Offshore issuers policed under ‘high quality’ regulatory regimes will not have to comply with New Zealand law, the Financial Markets Authority (FMA) confirmed last week.
The June 13 FMA note says the Financial Market Conduct Act (FMC) exemptions essentially extend relief available to overseas issuers under previous Securities Act provisions.
“The FMA’s view is that, where an overseas issuer is already subject to regulation in their overseas jurisdiction that is at least equivalent to that applicable in New Zealand, the costs may outweigh the benefits for investors to have the issuer additionally comply with the requirements of the [FMC],” the notice says. “In certain circumstances, we think it will be appropriate to grant exemptions that allow overseas issuers to rely on the disclosure, governance, financial reporting and audit requirements of their overseas jurisdiction.”
Under the exemptions – to be published in full before the end of July – issuers of existing securities based in “a recognised jurisdiction with a high quality regulatory regime” will be granted complete relief from FMC compliance.
According to the FMA note, full FMC relief would apply to a range of previous Securities Act exemptions including offshore equities as well as Australian “registered investment management schemes” and UK “collective investment schemes”.
However, offers of new securities from approved offshore issuers will have to tack on a warning statement, appoint a local agent for service and lodge some documents with the NZ Companies Office. This exemption currently only applies to “overseas issuers with a primary listing on the main board of the NYSE, the NASDAQ and the London Stock Exchange”, the note says.
According to an FMA spokesperson, only a few exchange-traded funds [ETFs] would be available under the exemption.
“[The exemption] will apply to all securities, so [ETFs] will be eligible provided they are listed on the main board of the NYSE, LSE and Nasdaq,” the spokesperson said. “There are a limited number of listed ETFs on the LSE Main Market that would be eligible. NYSE and Nasdaq do not have ETFs listed on their main board (they are listed on different boards), so those ETFs could not be offered into New Zealand in reliance on the exemption.”
While a few other listed managed funds would be covered by the exemption, unlisted funds from the relevant jurisdictions were not included under the measure, the spokesperson said.
Approved offshore issuers can rely on their home country financial statements and audit standards when making offers to NZ investors.
The regulator also granted relief to overseas custodians from the FMC requirement to obtain “an assurance engagement from a New Zealand qualified auditor”. Another FMC class exemption would allow offshore banks and insurers to rely on Australian audits of their NZ units while removing “New Zealand-specific requirements (director signing and timing for lodgement) when they are not aligned with what’s required in the home jurisdiction of the overseas registered bank or licensed insurer”.
The FMA spokesperson said the regulator uses several methods to assess the ‘quality’ of an overseas regime including: existing external evaluations by respected global bodies; comparability of reporting and audit standards with NZ; and, the degree of cooperation expected from the offshore regulator in question “in the event an issue arose”.
All countries captured by the FMA exemption must also have signed up to the International Organisation of Securities Commissions (IOSCO) Multilateral Memorandum of Understanding.
“For the second, narrower, exemption we additionally consider the particular listing requirements for that market (such as market cap, liquidity, spread) and the ongoing corporate governance and disclosure requirements that the overseas issuer will need to satisfy,” the FMA spokesperson said.
Overall, the FMA says the updated offshore FMC exemptions “will encourage broader participation by overseas issuers in the New Zealand market, while preserving appropriate access to information and investor protection”.
The spokesperson said further jurisdictions could be included under the exemptions if there was “evidence of demand and appropriate regulatory standards”.
“We are also looking to limit the markets to those who we are confident have standards that are potentially higher than New Zealand, not just comparable,” the FMA spokesperson said.