The Securities Amendment Act 2011 (previously contained in the Financial Markets (Regulators and KiwiSaver) Bill) was passed on 7 April 2011, with most of its provisions coming into effect on 1 May 2011. Key changes introduced by this Act include:
- a new registration regime for offer documents;
- a Register of Securities Offers;
- changes to the Securities Act exemption regime;
- new criminal liability for issuers if they deliver a prospectus for registration (or an amendment for registration) that does not comply with certain requirements; and
- an extension of the time limit from 2 to 3 years for applying for civil remedies.
New registration regime for offer documents
A new prospectus registration process for securities offers has been introduced to more closely align the process with the approach adopted in Australia. This replaces the current pre-registration vetting process with a post-registration “consideration period”, during which the securities can not be issued.
Under the new regime, prospectuses will be lodged in their final form with the Registrar of Financial Service Providers (which will initially be the Registrar of Companies). The Registrar is to ensure that the documentation provided is completed (checking legibility and basic data) before registering the prospectus, but will not consider whether or not a prospectus is false or misleading.
The ‘consideration period’
Following registration there is to be a consideration period of 5 working days (although the FMA has the power to shorten or lengthen this period) during which the FMA, at its discretion, has the opportunity to review the prospectus to consider whether it complies with the Securities Act and the relevant regulations and does not contain any false or misleading statements or material omissions. During this time the issuer can not allot securities or accept applications for the securities.
If a deficiency is discovered during the consideration period, the FMA can intervene with an order delaying or prohibiting the allotment of securities or cancelling the registration of a prospectus. In practice, this will allow the FMA to be selective about which offer documents it reviews and will enable it to channel its resources to high risk categories.
FMA may prohibit allotments and cancel registration of prospectuses
Issuers will not be able to assume that the prospectus is satisfactory merely because nothing happens during the consideration period. The FMA has the power to consider or reconsider at any time whether the prospectus should be the subject of a prohibition order or have its registration cancelled. This puts the onus on the issuer (and its advisers) to ensure the prospectus is correct and not rely on the FMA to double check them during the consideration period.
Continuously issued securities
To address concerns that the new registration process might not work well in the case of continuously issued securities (such as those provided by KiwiSaver issuers), there is a statutory exemption from the “consideration period” part of the registration process for continuous issuers, except in particular circumstances prescribed by the FMA.
Amendments and replacement prospectuses
Other changes have also been made since the Financial Markets (Regulators and KiwiSaver) Bill was first introduced to improve the workability of this new registration system. There is no longer a requirement for a consideration period following the registration of amendments to a registered prospectus. Further, allotment can now continue under a valid registered prospectus even if there is a consideration period which applies to a replacement prospectus.
Offers of debt and participatory securities subject to same registration regime
The same post-registration review regime has been introduced for trust deeds for offers of debt securities and participatory deeds for offers of participatory securities. Previously, these documents were not subject to any regulatory review process pre-registration or post-registration.
In order to provide for a smooth transition from the old prospectus registration process to the new regime, new measures have been introduced to provide for a temporary period (to be determined by the FMA) during which the FMA will continue to carry out a pre-registration review process consistent with that currently undertaken by the Companies Office. This will not avoid the need for a consideration period, but should provide an issuer with confidence to begin printing an offer document prior to the expiry of the consideration period. It will also provide time for the FMA to issue guidance on its intentions with respect to the new regime.
Publication of registration by the issuer
Under the new regime an issuer has five working days after the receipt of the certificate of registration from the Registrar to provide a “reasonably prominent statement” on its website that the prospectus (or amendment to the prospectus) has been registered and provide details of where a copy of the prospectus (or amendment) can be obtained.
No guarantees given by Registrar or FMA
To ensure that there is no confusion over the status of the Registrar’s or the FMA’s review of a prospectus, new provisions have been included in the Securities Act which clarify that nothing done or omitted to be done by either regulator guarantees or represents that a prospectus complies with the Act and the regulations.
New Register of Securities Offers
The Act provides for the establishment and operation of a new Register of Securities Offers. No date however has been given for when the register will be operational.
The register will provide a centralised website for disclosure documents, with search functions designed to facilitate comparisons between securities offers for the public, including financial advisers and investors. It will replace the current practice of registering offer documents against the companies register record of the issuer, or on separate registers of unit trusts, participatory securities, superannuation schemes and KiwiSaver schemes.
The register is likely to play a central role in the development of disclosure documents under the current wider review of New Zealand’s securities laws. At this stage it is envisaged that information required to be lodged on the register will supplement a short form product disclosure document.
Changes made to the exemption powers
Streamlined process for individual exemptions
To provide for more flexibility around the granting of individual exemptions made by the FMA, new provisions provide that such exemptions will not be regulations for the purposes of the Acts and Regulations Publications Act 1989. This means that they will no longer be drafted and published by the Parliamentary Council Office and instead will just be published on the FMA’s website, notified in the Gazette and be available for purchase.
New criteria for granting exemptions
The legislation now prescribes that the FMA must not exercise its power to grant either individual or class exemptions unless it is satisfied that the exemption will not cause significant detriment to subscribers for which the exemption relates and is not broader than is reasonably necessary to address the matters that gave rise to the exemption.
Regulations to prevent the misuse of section 5(1) statutory exemptions
A new section has been introduced into the Securities Act to permit regulations to override the application of an exemption made under section 5(1). This is to allow the Minister (on consultation with the FMA) to have the ability to step in to close any misuse of the statutory exemptions. There has been criticism that the section 5(1) exemptions have been misused by certain investment schemes which involved offers of interests in land, including, most notably, the Blue Chip property investment scheme.
Other key changes
New criminal liability for delivery of non-complying prospectuses
A new criminal offence has been introduced for an issuer seeking to register a prospectus (or an amendment to a prospectus) where they know, or reasonably ought to know, that such documents do not meet the registration requirements in the Securities Act or its regulations. An issuer that commits this offence is liable, on summary conviction, to a fine not exceeding $30,000.
Time limit for applying for civil remedies has been extended
An application for a pecuniary penalty order for a civil liability event under the Securities Act can now be made at any time within three years after the date on which the matter giving rise to the civil liability event was discovered or ought reasonably to have been discovered. Previously, applicants had only two years to make their application.