Introduction

Disclosure is one of the pillars of fair, efficient and transparent financial markets. Transparency comes from effective disclosure and is a necessary pre-requisite for efficiency and fairness. Every issuer of securities must comply with all legal requirements for disclosure documents, however compliance is not always achieved. An overly technical or “tick box” compliance approach can lead to ineffective disclosure documents that potential investors cannot read or understand. This can prevent confident and informed participation in financial markets – one of Financial Markets Authority’s (“FMA”) key objectives.

FMA has released draft guidance on Effective Disclosure and is currently consulting with a wide range of stakeholders on the proposed guidance. Legal advisers have a special role to play in ensuring clients understand the legal requirements for disclosure documents and in ensuring clients understand the due diligence process for offer documents is not simply a compliance exercise. Legal advisers must make it clear to their clients that it is the client’s responsibility to ensure their documents contain true and accurate information about the offer. This requires directors to take a holistic view of the content of the documents and how they are presented.

The draft guidance does not seek to re-state the current securities law requirements for registered prospectuses and investment statements. It instead focuses on:

• The factors FMA has identified as a barrier to effective disclosure and that might make the documents misleading, deceptive or (for an investment statement) confusing such as:

- undue length of disclosure documents
- over reliance on marketing and brand information
- use of jargon or complex information
- use of templates with little regard to the circumstances of the particular offer.

• The guidance provides details on what we expect issuers to include in their offer documents and this will inform our risk based approach to surveillance and review of offer documents, post registration. Not all aspects of the guidance will be relevant to every offer, but during the course of our review, we might ask if something has not been included, why is it not included, other than matters we consider are likely to be material for particular types of issue.

• The need for disclosure documents to give a clear, truthful and balanced description of the offer as a whole.

There are benefits to all if we can achieve consistency in approach and standards of disclosure. But we want an open dialogue with key stakeholders to check we have got it right:

• Issuers and their advisers: compliance burden, costs, proposed time frames, are we addressing your key concerns, are our expectations clear?

• Consumers: have we addressed the problem areas, what have we missed?

• Financial advisers, funds managers, research analysts and other users of offer documents: have we got it right? Will the new standards help?

The full draft guidance note is available on FMA’s website: www.fma.govt.nz under “Laws we Enforce”, “Policy”, “Current consultations”. As you read this booklet, please refer to the draft guidance note to see the relevant paragraph and table references.

We encourage open discussion on the draft guidance and the questions included in the consultation paper.

Content outline

• Consultation
• Section A: Effective disclosure requirements
• Section B: Clear, concise and effective
• Section C: Key information
• Section D: Financial information
• Section E: Sector specific issues
• Disclosure issues not addressed
• Benefits and costs