Further details on the shape of the Government’s proposed overhaul of New Zealand’s securities laws have been revealed with the release of a Cabinet paper last month containing high-level policy recommendations on some key areas. This follows the completion of a public consultation last year on a 200 page discussion document on proposed reforms to New Zealand’s securities laws. (For details on this consultation see our earlier article Securities law discussion document: a clearer picture of possible reforms.)
Key policy decisions
Cabinet has given its approval to:
- move to more principle-based classifications of regulated financial products (debt securities, equity securities, collective investment schemes, derivatives) and giving the FMA the ability to determine that a financial product comes within one of these categories;
- replace the requirement for issuers to prepare a prospectus and investment statement with a requirement to prepare a single product disclosure statement (PDS) tailored to retail investors;
- tailor the content of the PDS to specific financial products and making it heavily prescribed for standardised products;
- make the exemption from the regime for sophisticated investors principles-based with some clear, bright-line tests;
- create a new small-offers exemption from the regime, similar to that in Australia, to help small companies raise capital;
- create a single collective investment regime in which schemes will have to comply with a common set of substantive requirements to ensure an adequate level of investor protection. The schemes will have an external supervisor responsible for custodianship of the scheme and the supervision of the manager; and
- require fund managers to be authorised by the FMA and subject to a fit-and-proper-person test.
New liability regime for securities laws
The Cabinet’s policy decisions cover a range of other changes, including amendments to the securities law liability framework (which is currently spread over a number of statutes). The Government is proposing to adopt a comprehensive liability regime (along the lines of a code) that contains an escalating hierarchy of liability, which will focus on civil remedies and obtaining compensation for investors. The regime is to be designed so that only egregious violations of securities law would be the subject of serious criminal offences. This includes specific proposals to make the most egregious breaches of directors’ duties subject to criminal liability, and be publicly enforceable by the Financial Markets Authority and the Registrar of Companies (see the article New enforcement powers for FMA and criminal liability for breaches of directors’ duties on the horizon for further details).
Regulation of securities exchanges
The Minister of Commerce is expected to report back to Cabinet at the end of May with his recommendations on some outstanding policy issues arising from the securities law review, including the regulation of securities exchanges.
The Securities Act 1978 and the Securities Markets Act 1988 are to be repealed and re-enacted into a single piece of legislation that will incorporate the proposals in the Cabinet paper. The proposals may also require the repeal of the Unit Trusts Act 1960, and amendments to the Companies Act 1993, KiwiSaver Act 2006, Superannuation Schemes Act 1989, and other business related legislation.
An exposure draft of the new Act is expected to be released for public consultation in August for a period of four weeks. The Government wants to introduce the Bill to Parliament prior to the election, but the Bill will not be sent to the select committee until Parliament resumes next year. There will be time for further submissions on the Bill during the select committee process which will take a full six months. The Bill is expected to be passed in late 2012 and will be brought into force in 2013.