Friday, August 1, 2014

ANALYSIS: New Zealand Introduces Tougher Financial Markets Regime From May 1, 2011

By Roger Wallis, of Chapman Tripp, Auckland.

The regulatory waters lap higher and colder since May 1, 2011, when the new Financial Markets Authority (FMA) was established and related legislative reforms affecting the operation of capital markets commenced.

However, with minor exceptions, the KiwiSaver changes will not apply until October 1 next year (or earlier when a scheme’s trustee elects to adopt them).

This article provides a quick overview of the new landscape and looks at some of the practical implications for financial services.

FMA

The FMA is a bigger and more powerful regulator than the Securities Commission, which it replaced. It has new powers to:

  • exercise an investor’s right of action (provided it judges this is in the public interest and is an appropriate use of resources, and if individual investors do not object). This power can be applied retrospectively to conduct pre-dating the new FMA regime;
  • prevent products being structured to avoid the FMA’s supervision;
  • publish warnings, and require warnings to be disclosed by financial market participants; and
  • undertake search and surveillance, including the power to search a bicycle!

 

It also has oversight of registered exchange markets and new weapons to deal with unsolicited low ball offers.

The FMA is chaired by Simon Allen. The Chief Executive Officer is Sean Hughes. Initial board members are: Shelley Cave, Colin Giffney, Mary Holm, Murray Jack, James Miller, Justine Smyth, Michael Webb and Mark Verbiest. Associate members are: Bruce Sheppard, Rebecca Eele and Arthur Grimes.

The New Regime and its Impact

The changes which will impact most on financial services business practice arise from amendments to the Securities Act and to the KiwiSaver Act. This article focuses on the changes to the Securities Act.

Prospectus Registration and Review

Prospectus registration and review will comprise two stages:

  • a largely “tick-box” process in which the Registrar of Financial Service Providers registers a prospectus on delivery unless it does not meet certain narrow procedural requirements (e.g., it is incorrectly signed or dated), followed by
  • a substantive review by the FMA during which time issuers may not allot or accept subscriptions. This is expected to be five working days, extendable to 10. (Issuers will be advised if the review is to take more or fewer than five working days.)…
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