FMA approves class exemptions for overseas issuers

Earlier this week the FMA announced that it had finally approved a series of class exemptions for overseas issuers which allow issuers making offers to New Zealand investors to rely on the disclosure, governance, financial reporting and audit requirements of their overseas jurisdiction where their regulatory standards are equivalent to New Zealand’s.

The basis for these class exemptions is that an overseas issuer which is subject to regulation in their home jurisdiction that is at least equivalent to that of New Zealand, the costs of requiring them to comply with the full weight of the disclosure regime under the FMC Act may outweigh the benefits to the New Zealand investor audience.

Once implemented, these class exemptions will replace a number of earlier class exemptions granted under the Securities Act 1978 that applied to overseas issuers.

Coverage

The new class exemptions will exempt compliance from a number of requirements under the FMC Act under the following headings:

• Offers by overseas issuers: Exemptions will be available to overseas issuers making two types of offers:

o For offers made to existing holders of securities with a primary listing on an overseas exchange in a recognised jurisdiction with a high quality regulatory regime – issuers will receive complete exemptions from the disclosure, governance and financial reporting requirements of the FMC Act. This will continue the relief available under an existing class exemption (the Overseas Companies Exemption) – although details of the relevant jurisdictions have not been finalised.

o For offers made on recognised high quality exchanges under the laws of an overseas jurisdiction and then extended in to New Zealand – the overseas issuers making these offers will primarily be able to rely on the requirements of their home jurisdiction. However they will also need to prepare a warning statement, appoint an agent for service in New Zealand, and lodge certain documents with the Companies Office. Again, this will continue the relief available under an existing class exemption (the Overseas Listed Issuers Exemption) but will be limited to overseas issuers with a primary listing on either main board of the NYSE, the NASDAQ or the London Stock Exchange.

• Financial reporting and audit

Exemptions will allow overseas issuers with a primary listing on a market in a high quality jurisdiction to use their overseas financial statements and auditors as an alternative to the financial statement and audit requirements in Part 3 (PDS disclosure) and Part 7 (ongoing financial reporting) of the FMC Act.

Again, details of the relevant jurisdictions have not been finalised.

The exemptions only apply when:

o the financial statements of the overseas issuer are prepared in accordance with accounting standards that are broadly comparable to New Zealand GAAP; and
o the auditor is subject to audit standards that are broadly comparable to those that apply in New Zealand, including independent auditor oversight.

• Securities already issued

As a result of the transitional regime applying to the transition from the Securities Act to the FMC Act, without an exemption – overseas issuers will be subject to the full rigour of the FMC Act for securities that have already been issued in reliance on an exemption from the Securities Act.

The FMA has recognised that these issuers should be able to rely on the requirements of their home jurisdiction. As a result, these issuers will receive:

o exemptions from the ongoing disclosure, governance and financial reporting and audit requirements of the FMC Act; and

o an exemption from having to notify all security holders that the requirements of the FMC Act will apply after the effective date for the securities.

The FMA notes that it considers that relief is warranted where the overseas issuer made an offer into New Zealand relying on one or more of a finite list of the Securities Act exemptions (which will include both existing class and specific exemptions) and has not made any other type of offer into New Zealand.

• Additional exemptions

The FMA has also approved two class exemptions that recognise audit and assurance standards in recognised overseas jurisdictions as an appropriate substitute for the requirements of the FMC Act:

o Exemptions for overseas custodians from the requirement under the FMC Regulations 2014 to obtain an assurance engagement from a New Zealand qualified auditor. Where the custodians already conduct a robust assurance engagement in the country in which they are based, the FMA has accepted that the costs of engaging a New Zealand auditor may potentially be disproportionate to the benefits to investors.

o Exemptions to remedy technical issues preventing certain overseas registered banks and licensed insurers from relying on the Financial Markets Conduct (Overseas Registered Banks and Licensed Insurers) Exemption Notice 2015 – allowing overseas registered banks and licensed insurers to engage Australian auditors to audit their New Zealand business and financial statements and remove the New Zealand specific requirements when they are not aligned with the home jurisdiction.

Comments

The bulk of the new exemptions are an overdue resolution of some uncertainties affecting overseas issuers who have previously offered financial products in New Zealand under a class exemption from the Securities Act disclosure regime – about life after the final transition date to the FMC Act after 30 November 2016.

Timing

The short answer is that we are not there yet – and the FMA’s announcement stated that it intends to finalise the exemption notices and publish them by the end of July.

Further information

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