As the countdown ticker for the Financial Markets Conduct Act (FMC) deadline switches from months to days just three policy decisions remain outstanding, according to the latest regulatory update.
In addition to clarifying the FMC status of some irrigation companies, the Financial Markets Authority (FMA) to-do list covers the treatment of ‘self-select’ schemes and multi-employer super funds under the new legislation.
Both the so-called ‘self-select’ and multi-employer super schemes face significant compliance problems under FMC, the regulator says.
“The disclosure regime for managed funds under the FMC Act does not work well for ‘self-select’ schemes which sometimes have hundreds of investment options, each of which is a fund,” the FMA note says.
While the three undecided items won’t be wrapped up prior to the FMC deadline (with interim relief offered to schemes individually), the FMA says most of the 14 policy decisions awaiting final paperwork will be in place before December 1 this year.
(Last week, for example, the FMA granted Craigs Investment Partners an exemption from some FMC disclosure obligations for its two current self-select schemes – offered via KiwiSaver and superannuation funds – with conditions attached including the need to attach a warning statement in offer documents.)
To date, the regulator has also approved 17 FMC class exemptions ranging from a temporary hold on DIMS fee-reporting standards to relaxing the ‘independence’ test for sole corporate trustees of restricted schemes.
Concurrently, the Ministry of Business, Innovation and Employment (MOBIE) is drafting a “small number of legislative [FMC] changes”, the FMA note says.
James Hartley, MOBIE head of financial markets policy, said the draft FMC “regulatory tidy-ups” were to be expected with such a wide-sweeping law reform.
“As we’ve gone through the FMC transition there’s been all kinds of niggles that we will be tidying up… there will probably be more of these next year,” Hartley said. “But there’s nothing massively life-changing.”
He said perhaps the most-anticipated FMC change would impact qualifying recognised overseas pension schemes (QROPS) providers.
“There’s been some issues with UK pension transfers to NZ,” Hartley said. “We’re making it easier [with the FMC changes] for NZ schemes to comply with the UK QROPS rules.”
As well, he said the impending tranche of FMC re-regs would remove a sticking point in how managed funds disclose NZ fixed income assets.
“The rest of the changes are pretty technical,” Hartley said.
Meanwhile, the industry has enough to digest with the FMA’s current batch of regulatory rulings and proposals.
As well as setting out rules for forestry and property schemes, some offshore services, and cooperatives, the 14 FMA rulings awaiting legal rubber-stamping include a call to label some listed products as managed investment schemes (MIS).
“We have decided to designate shares that are in economic substance more akin to MIPs [managed investment products] than equity securities as MIPs in an MIS,” the FMA notice says.
The FMA says it will issue three class designations to define when equities fall under the MIS rules.
“It may not be before 1 December 2016, however we will consider the use of our power to issue an individual designation notice in respect of any shares proposed to be issued with these characteristics in the interim period before our class designation comes into effect,” the regulator says.
Furthermore, the FMA notice lists 13 items where it won’t be taking any FMC-related action.
For instance, the regulator says it will not be providing fund update templates as that “would create delays, uncertainty and additional cost”.
“We have been working with market participants who are putting together their first fund updates under the FMC regime and have been generally happy with the documents produced,” the FMA says. “We expect these will set the standard. Therefore we do not believe a framework is required at this stage.”
Additionally, the regulator has declined to provide an exemption to ‘soft closed’ Australian-based funds under the trans-Tasman Mutual Recognition of Securities Offerings (MRSO). In Australia, soft-closed funds do not require an offer document but would in NZ under the FMC.
However, the FMA says the mutual recognition agreement could be due for an update.
“There may be a case to consider whether there is scope for a broadening of MRSO to account for the increasing use of reduced disclosure carve-outs in both regimes,” the notice says.
Elsewhere, the regulator has opened the barn door for horse-based investments but has not explicitly let the dogs out.
Under the FMA ruling “horse bloodstock syndicates and bloodstock companies” will be exempt from the “disclosure, governance, financial reporting and audit requirements” of the FMC.
“We intend also to declare that offers of interests in horse bloodstock syndicates and bloodstock companies would not be ‘regulated offers’ under the FMC Act,” the note says. “… We have also decided not to grant a similar exemption for greyhound bloodstock syndicates and companies as no need for relief has been identified.”
The FMC comes into force proper in 33 working days.