A derivative could include a futures contract or forward; an option or swap; a contract for difference, margin or rolling spot contract or a cap, collar, floor or spread.
Who needs to comply
Under the FMC Act, you must be licensed to make a regulated offer of derivatives. A regulated offer includes any offer of derivatives when disclosure must be made to one or more investors. For example, a retail investor. See section 41 of the FMC Act.
Licensees obligations include notifying the FMA of certain events and providing us with information. For example, you must notify us when a new director or senior manager is appointed by completing a declaration form.
Standard conditions for derivatives issuer licences
The licence is subject to a condition that the licensee or authorised body may, under the licence, provide only the market services or class of market services to which the licence relates and for which each person is authorised under the licence; and the conditions imposed by the FMA under section 403– these will generally include the standard conditions and/or any specific conditions; andthe conditions imposed by regulations (if any).
Financial reporting obligations
Derivative issuers are FMC reporting entities and must comply with the following:
Keep proper accounting records to assist with the preparation of compliant financial statements. Records must be kept in English and a copy must be kept in New Zealand.
Prepare financial statements for the group's operation. Financial statements must comply with generally accepted accounting practices in New Zealand.
Ensure that financial statements are audited by a licensed auditor or registered audit firm.
Lodge financial statements and the auditor’s report with the Companies Office within 4 months of the balance date. See more
Offer information in a PDS
All issuers have obligations to disclose offer information in a PDS and onthe Disclose Register. They also have ongoing obligations under the FMC Act.
Schedule 1 of the FMC Act includes small offer exclusions which would require limited or no disclosure. The FMA must be notified of the use of these exclusions.
The FMA offers a pre-registration review service to help issuers and their directors feel more confident that their offer documents are likely to satisfy our expectations. See more.
Derivatives issuers are supervised by the FMA and must comply with the following 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. See more.
Fair dealing obligations
Derivatives are covered under financial products in the FMC Act. Compliance standards prohibit:
Misleading or deceptive conduct.
False, misleading or unsubstantiated representations.
Offers of financial products in the course of an unsolicited meeting. See more.
Derivatives investor money and property handling obligations
Licensed derivatives issuers are required to comply with the new requirements for the handling of derivatives investor money and derivatives investor property. These include:
holding derivatives investor money on trust for the investor
ensuring that derivatives investor money is paid promptly into a specified bank to a trust account
derivatives investor money must be held separate from money held by or for the issuer or offeror on its own account
at least daily, reconciling the derivatives issuer’s records of the amount of derivatives investor money with the amount of money in the trust account
derivatives investor money and derivatives investor property must not be used to satisfy any liability of a derivatives issuer
keeping and maintaining up to date records of derivatives investor money and derivatives investor property held for each investor
obtaining an assurance report, within 4 months after the issuer’s balance date, that states whether, in the auditor’s opinion, the derivatives issuer’s processes, procedures, and controls were suitably designed and operated effectively during the accounting period.
The FMA has wide powers to exempt persons or transactions from some financial markets law requirements. These powers enable us to remove rigidities in the law and ensure requirements for businesses are reasonable and cost-effective. Find out more about exemptions you can apply for under the FMC Act and current exemption notices.