First published 2 April 2015
An exclusion from the standard requirements of the Financial Markets Conduct Act 2013 regulated offers regime applies to a category of wholesale investor where the minimum investment is at least $750,000.
To rely on this exclusion, a prescribed warning must be included on offer documents and an investor acknowledgement obtained.
However, some businesses and professionals have raised concerns that the warning and investor acknowledgement is not practical in some circumstances and, among other things, could lead to fewer offers being made by overseas-based issuers in New Zealand.
The FMA was looking for submissions on the requirements of the $750,000 investment exclusion to help us determine if a class exemption is appropriate.
21 May 2015
After considering submissions received the FMA has agreed to grant limited short term exemptions for offerors of certain types of debt securities seeking to rely on the $750,000 investment exclusion from the investor acknowledgement and warning requirements in Schedule 8 of the Financial Markets Conduct Regulations 2014. The effect of the exemptions will be that:
- for offers of kauri bonds, the warning and investor acknowledgement will not be required;
- for other offers of unsubordinated debt securities, the investor acknowledgement will not be required and a single warning will be required on the principal terms sheet given to the investor (and not on every document that contains the key terms of the offer).
The FMA has decided to grant the exemptions on a short -term basis (i.e. for 12 months). This is to enable FMA to monitor the use of the exemptions and carry out a general review of how the exemptions are working, including considering whether there is any inappropriate use of the exemptions.
The reasons, on which we consider it appropriate to grant the exemption are:
- for offers of Kauri bonds and other unsubordinated debt securities, the costs of requiring the prescribed warning to be placed on every document that contains the key terms of the offer and also requiring an investor acknowledgement will be relatively high for debt securities in comparison with other financial products. This is due to the fluid nature of wholesale debt markets where the terms of an offer tend to be communicated through numerous methods rather than formal offer documents. In these circumstances there is a risk of inadvertent non-compliance with the multiple warning requirement. Additionally, acknowledgements require a verification and monitoring process, adding time, costs and liability risks to an offer process where efficiency is essential to enable offers to be concluded while market conditions remain favourable. These costs outweigh the benefits provided by the warning and acknowledgement to investors for some wholesale debt offers:
- considering the relative size of New Zealand’s debt capital market and the importance of Kauri bond issuances, the exemption from both the warning and acknowledgement for Kauri bonds removes the real risk that compliance costs and liability risks will discourage overseas issuers from extending wholesale debt offers into New Zealand which would limit investment opportunities for New Zealand businesses. We therefore consider that the exemptions promote the confident and informed participation of businesses, investors, and consumers in the financial markets:
- for offers of other unsubordinated debt securities we consider providing relief from these requirements is appropriate provided investors are still made aware they are being treated as a wholesale investor by a prominent warning in the principal terms sheet. The exemptions therefore avoid unnecessary compliance costs for offerors of these wholesale debt securities:
- given these exemptions deal with specific transactional issues in relation to certain wholesale offers of debt securities that have been raised with FMA as being particularly unworkable and the exemptions are granted for a period of only 12 months to allow FMA to monitor the reliance on the exemptions, we consider that the extent of the exemptions is not broader than reasonably necessary to address the matters that gave rise to the exemption.
We aim to get the exemptions in place before the end of June. When the exemption notice is finalised FMA will publish a Regulatory Impact Statement that summarises the regulatory and non-regulatory impacts considered by the FMA in its decision to grant these exemptions. This will also summarise the key themes raised by submitters.