Today, the Ministry of Economic Development released an exposure draft of the bill which is to replace the Securities Act 1978 and Securities Markets Act 1988.
The Financial Markets Conduct Bill (FMC Bill) will implement a new "one-stop shop" for securities law. The FMC Bill is designed to provide a more coherent structure, and in the Ministry's view is closer to the Australian law in some places.
From a policy perspective, the FMC Bill adopts most of the proposals raised by the Ministry in its June 2010 discussion paper on securities law reform and the Cabinet policy decisions released earlier this year.
Key aspects of the FMC Bill are:
- regulated financial products will be categorised as equity securities, debt securities, managed investment products and derivatives – based on the economic substance of the financial product, not just its legal form;
- the offer process is to be modelled more closely on the equivalent Australian legislation;
- the requirement for issuers to prepare a prospectus and investment statement will be replaced with a requirement to prepare a single product disclosure statement tailored to retail investors;
- safe-harbours will be changed so that there are more 'bright line' tests (for example, there are exclusions for offers to wholesale investors, close business associates and for small offers) and issuers will be able to rely on self-certification by wholesale investors that they are exempt;
- issuers will have duties to make certain ongoing disclosures;
- there will be enhanced governance requirements for regulated offers of debt securities – although the requirement for there to be a trust deed and a trustee has been retained;
- a common set of governance requirements will apply for all managed investment schemes;
- persons who act as a manager of a registered scheme, a provider of a discretionary investment management scheme, a derivatives issuer under regulated offers or an independent trustee of a restricted scheme must be licensed;
- a modified liability framework - with a policy decision that criminal law will be reserved for conduct where there is knowing or reckless behaviour – and greater use of civil remedies;
- the Companies Act 1993 is to be amended to introduce a new criminal offence in relation to serious breaches of the duty of directors to act in good faith and in best interests of the company and the duty relating to reckless trading;
- additional powers will be granted to the Financial Markets Authority, such as the power to designate financial products and make "no action" statements;
- the current regulatory regime for exchanges will be replaced with a licensing regime for significant non-wholesale markets;
- current legislation relating to aspects such as insider trading, market manipulation, substantial security-holder disclosure and continuous disclosure are largely unchanged.
Further drafting is required
In its announcement, the Ministry has noted that the draft bill will not be completely right and some aspects of the FMC Bill (such as discretionary investment management services) have not been fully developed as yet.
Much of the technical details, such as the content requirements for disclosure documents, for the new regime will be contained in regulations. The Ministry has announced that it intends to allow for extensive consultation as the regulations are developed over the coming year.
Commerce Minister Simon Power has announced that he intends to introduce the FMC Bill to Parliament before the election. The Ministry is seeking submissions on the FMC Bill by 6 September 2011. This short consultation process is intended to be focused on the technical details of the FMC Bill, rather than matters of policy.
The Ministry has said that it will continue to consult informally over the coming months.
Copies of the exposure draft of the FMC Bill, the accompanying explanatory material and the template for submissions are available here.