The Government's financial sector reform programme took a further step forward on 17 March 2011, with the announcement of Cabinet's decisions on the review of New Zealand's securities laws.
The release clarifies the likely timing of changes. Public consultation drafts of new securities legislation are expected in August 2011. The legislation will be formally introduced to Parliament by the end of 2011. It is likely that the new regime will only come into effect later in 2012, given the general election scheduled for November.
Cabinet's decisions broadly track the preferred options put forward in the consultation paper issued last year. Of note:
- the four categories of regulated financial product (equity securities, debt securities, collective investment schemes and derivatives) have been retained, with the Financial Markets Authority (FMA) having powers to designate a product into a category on a substance over form basis;
- a single "product disclosure statement" (PDS) will be required for public offers, in place of the current prospectus and investment statement. The form of the PDS will be heavily prescribed for standardised products;
- an exemption along the lines of the Australian "small investor" exemption will be introduced. The exemption will cover offers of equity and debt securities of non-property companies raising no more than $2 million in a 12 month period from 20 or less investors, with a cap of $100,000 per investor;
- offers of securities to "sophisticated investors" will be exempt from all regulatory requirements other than statutory liability for false and misleading statements. Qualification as a sophisticated investor will be based on bright-line tests;
- the current rules restricting pre-prospectus publicity will be replaced with a general requirement that securities advertisements must not contain anything likely to deceive, mislead or confuse in relation to matters material to an offer;
- collective investment schemes will be free to adopt any legal form, but will be subject to a common set of legal requirements. Schemes will require a manager and external supervisor, fund assets must be held by an independent custodian and there will be fixed requirements for constitutional documents; and
- a range of powers, in addition to those proposed in the Financial Markets (Regulators and KiwiSaver) Bill, are recommended for the FMA to bring criminal proceedings for alleged breaches of certain directors' duties.