Financial Markets Conduct Bill passes third reading

Introduction

The Financial Markets Conduct Bill was passed last night.

This is a significant milestone for financial regulation in New Zealand.

The FMC Bill rewrites many of the rules for how financial products and financial services are offered to the public and how they are governed and operated. It will replace the Securities Act 1978, the Securities Markets Act 1988, the Unit Trusts Act 1960, the Superannuation Schemes Act 1989, and the non-tax parts of the KiwiSaver Act 2006.

Key changes in the FMC Bill include:

• a new requirement for issuers to prepare a single product disclosure statement tailored to retail investors
• two new online public registers that are heralded as making offer documents and information much more accessible to investors, their advisers, market analysts, and commentators
• a new system of escalating penalties: from infringement notices (aka speeding tickets) for minor breaches through to penalties of up to $1 million for individuals, $5 million for companies and criminal penalties of up to 10 years’ prison for the worst conduct
• new licensing regimes for specific financial services providers including fund managers, independent trustees of workplace superannuation schemes, discretionary investment management services (DIMS) and derivatives issuers
• new forms of capital-raising, such as peer-to-peer lending and crowd-funding
• new duties on fund managers and supervisors and stronger governance requirements
• a new system to regulate securities exchanges such as NZX, including allowing for new low cost exchanges to make capital-raising easier and cheaper.

Implementation

On announcing the passing of the FMC Bill, Commerce Minister Craig Foss said that an exposure draft of regulations to support the FMC Bill will be released for consultation in October. The implementation dates for the changes will be phased as follows:

• Phase 1: 1 April 2014 comprising general fair dealing obligations, key growth-focussed initiatives including employee share schemes and enabling financial market participants to become licensed, including for crowd-funding; and
• Phase 2: 1 December 2014 comprising the new disclosure requirements, go-live of the online registers, licensing obligations and the remainder of the FMC Bill.

Transition
Starting from December 2014, continuous issuers such as managed funds and non-bank deposit takers will have a 2-year transition period in which they can continue to comply with the Securities Act.

Other issuers will be able to comply with the old law for 1 year from December 2014.

The FMA will be responsible for implementing the changes and the FMA will consult on new licensing frameworks and other key operational changes in October.

Further information

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