FMA consults on new financial reporting exemptions and designations for FMC reporting entities

Monday 3 February 2014

Authors: Glenn Joblin and Jenny Hills

​​The Financial Markets Authority (FMA) is seeking feedback on the changes FMA proposes to make to both designations and exemptions in respect of the financial reporting obligations of FMC reporting entities under the Financial Markets Conduct Act 2013 (FMC Act).

FMA proposes to make immediate changes to public accountability designations for some entity classes, and introduce some class exemptions.

FMA's consultation paper is available here. The closing date for submissions is 28 February 2014.

Who does this consultation affect?

While the consultation paper relates to the financial reporting obligations of all FMC reporting entities1, those most affected by FMA's proposals include:

  • entities who currently rely on an exemption relating to financial reporting;
  • New Zealand incorporated companies who may wish to seek an exemption from the financial reporting requirements, for example an exemption to allow compliance with overseas law and accounting standards;
  • recipients of money from conduit issuers;
  • not-for-profit debt issuers; and
  • licensed derivative managers.


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 for issuers, which were previously set out in the Financial Reporting Act 1993 (the 1993 FRA).

FMA will be the primary financial reporting regulator for all FMC reporting entities, and will have regulatory powers to vary public accountability designations and to grant exemptions. These powers will come into effect when the first phase of the FMC Act comes into effect on 1 April 2014.

FMA's exemption proposals

The FMC Act gives FMA the power to grant exemptions to any FMC reporting entity (including New Zealand incorporated companies), if appropriate. Previously, only recipients of money from conduit issuers and overseas entities could be exempted.

The consultation paper sets out FMA's initial exemption proposals. It proposes to retain existing exemptions under the 1993 FRA, unless it is not appropriate or necessary under the FMC Act. In addition, where exemptions are limited by jurisdiction, FMA wants to include as many appropriate jurisdictions as possible. A brief summary of FMA's proposals is set out in the table below.

Ov​​erview of FMA's exemption proposals
No significant policy change proposedFMA is not proposing significant policy changes for:
  • Recipien​ts of money from conduit issuers – exemptions are possible when material information is available from another source.

  • Partial and technical exemptions to address specific issues on an individual basis – although this will now extend to considering exemptions for NZ incorporated entities.

  • Use of overseas auditors – there will be refinements to specific categories covered by exemptions. Exemptions are unlikely to be granted for offers made solely or primarily in New Zealand, unless FMA is satisfied the entity and the auditor have the same level of regulation and oversight as a New Zealand issuer and auditor.

  • Registration of financial statements – FMA may exempt overseas companies who only become FMC reporting entities because they made an offer under the Securities Act 1978 that would be excluded under Schedule 1 of the FMC Act when it comes into force.
Exemptions more limited Exemptions are likely to be more limited for:
  • Accounting records (overseas companies) – generally FMA won't grant total exemptions from the accounting record keeping requirements of the FMC Act, but may grant exemptions for certain aspects which cause difficulties for some entities. For example, the requirement to keep accounting records that enable a company to prepare financial statements in accordance with NZ GAAP.

    The FMA anticipates class exemptions for entities that offer equity, debt or managed investment products where the issuer's offer and governance obligations are mainly regulated in another appropriate jurisdiction.
Broader exemptionsExemptions are likely to be broader for:
  • Use of overseas GAAP financial statements – the Companies Office will no longer have the discretion to accept overseas GAAP statements for FMC reporting entities – overseas entities will need an exemption if they wish to use overseas GAAP financial statements. To rely on the proposed exemption the entity must be required by law to comply with overseas GAAP.

    The FMA is considering the following overseas GAAP requirements for inclusion in the exemption notice: Australian IFRS, EU IFRS, US GAAP, IFRS (unmodified international standards), Singapore FRS, HK FRS, Canadian IFRS, UK GAAP, German GAAP and Japanese GAAP.
Exemptions considered on meritFMA is proposing to consider exemptions for the following on merit:
  • Compliance with overseas law and accounting standards by NZ entities - currently no exemption power under the 1993 FRA.

  • Conduit issuers - currently no exemption power under the 1993 FRA. Exemptions will be considered on a similar basis to recipients of money from a conduit issuer.

  • Exemptions to extend filing deadlines where specific circumstances exist that make timeframes unreasonable or inappropriate - currently the exemption power only exists for overseas entities, and no exemptions have been granted. This category of exemptions will now extend to New Zealand incorporated entities.

FMA's designation proposals

The FMC Act includes default public accountability designations, which relate to the accounting standards an entity must use when preparing its financial statements. FMA is proposing to use its power to vary the designations for the following classes of entities (with immediate effect on 1 April 2014):

  • recipients of money from a conduit issuer – to move these entities to higher accountability;
  • not-for-profit debt issuers – to move some simple not-for-profit entities to lower accountability; and
  • licensed derivative managers – to move these entities to higher accountability.

The consultation paper sets out the reasons behind FMA's proposal to redesignate the above classes of entities, and to retain the default designation for other classes of entities.


February 2014

FMA will be holding consultation workshops (details will be made available on FMA's website here)

28 February 2014

Submissions on new financial reporting exemptions and designa​​​tions for FMC reporting entities close

March 2014

FMA to publish transitional guidance to assist FMC reporting entities to work out which Act they need to report under for each financial year during the transitional period of the implementation of the FMC Act

1 April 2014

Phase 1 of the FMC Act comes into force (including new financial reporting obligations for FMC reporting entities)

April 2014

Indicative timing for FMA to publish its policies and notices

Future consultation

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

1 FMC reporting entities include listed issuers and issuers of financial products under regulated offers, market services licensees (except independent trustees), licensed supervisors, recipients of money from conduit issuers, registered banks, licensed insurers, credit unions and building societies.


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.

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