This week MBIE called for submissions on proposed amendments to the Financial
Markets Conduct Regulations 2014 (FMC Regulations) and related
regulations issued for the Financial Markets Conduct Act 2013
(FMCA) regime.
Copies of the consultation document and the exposure drafts of the proposed
amendment regulations are available here. Submissions close on
2 July 2015.
Summary
A number of the proposed amendments address matters which were deferred when
the FMC Regulations were put in place for the 1 December 2014 FMCA
implementation date. The proposed regulations also address implementation issues
that have been raised, and make a number of minor improvements to ensure the
regulations apply appropriately.
The key amendments include:
new short-form disclosure for offers of shares or other products that rank
equally or in priority to existing quoted financial products (which is an
addition to the FMCA Schedule 1 disclosure exclusion for offers of financial
products of the same class as quoted financial products);
bespoke disclosure requirements for offers of convertible financial products;
and
different forms of managed fund disclosure.
MBIE are also seeking feedback on various matters relating to offers of
options by way of issue for financial products.
Further details on the proposed amendments are set out below.
Timing of proposed amendments
The amendments are expected to be made in the third quarter of 2015, and MBIE
have indicated that some may be in force by 1 December 2015 to permit
short-form offers and convertible offers to be made under the FMCA using the
proposed relief.
A longer transitional period is being proposed for other disclosure
requirements where more business changes may be needed for implementation.
Overview of proposed amendments
Short form disclosure
The exposure draft of the Financial Markets Conduct Amendment Regulations 2015 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 products that have been quoted. This is in addition to the
disclosure exclusion in clause 19 of Schedule 1 of the FMCA for follow-on offers
of existing quoted equity and debt securities.
The proposed changes will apply to offers of debt or equity securities that
rank equally or in priority to products that have been quoted for at least three
months on a licensed market. Instead of meeting the full disclosure requirements
in Part 3 of the FMCA, MBIE is proposing that these offers would be made under a
short-form offer document or “simplified disclosure PDS” (accompanied by a
“cleansing notice”). In addition, they will not need to comply with the
requirement for the register entry to include all “material information” not in
the PDS.
MBIE are seeking feedback on whether the proposed simplified disclosure PDS
provides the right balance of information for investors, while reducing
disclosure burdens on issuers. They are also seeking feedback on whether the
proposed cleansing notice process works appropriately for these offers.
“Rights” components of offers
The simplified disclosure PDS proposals cover offers of options by way of
issue over existing quoted products. However, MBIE note that it has been
suggested that the “same class” offers exclusion (in clause 19 of Schedule 1 of
the FMCA) would be a more appropriate form of relief for these option offers.
Accordingly, MBIE are interested in further feedback on whether there are
significant benefits in extending this exclusion to cover options by way of
issue and whether this would result in less useful information being available
to investors.
Extending short form disclosure to offers by unlisted
issuers
MBIE are interested in receiving feedback on whether there are significant
benefits to unlisted issuers in reducing disclosure requirements for offers to
existing holders of products. In particular, the question is whether the generic
PDS requirements, now that they are shorter, result in disclosure that is
markedly more burdensome for unlisted issuers, and less useful for investors,
than the previous short-form requirements under the Securities Act regime.
Offers of convertible products and options
MBIE is of the view that there is value in moving beyond reliance on
Financial Markets Authority (FMA) exemptions for convertible
offers and setting the convertible offer document requirements in the
regulations. The current proposals in the exposure draft:
set the base disclosure document and register entry according to the nature
of the convertible product;
require additional disclosure on certain matters relating to the new product
(with less required when the new product is quoted);
require some of the prescribed statements to be amended to deal with the new
products;
give a “permission” to include extra information about the new product (or
new issuing group) where the issuer reasonably considers it useful to investors;
and
provide relief from the obligation to include “all material information” on
the register if the new product is quoted, to the extent that that information
has previously been disclosed to the market.
MBIE are however seeking feedback on whether this approach is suitable for
all convertibles, and query whether a better approach may be to rely on the FMA
to continue to set more bespoke offer document requirements via FMA exemptions.
Bank regulatory capital products are the most common type of convertible
offering currently in the market. The current offer document requirements are
set by the Securities Act (Banks’ Regulatory Capital) Exemption Notice 2014. The
proposed regulations continue key elements of that offer document by requiring
additional warnings to be included, alerting investors to the complex and high
risk nature of the products to the bank PDS in Schedule 9 of the FMC
Regulations.
Options by way of issue
The exposure draft of the regulations does not deal extensively with offers
of options, by way of issue, for financial products. MBIE query whether there is
any practical benefit in making further modifications to deal specifically with
options. In its view, given that an option is the same kind of financial product
as the underlying product, the usual product PDS (or simplified disclosure PDS)
could be used for the option and underlying product together.
MBIE also do not expect that options by way of issue will commonly require
Part 3 FMCA disclosure. For example, they point out that options over unquoted
products are used within employee share schemes and in this case will likely use
the employee share scheme exclusion in Schedule 1 of the FMCA.
MBIE are interested in feedback as to whether there are practical problems
with using the usual PDS disclosure for options by way of issue that the
regulations should address.
Managed funds
The exposure draft of the regulations address a range of managed fund
situations which were not fully catered for in the FMC Regulations including:
providing for disclosure needs for multiple employer schemes and defined
benefit schemes;
providing a version of the fund update for multi-fund investment options;
providing for use of fund updates at the “point-of-sale” to supplement, or
form part of, the PDS for managed funds; and
ensuring disclosure works for debt offered by managed investment
schemes.
Other substantive changes
Other key changes proposed in the exposure draft include:
Financial statements for acquired businesses: Additional changes are
being proposed for the selected financial information table required in debt and
equity PDSs to address issues relating to multiple acquisitions of other
businesses;
On-going client reporting for derivatives: On-going client reporting
obligations for derivatives issuers which are based on the reporting obligations
set out in the first exposure draft of the FMC Regulations (released in October
2013) are to be added to Part 6 of the FMC Regulations;
Pre-offer advertising of mutual recognition offers: Offers under the
mutual recognition regime with Australia must comply with Australian pre-offer
advertising requirements. However, in some cases there are exemptions or other
relief given from those requirements. The proposed amendments allow that relief
to also be recognised for the purposes of the mutual recognition regime in New
Zealand.
Remedial changes
The exposure drafts of the amendment regulations contain a number of minor
improvements to ensure the regulations apply appropriately. This includes:
removing the need for a provider of discretionary investment management
services (DIMS) to process transactions through an independent
person, whether they are providing DIMS under the FMCA or the Financial Advisers
Act 2008 (FAA);
removing the overlap for unlicensed derivatives issuers in respect of their
trust obligations under the FMC Regulations and their equivalent general
obligations under the FAA;
addressing known problems with Schedules 8 and 9 of the FMC Regulations
(which set limited disclosure requirements for offers made under the FMCA
Schedule 1 exclusions);
adjusting technical aspects of derivatives issuer regulations;
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.
Further changes still to come
MBIE acknowledge that the proposed amendments do not resolve all
implementation issues that have been raised, and have indicated that they will
publish a list of further issues that they are currently working on their
website (which will be updated periodically).
In addition, MBIE is 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.
FMA is also currently considering submissions on its March consultation on exemptions under the FMCA, which, as
MBIE point out, need to be viewed alongside the FMCA and FMC Regulations for a
full picture of the regime.
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.