Licensees have a number of obligations, in addition to the minimum standards and standard conditions set out in their licence.
Changes to directors or senior managers
Changes to directors or senior managers of a licensee and/or key personnel of an authorised body
This notification form must be completed and emailed to [email protected].
Download Notification of change of director or senior manager by licensee and/or key personnel of authorised body PDF.
(Refer Financial Markets Conduct Regulations 2014 r 191)
To notify us of a change to your key people and managers as required by the licensing standard conditions, please send an email to outlining what the changes are and the qualifications and experience of the new or replacing personnel, e.g. attach their c.v.
The FMC Act includes an accountability framework that imposes statutory duties of care on supervisors and on managers of MIS. Managers of MIS must act in the best interests of investors. These general good conduct duties set the tone for the overall accountability framework and apply in addition to the more specific duties for particular circumstances. Ensuring that managers and supervisors have a clear understanding of their respective roles, and holding them to account, is central to building investor trust. Key components include:
- requirements and obligations for licensed supervisors and managers of managed investment schemes, as well as trustees of restricted schemes.
- requirements for schemes to be registered and custody obligations for registered schemes.
- licence requirements for managers.
- requirements for restricted schemes to have a Licensed Independent Trustee.
- powers of intervention for supervisors and the FMA, as well as ongoing register and record-keeping duties for issuers of all regulated products.
Part 4 of the FMC Act has a governance and accountability framework. This framework applies to managed investment scheme (MIS) managers, restricted schemes and their respective supervisors or trustees.
Our Governance guidance describes how the overarching duties of care, acting in the best interests of clients, and fair dealing set the scene for how MIS managers and their supervisors must interact with each other and with the FMA and addresses the need for governing documents to be effective and fit for purpose.
Guidance note: Governance under Part 4 of the FMC Act.
Submit your regulatory returns at FMA online services
As a licensed MIS manager you'll have other ongoing obligations. For example, you must:
- register your scheme before you make a regulated offer, and keep the registration up-to-date
- ensure scheme property is held by the supervisor or another independent custodian and is held on trust
- carry out functions in keeping with the governing document, SIPO, your issuer and market services licensee obligations
- correct material pricing errors or non-compliance with MIS pricing methodology, report these to your supervisor, and take any other steps, including compensation, as required
- monitor your compliance, identify material changes of circumstance, and meet reporting obligations
KiwiSaver Scheme manager obligations
MIS managers of KiwiSaver schemes have additional obligations set out in the KiwiSaver Act 2006. In summary, these obligations include the need to:
See more about these obligations in the sections below and in our useful resources section which contains some specific guidance.
Annual MIS manager regulatory return
All licensed MIS managers are required to complete and submit an annual regulatory return. The return is a series of questions about your business and how your licensed service is used.
The initial reportable period will be 1 July 2021 to 30 June 2022. Completed returns will be due by 30 September 2022. We will notify all licensees when it is time to complete and submit the first regulatory return.
In subsequent years, licensees will be required to complete an annual regulatory return for the 12-month period ending 30 June and submit it to the FMA by 30 September of that year.
The information you provide us through the annual return helps us to:
- better understand your business and the services you offer
- ensure the information we have on your business is current
- focus our monitoring activities more effectively.
Learn more about the questions you will be asked when you submit your annual regulatory return
Submit your regulatory returns online at the FMA's online services portal
Fair dealing obligations
The FMC Act sets out minimum compliance standards of behaviour for people operating in the financial markets.
- misleading or deceptive conduct
- false or misleading representations
- unsubstantiated representations
- offers of financial products in the course of unsolicited meetings.
The Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (the Act) imposes several obligations:
- You must provide a written risk assessment of the money laundering and financing of terrorism activity you could expect in the course of running your business.
- You are required to implement an anti-money laundering and countering financing of terrorism programme that includes procedures to detect, deter, manage and mitigate money laundering and the financing of terrorism.
- You are required to appoint a compliance officer to administer and maintain your programme.
- You are required to perform due diligence processes on your customers. This includes customer identification and verification of identity.
- You are required to report suspicious transactions.
Notifying the FMA
You must notify the FMA of certain events and provide us with information. All notifications should be emailed to the FMA at [email protected], noting the relevant obligation in the subject line of your email. You can notify us when a new director or senior manager is appointed by completing a notification form.
Statements of Investment Performance and Objectives (SIPO)
A statement of investment policy and objectives (SIPO) is a document that sets out the investment governance and management framework, philosophy, strategies and objectives of a managed investment scheme and its investment funds or portfolios. Under the FMC Act, all MIS managers must ensure there is a SIPO for each MIS they manage. Except in prescribed circumstances, you must also register the SIPO with the Registrar, and must lodge any changes to the SIPO with the Registrar. Our SIPO guidance note provides further detail.
Download SIPO guidance note PDF.
SIPO limit break reporting
Download limit break information sheet PDF.
Our information sheet on limit break reporting outlines the reporting obligations of a MIS manager if there has been a SIPO limit break. In addition, please note the following points:
Reporting requirements are the same for any limit break type
There is no difference between the reporting requirements for an active limit break (i.e. caused by investment decisions, whether intentionally or unintentionally) and a passive limit break (i.e. caused by market movements); or a limit break occurring in normal markets or stressed markets.
Reporting should be made in accordance with regulation 96 of the FMC Regulations. Through this report, the MIS manager, among other things, explains the cause of the material limit break and what the MIS manager will do to prevent or minimise the risk of that type of limit break occurring again. We also expect MIS managers to work together with supervisors to have a common understanding of the MIS manager’s systems, processes, and controls to detect, report, and correct limit breaks.
Focus on remedying limit breaks for the right reason
We expect MIS managers to promptly make an active decision about how to remedy any limit break. We do not consider that a material limit break should be corrected within the 5 working day period for the primary purpose of avoiding immediate reporting of a material limit break.
This decision should include reporting any material limit break that remains unremedied at the end of the 5 day working period. You may have valid reasons for not having remedied a material limit break within that period, for example, extreme market volatility, but after 5 working days, the supervisor must be engaged by making the immediate report. We would also expect you to have a plan to remedy the break that you can explain to your supervisor and that you would have engaged early on developing this plan.
Treating limit breaks in underlying funds
For MIS managers exposed to other funds indirectly, in a situation where there is a limit break in an underlying fund, you should seek appropriate information to make an informed assessment of the situation.
Changing SIPO limits
SIPO limits should not be changed for the primary purposes of avoiding limit break reporting, but there may be appropriate reasons to consider SIPO limit changes. It is generally not appropriate to change SIPO limits solely to reduce the likelihood of limit breaks occurring under volatile market conditions. Limits should be appropriate and aligned with your investment strategy.
If a SIPO changes materially you should provide sufficient notice to current investors to allow them to make an informed decision as to whether the scheme or a fund is still suitable for them. You should also review any investor disclosure including their Product Disclosure Statement (PDS) to ensure that an investor is provided with clear, concise, and effective information regarding the fund/scheme, and that information is consistent across the SIPO, PDS and other disclosure.
Managed funds (including KiwiSaver funds) are required to prepare and lodge fund updates.
MIS managers must make a fund update publicly available within 20 working days after the last day of each quarter of each disclosure year.
If the managed fund is a restricted scheme or closed scheme, or the managed fund has a closed section, fund updates must be publicly available within 3 months after the last day of each disclosure year, or the balance date of the scheme in each year.
Details can be found in the FMC Regulations as follows:
The following guidance clarifies sections not made explicit in the regulations.
Annual return graph
We prefer the graph to show the disclosure years in ascending order e.g, 2017, 2018, 2019, 2020, 2021.
The axis label for the last bar that shows average annual return is not prescribed, but it’s important it is clear for scheme participants so they can understand the values in the graph. You can label it ‘Average annual return’ as this is commonly used and is consistent with the statement that must be included below the bar graph - see subclause 62(4) of Schedule 4 to the FMC Regulations.
Fees table – individual action fees
If individual action fees are not charged by the fund, we prefer the statement required by subclause 65(2) of Schedule 4 to the FMC Regulations to be modified so it clearly states scheme participants are not charged individual action fees for specific actions or decisions - see regulation 59 of the FMC Regulations.
Example of how this applies to an investor
We prefer you to use the annual return after deductions for charges but before tax for the value at the end of the second sentence of the statement, ‘At the end of the year, [name] received a return/incurred a loss after fund charges were deducted of $[specify]’. Consider using footnotes to help clarify your example.
The worked example in the fund update is intended to provide information at a general level only. It must be calculated based on the fund’s actual total fund charges. The example cannot be modified to take into account rebates which are only available to some scheme participants.
However, the fund update may include additional information about the effect individual discounts or rebates may have when the MIS manager genuinely believes such information is necessary to clarify the worked example. In deciding whether further information is required, you should consider whether the rebates are available to all scheme participants if so, the extent it will affect the worked example.
References: Schedule 4, clause 66 and regulation 59 of the FMC Regulations.
You are required to include a statement about the extent of currency hedging for the specified fund if that information is material - see subclause 71(3) of Schedule 4 to the FMC Regulations. Therefore, you will need to consider each fund’s particular characteristics and determine whether currency hedging information is material and if a statement is required. As an example, it may be material to state that the fund does not hedge currency if it invests into international equities.
A statement about currency hedging should come after the ‘Top 10 investments’ subheading. However, you can place this statement under the target investment mix if you think it’s more appropriate.
Top 10 investments
The net asset value of the fund is the value of the fund’s assets less liabilities. The 10 highest-value individual assets as a percentage of net asset value may exceed 100% where, for example:
- a fund has less than 10 assets (ie all its assets are in the top 10 investments list) and some liabilities, or
- a fund has significant liabilities (eg, as a result of foreign exchange hedging).
The list of top 10 investments should not include assets that a fund has taken a short position on. Fund updates are required to list the 10 highest-value individual assets of the specified fund at the date of publishing. As individual assets must be directly held by the fund, taking a short position on an asset means the fund does not hold the asset so should not be included.
Correcting previous fund updates
If you discover a mistake in a fund update that has already been uploaded to the Disclose register you should only re-submit the fund update as soon as practicable if the mistake is materially adverse from the point of view of the scheme participant - see regulation 61 of the FMC Regulations. If the mistake is non-material, eg, it is missing the total percentage of portfolio weighting on the top 10 investments, the changes can be corrected in the next fund update.
We recognise the asset categories specified in clause 1(4) of schedule 4 could lead to some uncertainty in relation to certain fixed interest investments such as Kauri bonds. The FMA and the Ministry of Business, Innovation and Employment are currently working to clarify this issue. In the meantime, you could either categorise these bonds as ‘New Zealand fixed interest’ or ‘international fixed interest’ depending upon your assessment of the characteristics of the bonds.
Your PDS and SIPO should provide clarity around the types of assets the fund invests in. We will to assist MIS managers to take a more standardised approach to categorise fixed-income assets in the near future.
MIS managers must provide an annual report. Wording including the prescribed wording that must be used is set out in the FMC Regulations.
Annual reports can be sent electronically, as long as you obtain the scheme participants’ consent first. Once you have their consent you can email the annual report to them either as an attachment or as a website link or you can provide them access to a secure online platform where they can log into their account to read it.
Disclosing the number of managed investment products on issue
Under Clause 78(2) of Schedule 4 of the FMC Regulations, annual reports for schemes that are not KiwiSaver, superannuation or workplace savings schemes must disclose the number of managed investment products (MIPs) on issue at the start and at the end of the accounting period. If a scheme is non-unitised and therefore the number of MIPs on issue cannot be easily quantified you may include additional detail in the annual report, to make the information meaningful for scheme participants. For example, where a scheme is non-unitised, it would be appropriate to also disclose:
- the total number of scheme participants at the start and at the end of the period; and
- the total value of scheme participants’ accumulations, and the number of scheme participants that relates to, at the start and at the end of the period.
Similarly, where a scheme is unitised, disclosing in the annual report the number of MIPs (as required by Clause 78(2)) without also disclosing their value is unlikely to provide meaningful information for scheme participants. Therefore, it would be appropriate to also disclose the value of those MIPs.
Using prescribed wording on KiwiSaver annual reports
For clarity, supervisors should ensure that KiwiSaver scheme managers use the wording required for statements as specified in the FMC Regulations.
In some cases providers of KiwiSaver schemes have substituted their own wording in schemes' annual reports for the statements required under the FMC Regulations. As a result, the meaning of some statements and certifications has changed, requiring the regulator to seek clarification and replacement statements in some situations.
Scheme fees must be disclosed in product disclosure statements and fund updates according to prescribed criteria.
Our guidance note ‘sets out our expectations about how managers, with assistance from their supervisors, should take a disciplined approach to considering and being transparent about the fees they charge and why, and what value their members receive in return.
The guidance applies to both MIS managers and KiwiSaver managers. There is an additional requirement for KiwiSaver managers to notify the FMA of all fee increases.
In addition, our KiwiSaver performance fee guidance note also applies to both MIS and KiwiSaver managers.
MIS manager’s basic fee
The MIS manager’s basic fee is a subset of overall management and administrative charges. It refers to the fees charged by the MIS manager for their services.
In this respect, it distinguishes the management and administrative charges which originate from the MIS manager from those which have been passed onto for services provided by other parties (underlying funds, auditors, supervisors etc).
We note that in some instances, third parties’ services are charged to the MIS manager. The MIS manager then charges these fees to the scheme. These third-party service charges should not be classified as the MIS manager’s basic fee.
References: Schedule 4, clause 1 and 63 of the FMC Regulations.
It is appropriate for trading expenses incurred, when implementing the investment strategy of a fund, to be borne by all scheme participants. However, material costs driven by investors transacting in fund MIPs should generally be borne by those transacting investors as a group over a particular period.
Buy/sell spreads on entry and exit to the fund can be an appropriate tool to help best to achieve this. The fundamental principle in considering the use of buy/sell spreads or any similar tool is fair treatment of investors.
Other tools that can properly allocate those costs include swing pricing and anti-dilution levies.
When necessary, MIS managers should work with their Supervisor to determine the tool most likely to ensure fair treatment of investors.
Buy/sell spreads can also be appropriate for some KiwiSaver schemes
When considering if and when buy/sell spreads are suitable for their funds, KiwiSaver scheme managers should take into account likely fund inflows and outflows under different scenarios. KiwiSaver scheme managers should also be particularly diligent in avoiding making the scheme unnecessarily complex.
Buy/sell spreads can be a permanent feature or limited to material impacts
If buy/sell spreads are implemented, they could be a permanent feature of the fund, or they could be limited to times when the impact of trading expenses incurred due to scheme participant transactions is material to fund returns. Regardless of the approach, as noted below they must be actively managed to ensure they result in the fair treatment of scheme participants.
MIS managers will need to weigh the benefit of implementing buy/sell spreads against other factors, including any additional complexity both operationally and in regard to scheme participant understanding. Similarly, MIS managers not using buy/sell spreads or a similar tool should consider if their use would promote fair treatment of scheme participants. Currently, not all governing documents provide for the use of buy/sell spreads or other tools such as swing pricing or anti-dilution levies. MIS managers should consider if those governing documents should be amended to allow for their use if needed.
Depending on market conditions, costs may be skewed towards buying assets or towards selling assets. In such scenarios buy spreads and sell spreads should be separately determined to ensure they reflect trading costs incurred due to the relevant scheme participant action (buy or sell).
Since the spread is meant to allocate trading costs to the appropriate scheme participant, and to prevent ongoing scheme participants from subsidising transacting scheme participants (or vice versa), the spread should always be applied to the benefit of the and never to the benefit of the MIS manager.
The FMA will monitor the implementation and level of buy/sell spreads in conjunction with MIS Supervisors.
Buy/sell spreads must be actively managed
A liquidity management tool can only be used if allowed in, and in the manner allowed by, the scheme’s governing document. It should also be consistent with the PDS, SIPO, and any other offer documents. Supervisor approval may be required. Where Supervisor approval is not required, we recommend the Supervisor is consulted.
Fair treatment of all scheme participants requires that any buy/sell spread should be maintained at an appropriate level. This implies that the MIS manager must monitor the underlying asset spreads, and the costs of fund transactions, and must adjust the spread so that it is neither too high nor too low. If it is too low, then ongoing scheme participants are subsidising transacting scheme participants. If it is too high, then transacting scheme participants are subsidising ongoing scheme participants.
Maintaining an appropriate spread would require that the MIS manager:
- Set a threshold that would trigger a review of the level of the spread to determine if it is aligned with underlying costs.
- Review the level of the spread on a periodic basis to ensure the level remains appropriate in the overall context of the market.
Buy/sell spreads should be disclosed
If buy/sell spreads for issue or redemption of MIPs or interests in a fund are charged to scheme participants, then this information should be disclosed to scheme participants, including in the PDS and fund updates.
However, there is no requirement to disclose trading expenses (see cl.2(1) of schedule 4 of the FMC Regulations for the definition of trading expense) such as buy/sell spreads or brokerage fees relating to underlying fund assets as part of fund charges where they are incurred by the fund (provided they reflect only the actual cost of buying and selling investments such as brokerage fees and spreads), though they will reduce reported returns. Because of this, and the fact that spreads go to the fund rather than to the MIS manager, our view is that describing buy/sell spreads as ‘fees’ is not necessary.
While noting the ‘fees’ comment in the paragraph immediately above, we consider that it is appropriate to treat buy/sell spreads in a similar way to individual action fees for PDS and fund update disclosure purposes. In the PDS this would include disclosure in the Key Information Summary and the section titled ‘What are the fees?
Clause 37 of schedule 4 of the FMC Regulations details how individual action fees must be disclosed. As buy/sell spreads may rapidly change in stressed market conditions, our view is that the information that 37(2) would require can be fulfilled by:
- Disclosing indicative spreads under usual conditions, noting for example that in stressed market conditions they may materially increase (consider giving an example of what they may increase to); and
- Noting how the actual spread will be set (e.g. it will reflect the estimated trading expenses incurred by the fund in carrying out the buy/sell request); and
- Including a link to a publicly available document with further information such as current buy/sell spreads.
MIS managers should take care to ensure that technical wording is minimised and disclosure is clear, concise and effective. In our view, even the wording ‘buy spread’ or ‘sell spread’ is quite technical and wording that describes the application and effect of the spread is more likely to be effective.
Where buy/sell spreads are mentioned, disclosure should include the fees example required by clause 38(1) of schedule 4 of the FMC Regulations, e.g.:
“[Name] invests $10,000 in the [specify fund name]. A [contribution cost] of [x] is [charged/incorporated in the price that he/she pays for her investment]. This brings the starting value of his/her investment to …”.
Any MIS manager webpage or other publicly available document linked to or referenced in the PDS that contains further information on buy/sell spreads should include the current buy and sell spreads, ideally in a table with the different buy and sell prices. This information should be disclosed in a clear, concise and effective manner.
However, if buy/sell spreads are not limited to estimated trading expenses incurred by the fund because of the buy/sell decision by a scheme participant – i.e. they may go beyond this – then our view is that they should instead be described as a fee and the disclosure of the amount included in the PDS.
If buy/sell spreads are introduced to an existing fund, MIS managers should not only update their PDS and other disclosure, but should also consider how they will inform existing scheme participants.
Our view on buy/sell spreads limited to trading expenses
In our view, a buy/sell spread could reflect the immediate trading expenses incurred by the fund, or alternatively, the average trading expenses incurred by the fund over the short to medium term (if over that term underlying average trading expenses are relatively consistent), due to such transactions.
It is important to note that funds incur trading expenses for reasons outside of scheme participants buying or selling MIPs – for example, to rebalance or actively manage the portfolio. Such trading expenses are not relevant to scheme participant buy/sell decisions and should not be included in buy/sell spreads.