|Name of notice||Charity Debt Securities|
|Gazette Notification Date||2013-11-28|
|Date In Force||2013-12-01|
26 November 2013
FMA has completed its review on the extent of exemptions for charities from Securities Laws. The existing notice giving exemptions, the Securities Act (Charitable and Religious Purposes) Exemption Notice 2003 (the 2003 Notice), will expire on 30 November 2013. The 2003 Notice provided exemptions from standard compliance requirements in relation to two distinct types of offers:
FMA has decided to grant the following two new exemption notices which will come into force on 1 December 2013.
The Securities Act (Charity Debt Securities) Exemption Notice 2013 which will exempt registered charities from the trustee, registered prospectus, investment statement, and advertising certificate requirements in respect of offers of debt securities.
The Securities Act (Community and Recreational Purposes) Exemption Notice 2013 which will exempt non-profit organisations such as community-based recreational clubs from the statutory supervisor, registered prospectus, investment statement, and advertising certificate requirements in respect of offers of participatory securities.
The Securities Act (Charity Debt Securities) Exemption Notice will come into force on 1 December 2013. Charities will have until 1 February 2014 (during which time they will be able to continue to rely on the exemptions in the 2003 Notice) to transition to the new requirements under the new notice.
Key changes to the new notice include:
While these exemptions from the Securities Act regime are envisaged to be available until 30 November 2016, we will monitor how issuers are relying on the notice and may impose additional requirements to address any risks emerging from its operation.
Any religious organisation that considers it will have difficulty complying with this requirement without significant risk of adverse impact on the ability to repay the debt securities should contact FMA to discuss whether another solution can be explored.
These exemptions cannot be relied on to provide relief from any parts of the Financial Markets Conduct Act. All organisations raising funds by the issue of debt securities can transition to that regime from 1 December 2014 and must have transitioned to that regime by 30 November 2016.
This means they will be subject to the full disclosure, governance, and supervision requirements under that Act.
FMA will continue to liaise with the Ministry of Business, Innovation, and Employment (MBIE) on the development of the regulations to support the Financial Markets Conduct Act and we encourage issuers to also engage with MBIE on the proposals for regulations.
Information gathered from the notification and reporting requirements under the new notice will assist with our consideration in the future of whether there should be any exemptions from the new regime.
In relation to the Securities Act (Community and Recreational Purposes) Exemption Notice 2013, FMA has decided to grant exemptions substantially the same as those contained in the 2003 Notice. The scope of organisation able to rely on the exemptions will be broadened as set out below.
The 2003 Notice exempted charitable and religious organisations from the prospectus, investment statement, trustee and advertising certificate requirements when offering and allotting debt securities, provided that investors receive an information document prior to subscription. The information document required a prominent warning statement explaining that the organisation was not subject to standard offer document requirements.
In reliance on the 2003 Notice, non-religious charitable organisations could have outstanding a maximum of $2 million in debt securities at any time, and could raise up to $500,000 in any 12 month period. These limits did not apply to religious organisations raising funds for religious purposes.
Following consideration of initial submissions FMA released detailed proposals for consultation. These proposals were:
We received a small number of submissions, the majority being from Christian religious organisations. Generally submitters were supportive of the proposals. However, several religious organisations did not support the introduction of the proposed financial limits on fundraising, nor the time proposed for transition.
The 2003 Notice exempts charitable and religious organisations, such as community based recreational clubs, from the requirements for a prospectus, investment statement, statutory supervisor and advertising certificate in instances where they offer interests which give members a right to use their assets or other property on the basis of payment of membership subscriptions or other fees.
These exemptions provide substantial relief from the regime that relates to offers of financial products in the circumstances that these interests, while technically securities, are not financial products in any conventional sense. The exemptions apply in limited circumstances, namely where the rights of subscribers are limited to the use of the issuer’s property, voting at meetings of security holders, and pro rata share of the issuer’s property on liquidation. Additionally, conditions limit the liability of a holder of the security to the amount of fees that are approved by the majority of holders in a general meeting.
During 2012 to 2013 FMA consulted on the continuation of these exemptions. FMA particularly sought comments on broadening the application of the exemptions so any non-profit organisations could rely on them.
Submissions were limited but generally supportive. A few submitters, which are registered charities, did not agree with this proposal, but did not identify any risk the proposal would raise.
FMA considers that these interests, whilst technically securities are not financial products in any conventional sense. The exemptions facilitate the operation of these non-profit organisations in these circumstances by relieving them from unnecessary compliance with the securities law regime.
We also consider that there is no reason why the exemptions should not be available to all non-profit organisations.
FMA does not envisage these exemptions will need to continue to be provided from the new FMC regime when it comes into effect. This is because we do not consider the interests fall within the definition of schemes that are regulated by the FMC Act. We will consult on this in the context of consultations on any new exemptions proposed from the new regime.
For copies of the above two exemptions notices and the full statement of reasons please go to:
If you have a specific question about these exemptions you can email us by using our online enquiries/question form or phone us on: 0800 434 567.
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