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Changes for investment companies offering shares to protect investors

Page last updated: 15 May 2017

Media release
MR No. 2017 – 18
15 May 2017

Investors will benefit from greater protection due to a change in the way the Financial Markets Authority (FMA) will treat certain companies offering shares.

Under the Financial Markets Conduct Act 2013, the FMA is able to designate products based on their economic substance, rather than their legal form.

From May 19, a class designation comes into effect so that the FMA will treat newly issued shares in investment companies as a managed investment products (MIP). Shares will fall within the designation if they are issued by an investment company, and there are reduced powers for shareholders and/or entrenched key service provider arrangements.

Investors will benefit because of enhanced disclosure, governance and licensing requirements for managed investment products when compared to the rules governing shares. The requirements include having a licensed manager and a licensed supervisor, who have a statutory duty to act honestly and in the best interests of investors.

The company issuing the shares will also be designated as a managed investment scheme (MIS).

These changes deliver greater consistency and a more level playing field for the industry. The FMA began consulting on this issue in December 2015 after some cases raised concerns both internally and by market participants. It was apparent that the use of a company structure was being used to avoid the compliance obligations for the new MIS regime.

As part of this designation, issuers are also prevented from offering shares which are in economic substance a managed investment product through crowd funding platforms.

Nick Kynoch, FMA General Counsel said: “This class designation is necessary to achieve the consumer protection objectives of the MIS regime. Without this designation, it would be possible to offer shares that are - in economic substance – like MIPs but don’t provide investors with the disclosure and protection required of MIPs. We want to prevent investors being exposed to unnecessary risks of poor governance that could lead to poor investment outcomes. This designation also removes an unfair competitive advantage for some issuers over providers who are compliant with the regulatory regime.”

The designation will not apply if the shares are quoted on the main board of the NZX.


Edwin Mitson
Ph: 021 702 036

NOTE: An investment company is a company whose main business is investing. This could be in areas such as financial products, commodities, land or buildings.

An information sheet on the designation is available here.

The Regulatory Impact Statement for this designation can be found here.