FMC Act – Phase 2 Implementation begins today

1 December 2014

FMC Act – Phase 2 Implementation begins today

Introduction

Today heralds the beginning of Phase 2 implementation of the Financial Markets Conduct Act 2013 and the culmination of a series of changes affecting capital-raising that began with Rob Cameron’s Capital Market Developments Taskforce that was established in 2008.

Phase 2 includes a major shift in investor disclosure for financial products and licensing provisions that the FMA estimates will extend its regulatory oversight to several hundred further businesses.

Key Features

The key features of Phase 2 of the FMC Act include:

• Product disclosure statements for financial products – including debt and equity securities which will be much more concise, and subject to page limits. [For equity (share) offers – a limit of 60 pages will apply with a key information summary being no longer than 4 pages. In the case of debt and derivative offer PDS, the limit is 30 pages.] A new online register (labelled ‘Disclose’) will include all the material information on offers under the FMC Act. Note that offers can still be made under the prospectus and investment statement regime governed by the Securities Act 1978 during a transition period. However, the FMA is strongly encouraging issuers to shift to the new disclosure regime under the FMC Act at the earliest opportunity.

• The roll-out of licensing supervised by the FMA continues – with managers of managed investment schemes, derivatives issuers, and independent trustees of restricted schemes being subject to licensing. Providers of discretionary investment managements services (“DIMS”) will also be licensed.

The FMA estimates that the number of firms, professionals, registered schemes, and funds subject to licensing under the FMA’s mandate will exceed 10,000 in the next 2 years.

Phase 1 already live

Phase 1 of the FMC Act came into force on 1 April 2014.

The key features of Phase 1include:

• A ‘fair dealing’ requirement that applies to all firms or professionals that are dealing in or supplying financial products or financial services.

• What the FMA describes as a “more proportionate” liability regime when compared to that under the Securities Act – applying to directors of issuers and other providers of financial products.

• More concise and timely financial reporting – applying to a lesser number of entities than was the case under the old financial reporting regime (and being subject to regulatory oversight by the FMA).

Further developments

The FMA is also crediting the roll-out of the FMC Act as being the catalyst for a number of new developments which have started or are due to start, including:

• The advent of two new categories of financial service licensed by the FMA:

o peer-to-peer lending; and
o equity crowd funding.

• The announcement by NZX of its new stepping-stone market for emerging firms (“NXT”) – which is due to open for business in the 1st quarter of 2015.

• Streamlined processes for issuers seeking exemptions for ‘same class’ offers – making it easier to raise further capital.

Underpinned by detail

Phase 2 implementation is underpinned by of a substantial volume of detailed regulations, which have been through several rounds of consultation and some of which are now the subject of user guides published by the FMA.

This process, and the guidance on implementation, is designed to help Phase 2 implementation achieve the legislative goals of the FMC Act – including those of boosting investor literacy and confidence as well as making it easier for companies to raise capital.

Further information

If you would like more information about any of the matters discussed in this note, please contact me.