New Zealand legislation guide
By David Flacks and Debbie Wong
Bell Gully
Tel: +64 9 916 8800 Fax: +64 9 916 8801 Website: www.bellgully.com
In the wake of the global financial crisis, the New Zealand Government has sought to restore investor confidence in New Zealand’s financial markets by implementing a suite of significant legislative reforms. The recent establishment of the Financial Markets Authority (FMA) and related legislative changes represent significant reforms to the regulatory framework for New Zealand capital markets.
Establishment of FMA
On May 1 2011, the FMA took over the functions of the Securities Commission, the Government Actuary and the Commissioner for Financial Advisers, and certain functions of the Ministry of Economic Development and the Registrar of Companies.
The FMA is seen by the New Zealand Government as a key element in the process for rebuilding trust and confidence in the financial markets and has been brought in ahead of the Government’s wider overhaul of New Zealand’s securities laws (not expected to be completed until 2013).
The FMA has been armed with new regulatory tools not previously available to its predecessors to meet that challenge, including:
• the power to initiate or take over civil actions on behalf of investors and issuers (provided that it would be in the public interest, is an appropriate use of resources, and if individuals do not object);
• powers to deal with unsolicited offers to purchase securities; and
• more comprehensive investigatory powers.
We expect the FMA to play a pro-active role in New Zealand’s financial markets.
Changes to Securities Act
A number of amendments to the Securities Act 1978 became effective on May 1 2011, including:
• A new registration regime for prospectuses. Under this new regime, there is a consideration period of five working days following registration of the prospectus during which FMA, at its discretion, has the opportunity to review the prospectus. During this time the issuer cannot allot securities or accept applications.
• A Register of Securities Offers. The register will provide a centralised website for disclosure documents, with search functions designed to facilitate comparisons between securities offers for the public, including financial advisers and investors.
• Changes to the exemption regime. The changes should streamline the process for issuing individual exemptions made by the FMA.
• New criminal liability for issuers if they deliver a prospectus for registration (or an amendment for registration) that does not comply with certain requirements.
• An extension of the time limit from two to three years for applying for civil remedies.
Financial Markets Conduct Bill
On August 9 2011, the Ministry of Economic Development released an exposure draft of the Financial Markets Conduct Bill (FMC Bill), which is to replace the Securities Act 1978 and Securities Markets Act 1988. The FMC Bill will implement a new ‘one-stop shop’ for securities law and represents a fundamental redesign of New Zealand’s securities laws. Commerce Minister Simon Power has announced that he intends to introduce the FMC Bill to Parliament before the parliamentary election on November 26 2011.
Key aspects of the FMC Bill are:
• regulated financial products will be categorised as equity securities, debt securities, managed investment products and derivatives – based on the economic substance of the financial product, not just its legal form;
• the offer process is to be modelled more closely on the equivalent Australian legislation;
• the requirement for issuers to prepare a prospectus and investment statement will be replaced with a requirement to prepare a single product disclosure statement tailored to retail investors;
• safe-harbours will be changed so that there are more ‘bright line’ tests (for example, there are exclusions for offers to wholesale investors, close business associates and for small offers) and issuers will be able to rely on self-certification by wholesale investors that they are exempt;
• issuers will have duties to make certain ongoing disclosures;
• there will be enhanced governance requirements for regulated offers of debt securities;
• a common set of governance requirements will apply for all managed investment schemes;
• persons who act as a manager of a registered scheme, a provider of a discretionary investment management scheme, a derivatives issuer under regulated offers or an independent trustee of a restricted scheme must be licensed;
• a modified liability framework – with a policy decision that criminal law will be reserved for conduct where there is knowing or reckless behaviour – and greater use of civil remedies;
• additional powers will be granted to the FMA, such as the power to designate financial products and make ‘no action’ statements;
• the current regulatory regime for exchanges will be replaced with a licensing regime for significant non-wholesale markets; and
• current legislation relating to aspects such as insider trading, market manipulation, substantial security-holder disclosure and continuous disclosure are largely unchanged.
The Ministry has noted that some aspects of the FMC Bill have not been fully developed as yet, and much of the technical detail (such as the content requirements for disclosure documents) for the new regime will be contained in regulations. The Bill is expected to be passed in late 2012 and will be brought into force in 2013.