The Government has released details of its latest decisions on matters arising out of the Securities Law Review. These follow on from its earlier policy decisions announced in March 2011 (see Issue No. 9 of Corporate Reporter for details). An exposure draft of a securities law bill which will give effect to these decisions is expected to be made available for public consultation next month.
The latest round of decisions cover outstanding issues raised for further consideration in the March 2011 Cabinet Paper, namely:
- the appropriate regulatory framework for securities exchanges;
- the appropriate liability regime for securities law;
- the boundary between securities law and the Fair Trading Act;
- the appropriate disclosure requirements for exchange traded funds;
- the appropriateness of regulating celebrity endorsements; and
- costings for licensing regimes covering fund managers, peer-to-peer lenders, derivative dealers and trustees of workplace superannuation schemes.
Framework for securities exchanges
The Government has decided to move to a more comprehensive and flexible regime for securities and derivatives exchanges in line with the recommendations of the Capital Market Development Taskforce. This is intended to facilitate the development of more lightly regulated markets that small, growth companies can use as stepping stones to larger, more heavily regulated markets.
This approach will include:
- a single system of licensing operators of financial markets (both securities and derivatives markets) in respect of markets which are accessible by retail investors and fall above a certain size or volume thresholds or other criteria. However, initial licences and exemptions will be given under the legislation to the operators of existing registered and unregistered markets, subject to terms and conditions that will state which aspects of the regulatory regime will apply to each of the operator's markets;
- the FMA conducting oversight over the activities of the market operator in respect of markets rather than the operator as a whole;
- a procedure for overseas-based exchanges to be licensed in New Zealand as a separate category, with transparent regulatory and oversight arrangements in place for those markets;
- subject to certain minimum standards, provision for exchanges to adopt alternative rules where appropriate, including less onerous ongoing disclosure requirements and alternatives to the current prohibition on insider trading;
- allowing a market for exchange traded funds (ETFs) to develop by adopting the approach taken by Australia regarding continuous disclosure requirements for such products.
Liability regime for securities law
Further decisions have been made on the detail of the securities law liability regime, which is to take a more Code-like approach to offences and penalties.
The key features of the regime which are new are:
- an increased focus in civil remedies and infringement notices to speed up the process of enforcing breaches; and
- a major broadening of the court's power to order compensation be paid to investors.
To give effect to the Government's earlier decision to introduce an escalating hierarchy of liability, Cabinet has agreed to six broad tiers of liability. The table below sets out general details on the proposed tiers of liability and the perceived benefits that will arise from the new structure. A full list of breaches that will come within each tier will not be known until the exposure draft of the new bill is released in August.
Click here to view the table.
To assist in achieving faster resolution of legal proceedings, the FMA's current power to seek enforceable undertakings by market participants is to be extended so that an enforceable undertaking can be used as a formal mechanism to enter into a settlement with a market participant.
The Government has decided not to prohibit celebrities from endorsing a financial product nor include specific provisions for celebrities endorsing financial products or services. However, celebrities will be exposed to significant pecuniary penalties where they consent to being identified in a product disclosure statement or advertisement as having made a statement which is misleading or deceptive (under Tier 3 of the proposed liability regime).
Review of various portfolio management and broking services
The Government is also reviewing certain portfolio and broking services which are currently regulated under the Financial Advisers Act 2008, such as discretionary portfolio management services provided through wrap platforms, to determine whether they would fit more appropriately in the new securities legislation.