The Financial Markets Conduct Bill, described by both Commerce Minister Craig Foss and his predecessor Simon Power as a once in a generation shake up of securities laws, has been passed into law.
In a statement welcoming the passing of the Bill, Foss said it addresses the lessons from the global financial crisis and the failure of finance companies and also enacts many recommendations from the Government's Capital Market Development Taskforce.
“The new law will provide better information and protections for investors and clearer rules and options for companies looking to raise capital. It plays an important role in the Government’s Business Growth Agenda to build New Zealand’s capital markets and drive business growth, exports and jobs," said Foss.
"The Bill rewrites many of the rules for how financial products and financial services are offered to the public and how they are governed and operated. It replaces several Acts, including the Securities Act 1978, the Securities Markets Act, the Unit Trusts Act, the Superannuation Schemes Act, and the non-tax parts of the KiwiSaver Act,” Foss added.
Key changes in the Bill Foss highlighted include:
· A new requirement for issuers to prepare a single product disclosure statement tailored to retail investors.
· Two new online public registers that will make offer documents and information much more accessible to investors, their advisers, market analysts, and commentators.
· A new system of escalating penalties: from infringement notices for minor breaches through to penalties of up to $1 million for individuals, $5 million for companies and criminal penalties of up to 10 years’ prison for the worst conduct.
· New licensing regimes for specific financial services providers including fund managers, independent trustees of workplace superannuation schemes, discretionary investment management services and derivatives issuers.
· New forms of capital-raising, such as peer-to-peer lending and crowd-funding.
· New duties on fund managers and supervisors and stronger governance requirements. And;
· A new system to regulate securities exchanges such as the stock market, including allowing for new low cost exchanges to make capital-raising easier and cheaper.
Brings laws up to date with modern technology
"The Bill has been described as a 'once in a generation' rewrite of capital markets law and fully justifies that description," law firm Chapman Tripp says.
The Financial Markets Authority (FMA) will be responsible for implementing the changes and, along with the Ministry of Business, Innovation and Employment, will consult on new licensing frameworks and other operational changes in October.
Chapman Tripp notes one of the drivers of the reforms was to bring the legislation up to date with modern technologies.
"It does this through the new electronic securities register and through the ability to receive and disseminate information on line. Another important driver, acknowledged in the 'additional purposes' section appended to the Purpose Statement, is 'to promote innovation and flexibility in financial markets'. The success with which the Bill achieves this objective will go a long way to determining how well it will withstand the tests of time," says Chapman Tripp.
"We think that, on balance, it has ticked both boxes."
Chapman Tripp says innovations specifically provided for in the Bill include the "stepping stone stock market" and the proposed expansion of the role of crowd funding and peer to peer lending, which should help small companies raise capital more cheaply. Chapman Tripp also argues the broader range of FMA powers should enable the regulator to provide a more proportionate, flexible and consistent response to issues and market developments.
"Examples are the power to rule securities in or out of the Act and the ability to re-designate financial products from one category to another."
The law firm says it welcomes the main reform directions in the Bill, in particular:
- The greater reliance on civil remedies including compensation, and the significant narrowing of criminal liability (although the movement is the other way in the Commerce (Cartels and Other Matters) Amendment Bill and in the poorly conceived Companies and Limited Partnerships Amendment Bill).
- The shift in emphasis away from point of sale disclosure to on-going disclosure for continuously offered products such as KiwiSaver and managed funds.
- The more accessible and coherent exclusions regime, and the formalising of the exemptions built up over the last 30 years.
The Bill will be phased into law from April 1 next year.
Phase one from April will see the introduction of general fair dealing obligations, growth-focussed initiatives including employee share schemes and enabling financial market participants to become licensed including for crowd-funding, Foss said.
Phase two on December 1 next year includes new disclosure requirements, go-live of online registers, licensing obligations and the remainder of the Bill.
"Starting from December 2014, continuous issuers such as managed funds and non-bank deposit takers will have a two-year transition period in which they can continue to comply with the Securities Act 1978. Other issuers will be able to comply with the old law for one year from December 2014," added Foss.