This book is only available in PDF format

Published: 30 October 2013
Pages: 42

Introduction

The Financial Markets Conduct Act 2013 (FMCA or Act) has been described as a ―once in a generation‖ rewrite of securities law¹.

The authors consider this a fair description. The reforms fundamentally reshape the way New Zealand securities offerings and capital markets operate. The FMCA will:

• repeal the 35 year old Securities Act 1978

• repeal the 25 year old Securities Markets Act 1988

• repeal the Unit Trusts Act 1960

• repeal the Superannuation Schemes Act 1989

• re-enact most of Part 4 of the KiwiSaver Act 2006

• substantially rewrite the Financial Advisers Act 2008 discretionary investment management service (DIMS) provisions,

• and turn many accepted practices on their head. Practitioners will need to become familiar with new concepts and terminology.

The Glossary at the end of this paper identifies some of the key new terms. The Sources of Further Information also at the end of this paper provides additional reference information.

Key changes in the FMCA:

• Replace the requirement for issuers to prepare a prospectus and investment statement with a requirement to prepare a single product disclosure statement tailored to retail investors, with other material information lodged online, in a new Register of Offers of Financial Products.

• Establish licensing regimes for specific financial sector participants: fund managers, discretionary investment management service providers, independent trustees of workplace superannuation schemes, derivatives dealers, and crowd-funding and peer-to-peer lending intermediaries.

• Introduce stricter requirements for managed investment schemes, including new duties on fund managers and supervisors and stronger governance requirements.

• Expand the opportunities to raise capital without compliance with a disclosure regime, especially for smaller and non-retail offers.

• Transfer responsibility for regulating general fair dealing from the Commerce Commission to the Financial Markets Authority for almost all financial services and products (even if not otherwise regulated under this Act).

• Modify the liability framework for breaches of the law. The FMCA introduces primary liability for issuers, rather than focusing solely on directors. Most breaches of the law now covered by criminal sanctions will, in the majority of cases, incur liability for civil pecuniary penalties of up to $5 million for companies and $1 million for individuals.

• For criminal liability, a system of escalating liability from infringement notices for minor breaches through to criminal penalties of up to 10 years‘ imprisonment and fines of up to $1 million for individuals and $5 million for companies for the most egregious conduct. Criminal convictions all require proof of mens rea.

• Increase the maximum period for prohibition by the Financial Markets Authority (FMA) or the Registrar of Companies of a person from managing a company from 5 years to 10 years, and allowing the High Court to impose orders for an indefinite period.

• Modify the system to license and regulate financial product markets.

This paper, and the associated webinar, provide an overview to some of the features of the new law, with a focus on those having more immediate application. Subject to availability of exposure drafts, the webinar will also highlight further progress in developing the detail of the regulations that will underpin the Act.

_______________________

¹ Hon Simon Power, Media Release 12 October 2011 http://www.beehive.govt.nz/release/once-generation-rewrite-securities-law-introduced
 

Content outline

• Implementation timeframe for the new law
• Scheme of the FMCA
• Part 1: Preliminary
• Part 2: Fair dealing
• Part 3: Disclosure of offers of financial products
• Part 4: Governance of financial products
• Part 5: Dealing in financial products on markets
• Part 6: Licensing and other regulation of market services
• Part 7: Financial reporting
• Part 8: Enforcement, liability, and appeals
• Part 9: Regulations, transitional, provisions, and miscellaneous provisions
• Schedule 1: Provisions relating to when disclosure is required and exclusions for offers and services
• Schedule 2: Registers
• Schedule 3: Schedule 3 schemes
• Schedule 4: Transitional provisions