering the postings. In addition, the guidelines would require an IDS operator, among other things, to certify to the Commission that it has reasonably adequate procedures and mechanisms to identify properly persons making or altering postings on the IDS, monitor misleading or deceptive activities, withdraw the right of persons making postings who appear to be engaging in illegal activities, notify the Commission of any complaints, and archive and maintain certain information regarding the IDS.

The Institute understands the Commission's concern regarding the potential for fraud and deceptive activities on the Internet, which have the prospect of reaching a large audience. Because this policy proposal appears to address a particular type of Internet activity-discussion sites operated by persons generally not otherwise regulated under the securities laws, we seek clarification about the policy ASIC would apply to mutual fund web sites. Specifically, we seek clarification that the Commission's 1999 Policy Statement regarding the offers of securities on the Internet is not affected by the proposed position on IDS.²

Many US mutual fund organizations have web sites, which are used to provide information to the public and to communicate with shareholders in the United States and other jurisdictions where funds are selling shares. These web sites, however, also are viewable in countries where mutual fund organizations have no intention of marketing shares of their funds. Accordingly, Institute members have a strong interest in assuring that a mutual fund organization is not subject to regulation in a country merely because its web site can be viewed by investors in that country.

In the Commission's 1999 policy statement on securities web sites, the Commission took the position that it will not regulate offers, invitations, and advertisements of securities on the Internet that are accessible in Australia if there is no misconduct and the offer, invitation, or advertisement: (1) is not targeted at persons in Australia; (2) contains a meaningful jurisdictional disclaimer; and (3) has little or no impact on Australian investors.

We believe that this position of the Commission, which is similar to the approach taken by IOSCO and the US Securities and Exchange Commission regarding securities web sites, strikes an appropriate balance between protecting Australian investors and the territorial scope of ASIC's regulatory authority.

In contrast, ASIC's proposal on Internet discussion sites would appear to assert jurisdiction over a mutual fund web site that included a discussion site whether or not the mutual fund organization intended to market fund shares in Australia. We urge the Commission to reconsider the proposal and to apply the approach it took to securities web sites to Internet discussion sites. In applying this approach, a mutual fund web site that included a discussion site, therefore, could rely on the compliance of its web site with the Commission's 1999 guidelines and would not need to make further alterations of its discussion site. We believe this approach, which is consistent with IOSCO's approach, would apply appropriately the Commission's authority to those instances where there are investor protection concerns in Australia.

We appreciate the opportunity to comment on the proposed policy paper. We would be happy to provide additional information or clarification of our views.

Sincerely,

Jennifer S. Choi
Assistant Counsel

¹The Investment Company Institute is the national association of the U.S. investment company industry. Its membership includes 8,084 open-end investment companies ("mutual funds"), 479 closed-end investment companies and 8 sponsors of unit investment trusts. Its mutual fund members have assets in excess of $6.8 trillion, accounting for approximately 95% of total industry assets, and over 78.7 million individual shareholders.

²ASIC Policy Statement 141 Offers of Securities on the Internet (1999).