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FMC Act – Phase 1 Implementation (from 1 April 2014)

by Stephen on March 14th, 2014

14 March 2014

FMC Act – Phase 1 Implementation
(from 1 April 2014)


In keeping with the indicative timeline published by the FMA late last year, a raft of new regulations have been made in the last fortnight to implement Phase 1 of the Financial Markets Conduct Act 2013 – from 1 April 2014. As previously signalled, the detail required to implement the core parts of the FMC Act is contained in a thicket of regulations – much of which is still undergoing consultation with the objective of being completed in time for the core parts of the new regulatory framework to come into force from 1 December 2014.

Also, in recent weeks, Commerce Minister Craig Foss has made a series of announcements about some of the smaller, high-profile, changes that are aimed at improving access to capital, particularly for the SME sector. These include giving the green light to crowd funding. Also, the Minister made it clear that the streamlined arrangements for employee share schemes would be part of the Phase 1 implementation. It is also pleasing to see that the ‘20 x 12’ exemption for small offers, typically by start-ups and smaller companies seeking to fund growth, will also be available from 1 April 2014.

As noted above, the FMA timeline indicates that the core parts of the FMC Act will form part of the Phase 2 implementation scheduled for 1 December 2014. Central to the changes is the replacement of the securities disclosure regime – with the old prospectus/investment statement being replaced by a single ‘Product Disclosure Statement’.

The table below summarises the effect of the regulations[1] made for the purposes of Phase 1 implementation.


[1] Primarily, Financial Markets Legislation (Phase 1) Commencement Order 2014 and the Financial Markets Conduct (Phase 1) Regulations 2014.

·         Part 1 (preliminary provisions)

The preliminary provisions include definitions, such that of ‘financial product’, whichmeans:


·         a debt security; or

·         an equity security; or

·         a managed investment product; or

·         a derivative.

·         Part 2 (fair dealing provisions), other than those relating to:


o   unsubstantiated representations; and

o   offers in the course of unsolicited meetings.


·         The fair dealing provisions are those related to misleading or deceptive conduct, and false or misleading representations.


·         The provisions that have been postponed, including those relating to unsubstantiated representations, will come into effect at the same time as changes to the Fair Trading Act 1986 – later this year.

·         Part 6 (licensing and other regulation of market services) with a number of carve-outs, including those relating to the new regime for the provision of discretionary investment management services (DIMs).

·         The new regime for DIMs providers, including disclosure requirements – are scheduled to come into effect as part of Phase 2 implementation (to coincide with the licensing of DIMs providers).


·         Similarly, the new requirements for derivatives issuers are scheduled to be part of Phase 2 implementation.


·         The early implementation of rules enabling the provision of crowd funding and peer-to-peer lending services – will require providers to be licenced (as the provider of ‘prescribed intermediary services’) so that the disclosure exclusions for offers made under these platforms can be made from 1 April 2014.

·         Part 7 (financial reporting) – as replaced by the Financial Reporting (Amendments to Other Enactments) Act 2013.

·         The new provisions:


o   introduce a new regime for ‘FMC reporting entities’; and

o   provide a transitional regime for FMC reporting entities.


·         As the definition of ‘FMC reporting entity’ captures all issuers of ‘regulated products’ it is important to note that it extends to persons who offer financial products to 1 or more investors where the offer to at least 1 of those investors requires disclosure under Part 3 of the FMC Act (regardless of whether or not an exclusion under Schedule 1 applies).

·         Part 8 (enforcement, liability, and appeals), with some carve-outs including the offence provisions for defective disclosure.

·         This includes the new infringement notice (speeding ticket) regime.

·         The following provisions of Schedule 1 (provisions relating to exclusions):



o   clause 6 (offers of financial products through licensed intermediaries)


·         Fast-tracking the exclusions for offers by means of crowd funding services and peer-to-peer lending services.

·         Note the limits which apply to offers made through a licensed intermediary to $2m in any 12 months (raised under this exclusion or the 20 x 12 exclusion).

o   clause 8 (offers under employee share purchase schemes)

·         In accordance with the Minister’s announcement of reducing the red tape for employee share purchase schemes.

o   clause 9 (offers to persons under control do not need disclosure):

·         If an offer of financial products to a person A would not require disclosure, then an offer of those financial products to an entity controlled by A person does not require disclosure.

o   clause 10 (offers of financial products under dividend reinvestment plans)

·         Updating an existing class exemption.

o   clauses 12 to 14 (which relate to small offers)

·         Implementing the 20 x 12 exclusion for offers equity securities or debt securities to:

o    Up to 20 investors; and

o    $2 million,

in any 12-month period.

o   clause 15 (offers of controlling interest where 5 or fewer investors)

·         For an offer of equity securities that comprise more than 50% of the voting products of an entity that is made to 5 or fewer persons.

o   clause 19 (exclusion for offers of financial products of same class as quoted financial products)


·         This will further streamline the process for listed issuers to make rights issues through market announcements – using the example of a ‘cleansing notice’ in Australia rather than a simplified disclosure prospectus.

o   clause 21 (offers of category 2 products by registered banks), other than debt securities

·         This is limited to certain category 2 products and currency forwards – including offers of interests in PIE funds by members of the banking group – but not debt securities issued by registered banks.

o   clauses 25 to 29 (which relate to limited disclosure and other requirements)

·         Clarifying disclosure and other obligations and the prohibitions on false or misleading statements.

·         Commencement of specified provisions of Financial Markets (Repeals and Amendments) Act 2013 for phase 1 implementation stage.


·         These include amendments to the Fair Trading Act 1986 and various amendments to the Financial Advisers Act 2008.


Further work

As noted above, Phase 2 implementation of the FMC Act is timetabled for 1 December 2014 – and will be subject to a transition period of 2 years. Drafts of the regulations required for Phase 2 implementation have been subject to two rounds of consultation – and there is still much work to do on this large body of new regulations. Nonetheless, the progress to date on Phase 1 and the various Ministerial announcements give cause to be confident that the brave new world on securities law reform that starts on 1 April – will be get fully under way from 1 December.

Further information

If you would like more information about any of the matters discussed in this note, please contact me.  A pdf versin of this bulletin is available here:  FMC Act – Phase 1 Implementation

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