Last month the Ministry of Business, Innovation and Employment (MBIE) released a series of Cabinet papers which set out Cabinet's policy decisions on a substantial body of the regulations required to implement the Financial Markets Conduct Bill (FMC Bill).
Bell Gully has prepared a detailed outline of Cabinet's key decisions on the Financial Markets Conduct Regulations, which is available here.
Overview of Cabinet's decisions for the proposed regulations
Cabinet's policy decisions focus on regulations required for:
- the new disclosure regime: with particular regard to the direction of the content of product disclosure statements (PDSs) and a number of other disclosure-related issues, such as the appropriate level of disclosure for offers that operate under exclusions in the FMC Bill. Decisions have also been made on the new obligation to provide limited ongoing disclosure for equity and debt products when key events occur. (See Cabinet Paper 2);
- financial product markets: most of the regulations with respect to financial product markets will be carried over from the current regime into the FMC regime with necessary modifications. Examples of these regulations include those made under the Securities Markets Act 1988 for regulating insider trading, market manipulation, continuous disclosure, substantial security holder disclosure, directors and officers disclosure and unsolicited offers. Some additional policy decisions have been made for wholesale markets, directors and officers disclosure, unsolicited offers and disclosures of equity derivative positions. (See Cabinet Paper 2);
- base line governance standards: including defining "managed funds" as a distinct type of managed investment scheme to help differentiate disclosure and governance; setting clear rules applying to withdrawals for some superannuation schemes; determining a default set of meeting procedures and minimum notice and quorum requirements; determining supporting requirements, and exceptions, for related party transactions; and setting the detailed requirements for custodians and issuer registers and records. (See Cabinet Paper 3.); and
- licensing regimes: which includes general licensing criteria for licensees relating to insurance, reporting, client agreements and key personnel, and specific regulations relating to independent trustees of restricted schemes, discretionary investment management services (DIMS), derivative issuers, person-to-person lending services and crowd-funding. (See Cabinet Paper 4.)
the application of the old and new legislation during the transitional period: regulations will apply the FMC Act and the core former legislation (i.e., the Securities Act 1978, Superannuation Schemes Act 1989, parts of the KiwiSaver Act 2006, and the Unit Trusts Act 1960) on the following basis during the transitional period:
- the core former legislation will continue to apply to a security or scheme as if it was not amended or repealed by the FMC Act, but with modifications needed to enable the legislation to work with the FMC Bill and associated legislation; and
- the amendments made to other legislation by the FMC Act will apply immediately, but with modifications needed to enable the legislation to work with the core former legislation.
As an example, this will mean that a requirement to give a PDS under the KiwiSaver Act 2006 (as amended by the FMC Act) will be met if the issuer gives the investor an investment statement (the former requirement under the KiwiSaver Act).
The Cabinet papers suggest that there has been no change from the previously announced April 2014 implementation of the FMC Bill (although we had expected the Bill to be enacted before 30 June). An exposure draft of the regulations is expected to be ready for release in October 2013 and in place by March 2014.
The Minister does however note that this timeframe is ambitious. There is a considerable amount of work that is still required to be done, including the development of online registers which will contain information about offers of financial products and managed investment schemes.
The Minister has also noted that the successful implementation of the Bill will be reliant on FMA's development and implementation of numerous operational policies and an extensive body of market guidance as some of the proposed regulations involve FMA having significant decision-making discretion.