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FMA consultation on financial reporting designations and exemptions for FMC reporting entities

by Stephen on February 15th, 2014

14 February 2014

FMA consultation on financial reporting designations and exemptions for FMC reporting entities


The Financial Markets Conduct Act 2013 (“FMC Act”) includes a number of changes from the financial reporting requirements in the Financial Reporting Act 1993 (“FRA 93”). When the FMC Act comes into effect on 1 April 2014, the FMA will have regulatory powers to vary the financial reporting obligations of FMC reporting entities by:

• varying public accountability designations, and
• granting exemptions.

The FMA has recently published a consultation paper seeking feedback on how it intends to apply these new powers, and the immediate changes it proposes to make to both designations and exemptions under these powers .

Background – the impact of the FMC Act on financial reporting matters

The primary impact of the FMC Act on financial reporting matters will be to:

Consolidate requirements: The FMC Act consolidates the financial reporting requirements for an FMC reporting entity. It covers the accounting record keeping requirements currently under the Companies Act 1993 and the Securities Act 1978, as well as the preparation, audit and registration requirements of the FRA 93.

Covers more entities: The FMC Act applies to more entities than under the FRA 93. The concept of a FMC reporting entity is broader than the definition of an ‘issuer’ under the FRA93, although it doesn’t cover all financial market participants.

The FMC Act also identifies classes of entities it deems to have higher public accountability –all other classes of entities have lower public accountability. These are default designations and the FMC Act empowers the FMA us to vary these for either individual FMC reporting entities, or classes of entities.

The public accountability designations influence which tier of the External Reporting Board (XRB) Accounting Standards Framework an entity will be in and, in turn, whether they will have to meet full or reduced accounting standards in their financial statements.

(It should be noted that entities will become FMC reporting entities at different points in time.)

Public accountability designations

Under the FMC Act, the FMA has the power to vary the public accountability designations, which will influence the accounting standards an entity must use when preparing its financial statements.

The FMA has reviewed the default designations set out in the FMC Act, and is proposing changes for some entity classes. Currently all ‘issuers’ are in the highest tier and must prepare financial statements under full accounting standards. In future FMC reporting entities will include extra classes of market participants and not all will be in the highest tier and required to apply full accounting standards.

In most cases the FMA is not proposing a change from the default. The proposed designations are summarised in the table


Proposed public accountability designations

Higher public accountability


Based on XRB Accounting Standards Framework full accounting standards will apply.


Full NZ IFRS for for-profit entities, or full PBE standards for public benefit entities.




  • Equity issuers who make a regulated offer and have more than 50 shareholders
  • Debt issuers who make a regulated offer (exception for small one-off offers by not-for-profit entities may apply)
  • Licensed derivative issuers
  • Licensed MIS managers (in respect of the financial statements of the MIS they manage)
  • Listed issuers
  • Recipients of money from a conduit issuer
  • Registered banks
  • Licensed insurers
  • Credit unions
  • Building societies

Lower public accountability


Based on XRB Accounting Standards Framework reduced accounting standards will apply.


NZ IFRS RDR for for-profit entities, or PBE standards RDR for most public benefit entities



  • Licensed MIS managers (in respect of the manager’s own financial statements)
  • Licensed providers of DIMS (under the FMC Act)
  • Licensed peer-to-peer lending service providers
  • Licensed crowd funding service providers
  • Licensed supervisors
  • Licensed market operators (domestic)

However, the FMA is considering changes to the designations for three classes of entities:

Not-for-profit debt issuers: simple not-for-profit entities may be re-designated to lower accountability where they only make a small one-off offer – where the burden of preparing full financial statements may outweigh any benefit to investors.
Licensed derivative managers: may be re-designated to higher accountability because they hold material levels of financial instruments and the investment risk is direct.
Recipients of money from a conduit issuer: may be re-designated to higher accountability.

The FMA’s reasons for its proposals to make these re-designations are set in the consultation paper.

Proposed exemptions policy

The FMC Act will provide the FMA with much broader powers to grant exemptions to any FMC reporting entity. The consultation paper states that, at this stage, the FMA does not intend to withdraw the existing exemptions under the FRA 93. The transitional arrangements mean that these will continue to be available (subject to amendments or expiries) for entities who continue to report under the FRA 93.

It also notes that the proposed exemptions policy is not significantly different to the current policy, with some refinements to align the policy with new initiatives in the FMC Act and extend the policy to cover new circumstances where the FMA can consider exemptions. However, it notes that the structure of the class exemptions to be proposed is likely to be significantly different from the current ones.

The FMA’s proposals are summarised as:


Proposed exemptions policy


  • Recipients of money from conduit issuers:  Exemptions are possible when all material information is available from another source.  Considered on a case-by-case basis (applications are rare).
  • Partial and technical exemptions:  Exemptions to address specific issues for overseas issuers considered on a case-by-case basis (applications are rare) – with new scope to consider exemptions for New Zealand entities..
  • Use of overseas auditors:  Exemptions have been given if issuers and their auditor are subject to regulation and oversight standards similar to those in New Zealand (e.g. where the offer in New Zealand is incidental to that of home jurisdiction, dual listed issuers, some overseas insurers and overseas banks).
  • Registration of financial statements:  Exemptions are relatively rare and typically reserved for overseas companies with a very low and transitory involvement in New Zealand (e.g. overseas listed issuers who include a few New Zealand investors in a rights offer or an offer arising from a restructuring transaction).  FMC may extend to overseas companies who only become FMC reporting entities because they made an offer that would be excluded under Schedule 1 of the FMC Act.

No significant policy change

Accounting Records:

  • Currently, complete exemptions are included in a number of class and individual exemptions (with individual exemptions being linked to the circumstances of an offer).  The FMA propose that, under the FMC Act, exemptions from keeping accounting records to support NZ GAAP financial statements will be linked to preparing financial statements under an overseas GAAP.
  • Exemptions from keeping records in NZ and in English will be linked to whether the entity’s circumstances mean that New Zealand-based people need access to the records.
  • An exemption will not granted if:
    • A New Zealand resident director is required;
    • A New Zealand auditor is required; or
    • A New Zealand regulator needs to access the records for monitoring.
  • Class exemptions are likely for offerors of equity, debt or managed investment products–and the offer and governance obligations are mainly regulated in another appropriate jurisdiction.

Exemptions will be more limited

Use of overseas GAAP financial statements:

  • Currently, the Registrar of Companies has broad discretion to accept overseas GAAP financial statements without the entity being exempt.  Class exemptions are generally linked to the place of incorporation and the standards in that jurisdiction.
  • The FMA indicates that future exemptions will be broader – but still based on adequacy of overseas reporting framework and applicable GAAP.

Exemptions will be broader


  • Compliance with overseas law and accounting standards by NZ entities:  No exemption power under FRA 93.
  • Conduit issuers:  No exemption power under FRA 93.  Exemptions expected to be rare and considered on same basis as that for recipients of money from a conduit issuer.
  • Exemptions to extend filing deadlines:  Exemption powers for overseas entities currently exit but unused.  Shorter filing deadlines for NZ reporting entities may result in applications – if able to demonstrate special circumstances.

Exemptions considered on merit


An indicative timeline for the matters covered in the consultation paper is:

  • February 2014 Consultation and submissions on designations and exemptions for FMC reporting entities.
  • March 2014 FMA will publish transitional guidance to help FMC reporting entities work out which Act they need to report under for each financial year during the transitional period .
  • 1 April 2014 Phase 1 of the FMC comes into force (including new financial reporting obligations).
  • April 2014 FMA’s indicative timing for publishing its policies and notices.

The FMA also notes that it will consult separately on any exemptions relating to offer documents before the new disclosure regime starts on 1 December 2014.

Further information

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

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