Earlier this month, the Minister of Commerce announced further Cabinet decisions on regulations required for the implementation of the Financial Markets Conduct Act 2013 (FMCA). A copy of the Cabinet paper and the Minister’s press release are available here.
Some of the key decisions include:
Disclosure decisions for the PDSs and offers register requirements for financial products
PDS and KIS length limits: Cabinet has agreed that there should be fixed length restrictions for Product Disclosure Statements (PDSs) as proposed in the FMC (Third Exposure Draft) Regulations (draft regulations). However they have decided to extend the lengths proposed for the key information summary (KIS) in the PDS for offers of equity securities from two to four pages and for the KIS in the PDS for offers of debt securities from two to three pages.
Financial information: Cabinet has also confirmed the proposed financial information requirements for the PDSs and offer registers outlined in the draft regulations. This includes requiring the PDS to contain selective financial information only, with the full financial statements to be available on the offers register.
Material contracts: In response to submissions, Cabinet has agreed that there is no need for a requirement that material contracts referred to in the PDS should be available to view on the offers register (as proposed in the draft regulations). Instead it will be sufficient to provide a summary of the key terms of material contracts on the offers register to the extent that they are not already summarised in the PDS.
PDS for debt securities: Cabinet has also confirmed that PDSs for offers of debt securities will be required to include a diagram to provide investors with a visual description of the relative ranking of the debt securities on offer. This diagram will be accompanied by a clear explanation that the diagram is a point-in-time snapshot, to avoid misleading investors. The PDS will also need to state whether higher ranking instruments will be able to be issued at a later point in time.
Managed funds PDSs: To address any problems with page limits where a number of funds are offered by schemes, Cabinet has agreed that the periodic fund updates will be able to be used as a separate supplement to the PDS containing scheme information.
Additional decisions for simple deposit products offered by NBDTs
Non-bank deposit takers (NBDTs) will be able to offer simple deposit products (e.g. call debt securities, credit union term deposits and other credit union savings accounts) under a PDS based on a shorter version of the debt securities PDS. This will be publicly available, but only be required to be given to investors on request. Instead, investors will be given a new credit risk statement, which is to include the NBDT’s credit rating and will refer to the availability of the PDS.
Additional decisions on exemptions for quoted financial products
Cabinet has decided to extend the existing disclosure exemption for offers of quoted financial products (in clause 19, Schedule 1, of the FMCA) to include offers of debt securities which have different terms to the issuer’s existing debt. The existing exemption only applies where the debt securities on offer are identical to the existing quoted debt securities other than in respect of interest rates and redemption dates.
Further decisions on the governance and supervision of financial products
Custodians of managed investment schemes will have obligations consistent with those applying to custodians under the Financial Advisers (Custodians of FMCA Financial Products) Regulations 2014, with appropriate modifications
Cabinet has confirmed that the full governance regime under the FMCA is not appropriate for cash and term PIEs. Instead these products will have equivalent obligations that apply to them currently under the Unit Trusts Act 1960 (i.e., they will be required to have an independent licensed supervisor, the core duties to investors applicable for registered schemes and a governing document).
Further decisions on transitional arrangements
Derivative issuers: Cabinet has agreed that derivative issuers who are currently authorised futures dealers should have until 1 May 2015 to adopt the new PDS and financial adviser requirements, or until 1 December 2015 if offer documents are already required under their licence conditions (or an earlier date agreed with the Financial Markets Authority).
Brokers: Cabinet has decided that brokers will have until 1 December 2015 to comply with the new obligation in the Financial Advisers Act 2008 which explicitly prohibits brokers from placing their own money in client money trust accounts. This has been introduced to clarify that the current practice of holding ‘buffers’ of broker funds in client money trust accounts to ensure the account has adequate funding is not permitted.
Market operators: Cabinet has agreed that operators of unregistered markets will have until 1 December 2015 to obtain a financial market product licence under the FMCA.
The Ministry of Business, Innovation and Employment (MBIE) is now working to compile the full set of FMC regulations based on the exposure drafts of the regulations released in October 2013, December 2013 and April 2014 (with a supplement to the third exposure draft released in July 2014) as well as the latest Cabinet decisions outlined above. These will replace the Phase 1 regulations (Financial Markets Conduct (Phase 1) Regulations 2014) which came into force on 1 April 2014.
To view an outline of what the final regulations will be based on visit MBIE’s websitehere.
The Minister of Commerce has been authorised by Cabinet to make decisions on the detailed content of the disclosure documents and to make changes, consistent with the policy framework, on any issues that arise during the drafting process of the regulations.
MBIE is aiming to release the near-final version of the FMC Regulations before the general election, to assist planning by industry, with the final regulations to be made in October.
MBIE acknowledges that there will be many technical issues which will emerge following the making of the FMC regulations and their coming into force. Market participants will be able to log any issues they have with the FMA here.
MBIE has also identified some additional issues that will require further policy work. These will be addressed by the Ministry after 1 December 2014.