The Financial Markets Authority (FMA) has given the hurry-up to non-standard investment schemes to prepare for the imminent licensing regime.
In a release last week, the FMA reminded property funds – including syndications – of their impending Financial Markets Conduct Act (FMC) obligations while also issuing a guide for forestry schemes.
Most mainstream fund managers have either been granted a managed investment scheme (MIS) licence, have an application in the pipeline, or have opted to play in the wholesale market only.
However, it is understood the regulator is concerned about a potentially significant number of other investment managers – including property and forestry schemes – that haven’t yet begun the licensing process or may not even be aware they need to.
Of the current approved MIS managers four are property funds, the FMA release says. The most recent MIS list of 24 managers (with NZ Funds Management the latest to join the fray) includes property investment firms Oyster Management and Augusta Funds.
Earlier this year, FMA boss, Rob Everett, said the regulator expected up to 100 entities could need an MIS licence to operate come December 1.
At the time Everett told Investment News NZ the FMA typically needed at least two months to process an MIS licence application, assuming there were no hitches.
“The FMA has licensed four property investment schemes under the Act so far and, with a growing interest in property schemes recently, would like to start the process of licensing managers of any new or existing schemes that want to be doing business at 1 December,” the FMA said in a release last week.
“In general, the FMA considers that property schemes can and should comply with the same licensing and governance requirements under the Act as other MIS. However there are some specific detailed requirements where, given the characteristics of property schemes, the costs of full compliance may be unnecessary and are likely to outweigh benefits for investors.”
The FMA said a number of class exemptions were in place relating to the custody of real property assets, but managers needed to contact the regulator now to talk “through the minimum standards and level of compliance” required to operate in the retail market from December.
Similarly, the FMA published an MIS guide for forestry schemes last week, with none in that category yet to be licensed.
While the FMA said the legislation excludes small schemes (defined as five or fewer participants) from the licensing regime, some forestry investment products would fall under the FMC.
“If a company is part of an MIS, such as a land-owning company where the shares are held by the partners in a limited partnership, the scheme will still have obligations under the FMC Act as an MIS,” the FMA guide says.
The guide says forestry scheme providers should weigh up a number of factors to determine if they would be caught by the MIS rules, including:
- total MIS funds under management – read as – the total value of the forest(s) and other assets held in each scheme or partnership that you manage as at the financial reporting date
- how many MIS funds you manage – read as – how many forestry schemes you manage
- how many MIS investors in retail schemes – read as – how many investors you have in all the forestry schemes you manage, without double-counting those in multiple schemes. This need not be an exact figure, a good approximation is fine
- is your entity a qualifying financial entity (QFE) – this is unlikely. If you are a QFE, you will already know that
- what experience do your investment managers have – your response should consider various positions related to forestry scheme management and operational roles within forestry management.
“Our approach to licensing is to ensure the approach to meeting the minimum standards is fit for purpose,” the FMA guide says. “In other words, the approach is scaled up or down depending on the applicant’s circumstances and the degree of risk inherent in the scheme or in the manager.”