Yesterday, the Commerce Minister announced consultation on the government’s second phase of capital market reforms, focusing on issues such as director and issuer liability. The minister’s announcement referred to concerns about the lack of depth in our capital markets with the result that the cost of capital is too high meaning that many businesses need to look offshore for capital.
Part of the focus of the consultation process is the perennial question about whether regulatory settings need adjustment in order to address issues of cost, complexity and uncertainty. And, of course, there are questions about the need for reforms to increase liquidity and encourage new listings on the NZX.
The first phase of Government reforms, in late 2024, had tackled one of the compliance (cost) issues by making the requirement to provide prospective financial information in relation to an IPO, voluntary.
The release accompanying the discussion document referred to the Government’s objective as being straightforward—fostering capital markets that are trusted, competitive, and focused on supporting economic growth. That, it said, means maintaining appropriate investor protections and market integrity, while challenging regulatory settings that are too costly, too uncertain, or no longer fit for purpose.
The discussion document is described as providing an opportunity to comment on what the Government’s priorities for change should be, and where New Zealand should aim to position itself globally in the competition for capital.
Specific regulatory areas for change
As well as big picture questions, the discussion document seeks feedback on options for change in eight regulatory areas:
| 1. Product disclosure statements | The extent to which current product disclosure statement (PDS) requirements for companies including those listing on the NZX is proportionate and meeting their intended purpose.The suitability of the current format requirements for the PDS. Any push to simplification of investor disclosure will require a balancing act – against the risk of “dumbing down” disclosure. We have been here before – with investment statement. One ongoing concern is the need to provide focused, relevant, disclosure of matters that are relevant – rather than a laundry list of generic risks, only some of which may be relevant to the specific investment. |
| 2. Director and issuer liability | Feedback is sought on potential change in relation to two aspects of civil liabilities for directors and issuers: Liability attached to directors and issuers for failure to comply with continuous disclosure requirements (relevant to NZX issuers only).The settings for ‘deemed’ director liability for disclosure and financial reporting contraventions (for NZX issuers, and could apply to all issuers). Whilst the CBL and QEX decisions have made headlines, it is international benchmarks (particularly Australia) that appear to be the drivers for reconsidering the approach. |
| 3. Catalist market settings | Feedback is sought on two possibly adjustments to regulatory settings for the Catalist market: Adjust or remove the market size thresholds (the size of businesses that can list on Catalist).Adjust the audit requirement standards for listing on Catalist. |
| 4. USX audit requirements | Feedback is sought on whether the current audit requirements applying to businesses listing on USX remain proportionate, particularly for smaller issuers, and whether they may be discouraging market participation without providing commensurate benefits. |
| 5. Crowdfunding and peer-to-peer lending limits | Feedback is sought on whether to consider: Increasing the current limits per issuer on capital raising from retail investors though crowdfunding and peer-to-peer lending.Introducing a per investor limit as an additional investor protection, if the per issuer limit is raised. |
| 6. Wholesale investor settings | Likely to be a hot button topic. Feedback is sought on: the ‘eligible investor’ category of the wholesale investor – particularly the certification process and the requirement to re-certify every two years; andFMA concerns around promotion of wholesale offers to retail investors. But an open-ended question is also posed – seeking other feedback on the current suitability of the wholesale investor exclusion, particularly those categories of wholesale investor involving investment thresholds. |
| 7. Auditor liability | This section is limited to auditor liability in the context of auditors who carry out FMC audits (i.e., audits of entities required to report under the FMC Act) – and whether they should have their liability for unintentional wrongdoing (principally negligence) limited in some way. This section does not seek to address wider questions of auditor liability, where New Zealand is seen as out of step with comparable jurisdictions. And submissions on this topic are encouraged to provide data and evidence that supports the need for change. |
| 8. Broker activity and visibility of offers | Feedback is sought on the role of brokers and related intermediaries in supporting research, analysis, promotion and discovery of investment opportunities, particularly for smaller issuers – and whether there are barriers or gaps that may warrant further policy work, and what the role (if any) for Government might be. |
The closing date for submissions on the discussion document is 25 August.
For more information, please contact me.