1. Compliance
  2. Supervisors
  3. Your obligations
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Page last updated: 27 Feb 2019

Your obligations

FMC Act provisions 

The FMC Act Part 4 provisions and obligations apply to supervisors.  See our governance pages for more information.

Supervisors must comply with the Financial Markets Supervisors Act 2011 (the FMS Act) and supporting regulations. Compliance involves the following activities:

  • being licensed 
  • report to us at least once every 6 months. The reports ensure we are aware of any changes which may affect supervisors' ability to perform their role to the required standard. It also satisfies us that supervisors are meeting their obligations (See section 25 of the FMS Act). The regulations provide further detail on the matters that are covered in a supervisor's report.
  • report to us right away where supervisors believe:

- they have or may have breached their obligations (section 26(1)(a) of the FMS Act) or
- a material change of circumstances has or may have occurred, or may be likely to occur, for the licensee (section 26(1)(b) of the FMS Act) or
- the information provided for a licence application was, or may have been, wrong, misleading or incomplete (section 26(1)(c) of the FMS Act).

  • disclose to us where the relevant issuer being supervised is, or is likely to become insolvent (section 204, FMC Act) or is in material contravention of their obligations (section 203 of the FMC Act).

Supervisors must also tell us how they plan to respond if there is a contravention or insolvency. In such situations, we have the power to take action to protect the investors' interests.

Reports on issuer breaches

Disclosing contraventions or potential contraventions by issuers is an important part of the licensing regime. It enables us to:

  • monitor the extent and nature of non-compliance by the issuers being supervised
  • assess whether the supervisor has adequate plans to respond to a breach
  • monitor the effectiveness of that action, if necessary
  • work collaboratively, where appropriate, with supervisors to ensure they take steps to address any breach.

When to report

Under section 203 of the FMC Act, the supervisor of a debt security or registered scheme must report to us a material contravention, or a possible material contravention, of an issuer’s obligations. The supervisor must also tell how they plan to act, and the timeline for the action.

The obligation to report contains a materiality threshold, which requires a judgment to be made. We recommend a supervisor takes a precautionary approach and matters are reported where they have begun an internal discussion between supervisor staff as to whether the matter is material or not. This approach is consistent with: 

  • the purpose and function of section 203 reports
  • a focus on investor protection
  • the development of a mutually supportive relationship between us and supervisors.

In particular, if a potential contravention relates to a matter that may result in a statutory penalty for the issuer, the contravention should only go unreported if deemed immaterial, and the supervisor is comfortable that the relevant regulator will not take action.

If a supervisor thinks a contravention or likely contravention has occurred which may adversely impact the investors' interests, the contravention should be reported. It may be helpful to view the matter from an investor's perspective (ie, if you were an investor in the licensed entity, would you consider the contravention to be material?).

Following a section 203 report to us, we might not necessarily direct the supervisor to take a course of action, unless we see a clear need to do so to protect investors.

There have been concerns that a supervisor could be liable to action (from a supervised entity) should a contravention reported be found to be immaterial. Both sections 203 and 204 of the FMC Act have provisions detailing that the protections of section 214 of the FMC Act apply to reports made in good faith.

What to report

We expect each report under section 203 to fully comply with sections 203(1)(a) and 203(1)(b) to tell us:

  • what steps the supervisor plans to take when there is a contravention or possible contravention
  • what date the steps are to be taken.

A date range can be provided. You need to tell us if you do not plan further action.

Following the initial section 203 notification, we may ask the supervisor for reports on the progress and success of the action taken by the supervisor to ensure the supervised entity is taking remedial action. We should be told if the supervised entity does not respond to the supervisor's plan.

Contraventions by supervisors

Under the FMS Act, the High Court may fine a supervisor up to $600,000, if the supervisor contravenes a licensee obligation. Licensee obligations mean an obligation imposed on a supervisor by one, any or all of the following:

  • every governing document
  • the financial product’s terms of offer
  • a court order on a supervised interest
  • the FMS Act 2011
  • the Financial Markets Conduct Act 2013
  • the KiwiSaver Act 2006
  • the Non-bank Deposit Takers Act 2013
  • the Retirement Villages Act 2003.

Further, supervisors may also be liable to compensate investors as a result of the contravention.

Under the FMS Act, anyone acting as a supervisor without a licence or claim to hold a licence may be fined up to $600,000.


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