MR No. 2020 – 45
The Financial Markets Authority (FMA) has released guidance on financial products that incorporate non-financial factors, such as ‘green’ bonds and ‘socially responsible’ managed funds.
In developing the ‘Disclosure framework for integrated financial products’ guidance, the FMA is supporting New Zealand’s transition to an ‘integrated financial system’ – which not only takes into account financial returns but also non-financial factors such natural, social and human capital impacts. More information about the FMA’s wider approach to supporting the transition to an integrated financial system can be found on the FMA’s website.
The guidance sets out how 'fair dealing'* provisions in the Financial Markets Conduct Act pertain to integrated financial products, the type of disclosure the FMA expects from issuers of such products, and the FMA’s enforcement options in this area.
The FMA has also updated its information sheet 'Green bonds – same class exclusion' to clarify the application of same class exclusion for vanilla bonds that have undergone a 'greening' process.
Sarah Vrede, FMA Director of Capital Markets, said the FMA’s support for the transition to an integrated financial system is aligned directly to its strategic priorities, in particular promoting trust and confidence in capital markets and supporting better investor and customer decision-making.
“Demand for integrated financial products is continuing to grow, and we want investors to have confidence that these products will deliver what they claim,” said Ms Vrede.
“Misleading marketing, poor product design and other types of ‘green-washing’ all have the potential to undermine investor confidence in integrated financial products.
“We plan to do more to help investors understand such products, and likewise expect issuers to also arm investors with the information they need to decide if their products’ objectives and claims align with each investors’ expectations and values.”
Ms Vrede said the FMA has a range of enforcement tools it can use to address false, misleading, deceptive or confusing behaviour by issuers of integrated financial products.
“At the upper end, we can issue a stop order or direction order, which can force a business to take certain steps to rectify or withdraw an offer. More serious breaches may result in the FMA taking court action.”
The FMA’s release of the disclosure framework for integrated financial products follows stakeholder consultation, during which the FMA sought feedback from the industry and received 38 submissions.
The FMA has adopted a principles-based approach for the guidance, as prescriptive definitions fail to take into account the subjective nature of ethical concepts and the evolving nature of integrated financial products.
* Fair dealing provisions prohibit:
FMA Senior Adviser, Media Relations
021 945 323