Amendments to the FMC Regulations released

Friday 20 November 2015

Author: Glenn Joblin

​​Supplementary r​​egulations to the Financial Markets Conduct Regulations 2014 (FMC Regulations) have been released. The Financial Markets Conduct Amendment Regulations 2015 (2015 regulations) largely address disclosure matters relating to non-standard offers which had previously been identified, but were deferred to allow the FMC Regulations to be introduced on time. They also address some subsequent implementation issues, and make a number of minor improvements to ensure the FMC Regulations apply appropriately. A copy of the 2015 regulations is available here.

Most of the amendments come into force on 1 December 2015. However there is a slightly later implementation date for some amendments relating to fund updates and on-going confirmation for derivatives which come into force on 17 December 2015, and some amendments relating to register entries will not come into force until 1 June 2016. There are also transition provisions which extend the implementation date for some of the new requirements until 1 December 2016 to give businesses sufficient time to meet those requirements.

An overview of the key amendments for non-standard offers

Simplified disclosure offers for listed issuers

The 2015 regulations carry over the short-form disclosure relief that was available under the previous Securities Act regime for offers of debt or equity securities that rank equally or in priority to quoted securities (simplified disclosure offers). This is in addition to the existing disclosure exclusion in clause 19 of Schedule 1 of the Financial Markets Conduct Act 2013 (FMCA) (the same class disclosure exclusion) for follow-on offers of existing quoted equity and debt securities of the “same class”, which has been used for rights issues, bond issues, placements, share purchase plans and block trades since its introduction in April 2014.

Instead of meeting the full disclosure requirements in Part 3 of the FMCA, the simplified disclosure offer provisions allow listed issuers to use a “simplified disclosure PDS​”. The requirement for the register entry on Disclose to contain all “material information” not in the product disclosure statement (PDS) does not apply to simplified disclosure offers.

The short-form PDS focuses on the key product information that differs from the issuer’s existing quoted financial products. This includes:

  • making it optional for the PDS to include sections on the overview of the issuing group or on the issuing group’s financial information;

  • in the case of equity products, providing that the PDS need not contain the usual risk disclosures and instead the key information summary (KIS) must alert investors to the market pricing of the quoted products as indicating its assessment of the value of the financial products;

  • requiring the short-form debt PDS to include a description of the risks relating to the issuer’s creditworthiness.

Issuers are also relieved from some of the specific registry entry requirements in the FMC Regulations, including the obligations to include financial statements and details of material contracts on the register entry.

As for offers made under the same class disclosure exclusion, it is a condition of simplified disclosure offers that a “cleansing notice” is released to the market prior to the offer being made, acknowledging that the issuer is in compliance with its continuous disclosure and financial reporting requirements. There is also a specific set of situations provided for when the simplified disclosure offer is not able to be used, such as where the offer would fall within three months of a change to the essential nature of the issuer’s business.

Simplified disclosure offers can also be used for offers of:

  • options where the underlying financial products are equity securities that rank equally with, or in priority to, existing quoted products of the issuer; and

  • convertible financial products where both the convertible and the new products are of the same class as, or rank equally with or in priority to, existing quoted products of the issuer.

Additional provisions are in place for simplified disclosure offers made in relation to securities quoted on NZX’s NXT market.

Changes for managed funds

The 2015 regulations address a range of managed fund situations which were not fully catered for in the FMC Regulations. These include:

  • Managed investment schemes with multiple funds

    In July 2014 Cabinet decided that specific provision should be made for managed investment schemes with multiple funds by allowing them to use information in fund updates in their point of sale disclosure. The 2015 regulations provide for this by allowing such schemes to have one PDS that incorporates by reference a specific fund update for each additional fund that is not covered in the PDS. The additional fund updates (which must be given to investors at the point of sale) will either be the most recent quarterly fund update made publicly available (if a quarterly fund update obligation applies) or the most recent annual fund update. They must include the risk disclosures and information on performance and individual action fees for the fund that would otherwise have been covered by the PDS requirements.

  • Multi-fund investment options and investor options involving life cycle stages

    The 2015 regulations also give effect to Cabinet’s July 2014 decision to tailor the fund update requirements for “multi-fund investment options” and investment options involving life cycle stages to provide investors with more meaningful reporting on these investment options.

  • Supplements for multi–participant schemes

    The 2015 regulations allow employer-specific supplements to be provided with a PDS for an offer of interests in a multiple participant scheme to deal with specific matters which differ for each employer’s retirement scheme (such as withdrawal rights and information relating to annual fund charges, performance-based fees, and other charges). A similar arrangement for such schemes existed under the Securities Act regime.

  • Debt offered by managed investment schemes

    The 2015 regulations make various amendments to the debt PDS requirements to reflect the fact that where debt securities are offered by a managed investment scheme, although the manager is the issuer (for the purposes of the FMCA), it is the scheme’s financial position and credit rating that should be the focus of the PDS, and not the issuing group.

Offers of convertible products

Offers of convertible products which involve different kinds of financial products must be made under separate PDSs specific to each of the financial products, unless an FMA exemption allows for a combined disclosure document. The 2015 regulations change this by introducing bespoke convertible offer requirements for some types of convertible offers.

Bank regulatory capital products are the most common type of convertible offering currently in the market. Previously the offer document requirements for these products were set out in the Securities Act (Banks’ Regulatory Capital) Exemption Notice 2014. The 2015 regulations continue key elements of that exemption notice by amending the limited disclosure document requirements in Schedule 9 of the FMC Regulations to provide for bank hybrid products. They also provide for additional warnings to be included to alert investors to the complex and high risk nature of the products.  

Other substantive changes

The 2015 regulations also:

  • Financial statements for acquired businesses: amend the requirements for the selected financial information table required in debt and equity PDSs to address issues which arise when a member of the issuing group has or will acquire a business or subsidiary;

  • Ongoing client reporting for derivatives: add ongoing confirmation information obligations for derivatives issuers (which come into effect on 17 December 2015, but under the transition provisions a derivatives issuer has the option not to comply with these obligations until 1 December 2016);

  • Pre-offer advertising of mutual recognition offers: allow any exemptions or other relief given for Australian pre-offer advertising requirements to be recognised for the purposes of extending the offer to New Zealand under the trans-Tasman mutual recognition regime set out in Part 9 of the FMC Regulations.

Remedial changes

The 2015 regulations contain a number of minor improvements to ensure the regulations apply appropriately. These include:

  • clarifying various references to retail investors and wholesale investors;
  • clarifying when a confirmation notice must be provided for open PDSs;
  • clarifying the provisions relating to the reconciliation of derivatives investor money held in trust, by allowing for either an equity-based reconciliation or a cash-based reconciliation;
  • adjusting technical aspects of derivatives issuer regulations;
  • addressing known problems with Schedule 8 and 9 of the FMC Regulations (which set limited disclosure requirements for exempted offers under the Act);
  • improving the FMC Regulations' alignment with the practical operation of the online register, Disclose, and the functionality of the Disclose register; and
  • making some fund update improvements based on feedback received from the FMA as a result of its consultation on the template for the fund update.

Removing overlaps and providing consistency between legislation

Additional regulations have also been enacted to remove some overlaps and to provide consistency between various regulatory requirements. The key changes include:

  • the Financial Advisers (Definitions, Voluntary Authorisation, Prescribed Entities, and Exemptions) Amendment Regulations 2015 which:

    • insert an exemption from the obligations imposed on derivatives issuers relating to the handling of client money and client property (in sections 77P to 77T of the Financial Advisers Act 2008 (FAA)) where that money or property is regulated under Part 6 of the FMC Regulations; and

    • provide that the custodian requirements in section 44 of the FAA do not apply to client money or client property if it is held solely for completing a transaction, securing an obligation, or both.

  • the Financial Advisers (Custodians of FMCA Financial Products) Amendment Regulations 2015 which:

    • amend the principal regulation so that the definition of FMCA custodial service does not include a service to the extent that client money or client property is held solely for completing a transaction, securing an obligation, or both;

    • amend a regulation which provides for broker obligations in sections 77P to 77T of the FAA to apply to FMCA custodial services provided to wholesale clients (as defined in that Act) unless all of the clients fall within certain categories of wholesale investor under the FMCA so that the carve-out relating to wholesale investors is extended to include entities controlled by wholesale investors; and

    • give a custodian more flexibility about when it must obtain an assurance engagement with a qualified auditor.

Further changes still to come

MBIE have indicated that a number of the additional policy matters that were raised as part of the May 2015 consultation will be revisited (potentially in July 2016) once Cabinet has had an opportunity to consider and make decisions on those matters.

In addition, MBIE are seeking to address a number of remedial changes to the FMCA in the Regulations Systems Bill. For a list of the issues for which approval has been obtained click here.

The Financial Markets Authority is also currently considering submissions on its March consultation on exemptions under the Act.


This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

For more information
  • Anna Buchly

    Partner Auckland
  • James Cooney

    Partner Auckland
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