Bell Gully has lodged submissions with the Commerce Select Committee on the Financial Markets (Regulators and KiwiSaver) Bill 2010 (FMA Bill).
Submissions on the financial markets' provisions of the FMA BiIl
While Bell Gully supports the establishment of the Financial Markets Authority (FMA) as a single regulator to oversee New Zealand securities law, we question the need for a number of the financial markets' measures to be included in the Bill given the limited degree of consultation which has been afforded to market participants on the measures. In particular, we recommend that the changes proposed for the Securities Act 1978 (in Part 5 of the Bill) and the Securities Markets Act 1988 (in Part 6 of the Bill) which are not essential for the effective operation of the FMA be removed from the Bill so they can be fully considered as part of the Ministry of Economic Development's review of securities laws. Examples of such proposals are the introduction of:
- the power for the FMA to exercise, or take control of, civil actions on behalf of investors;
- an Australian style "consideration period" in connection with the registration of a prospectus; and
- the power to unilaterally impose market rules, and the proposal to introduce new onerous compliance and reporting requirements, on registered exchanges.
We also discuss a number of policy points for the select committee's consideration, including:
- the importance of ensuring appropriate safeguards to protect the legal rights of parties in relation to the information gathering powers of the FMA;
- the need for principles of natural justice to apply to the exercise of the FMA's powers;
- changes required for the new levy to be imposed on financial market participants to ensure they are not being asked to carry a disproportionate burden of the FMA's costs; and
- the new criminal offence of failing to deliver all documents required to be filed with a prospectus (in our view a civil penalty would be adequate).
Submissions on the KiwiSaver provisions of the FMA Bill
Bell Gully supports the key changes proposed in relation to KiwiSaver schemes in the FMA Bill – namely:
- the introduction of a requirement for most KiwiSaver schemes to have both a manager and a trustee, each with specified functions and duties; and
- the designation of the manager as the "issuer" for the purposes of the Securities Act (in place of the trustee).
We consider that they will introduce an appropriate structure for relevant KiwiSaver schemes and will reflect the commercial reality underpinning those schemes.
However, there are particular aspects of the proposed changes for KiwiSaver schemes which we believe require further consideration, including:
- the requirement for the trustee to "supervise" the manager's performance (rather than "monitor" the manager's performance) which gives rise to a risk that the trustee will inadvertently end up having a degree of legal responsibility for the proper performance by the manager of the manager's functions;
- the additional consequential amendments required to the KiwiSaver Act 2006 (and other legislation) to ensure that functions are allocated between the manager and the trustee in the manner intended by the principal legislation; and
- the need for a transitional window of at least 12 months for KiwiSaver schemes to implement the changes and that appropriate transitional relief be granted to enable existing investors to be notified in a cost-effective and pragmatic fashion of these changes.