NZ To Overhaul Securities Law

by Mary Swire, LawAndTax-News.com, Hong Kong

25 June 2010

New Zealand’s Commerce Minister, Simon Power, has called for public submissions after releasing a discussion document on New Zealand's securities law.

This discussion paper seeks submitters’ views on the Ministry of Economic Development’s proposals to substantially revise New Zealand’s securities laws and update its regulatory regime. The current Securities Act is now more than 30 years old. Although it continues to be amended and improved, the Ministry believes that weaknesses remain and grow more apparent as the country’s capital markets evolve and other countries update their regulatory regimes.

The document therefore proposes a new Securities Act to replace the Securities Act 1978 and the Securities Markets Act 1988, as well as amendments to other relevant legislation. It picks up many of the recommendations of the Capital Market Development Taskforce, and builds on the recent decision to establish a new consolidated market conduct regulator, the Financial Markets Authority.

The proposals also compliment changes to financial sector regulation, as well as changes to improve the regulation of KiwiSaver schemes.

"These proposed changes will contribute to strengthening and improving our financial markets, as well as restoring mum and dad investor confidence to invest in those markets," Power said. "This review aims to strike a balance between open markets and the prudent stewardship of investors' money."

The discussion document is divided into five chapters which deal with the following matters: the definition of financial products for the purposes of the new Act; the types of offers of financial products that are subject to the Act and the exemptions that apply for certain investors; the disclosure requirements for issuers covered by the Act; the governance of managed funds; and a range of other matters, including potential additional powers for the Financial Markets Authority.

In particular, the Ministry proposes expressly targeting the new Act at four specified categories of financial products: equity, debt, collective investment schemes, and derivatives. It proposes only to regulate financial products for which generating a financial return or hedging financial risk is a significant feature.

The Financial Markets Authority will be able to “call in” products that are substantively similar to the four products that the Ministry proposes the regime focus on, but fall outside a strict reading of the definitions, so that they become regulated. They will also be able to shift products from one category to another category to ensure that products are regulated appropriately.

In addition, the Ministry proposes that a standard framework be applied to all collective investment schemes regardless of their legal form. This framework would require all collective investment schemes to have an external supervisor, who would be licensed under the licensing regime established by the Securities Trustees and Statutory Supervisors Bill.

Submissions to the Ministry of Economic Development close on August 20.

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