Published 18 March 2011
Commerce Minister Simon Power, who’s announced he’ll retire from Parliament at this year’s election, came out with longer-term plans for securities law yesterday.
Mr Power said, when he announced Cabinet’s decisions on the comprehensive review of securities law, the next step in the process would be the release of an exposure draft of the new legislation later this year.
Mr Power said: “This is a once-in-a-generation opportunity to modernise our securities law and I’m determined to get it right. Ongoing input from investors & industry is vital to ensure the changes we make can last for the next 30 years.
“The new legislation will be better for mum-&-dad investors as well as for companies looking to raise capital. It will provide clearer, more consistent information for investors, and clarify for issuers the obligations they have to meet.”
He said that, together with the establishment of the Financial Markets Authority, the new securities law regime would largely complete the major regulatory reform programme in the financial sector.
That reform includes the financial advisor regime, auditor regulation, the licensing of trustees & statutory supervisors, the prudential regulation of the non-bank deposit regime, finance company moratorium requirements and the requirement for financial service providers to be registered & belong to a dispute resolution scheme.
The key policy decisions by Cabinet included:
Regulated financial products, moving to more principle-based classifications of regulated financial products (debt securities, equity securities, collective investment schemes, derivatives)Disclosure, replacing the requirement for issuers to prepare a prospectus & investment statement with a requirement to prepare a single product disclosure statement tailored to retail investors, tailoring the content of the product disclosure statement to specific financial products and making it heavily prescribed for standardised productsExemptions from the substantive requirements, making the exemption for sophisticated investors principles-based with some clear bright-line testsCreating a new small-offers exemption, similar to that in Australia, to help small companies raise capitalOther exemptions will be carried over with clarifications to improve workability & certainty. If an exemption applies, issuers will still have general obligations under securities law, including not engaging in misleading or deceptive conductCollective investment schemes, creating a single collective investment regime in which schemes will have to comply with a common set of substantive requirements to ensure an adequate level of investor protection. Such schemes will have an external supervisor responsible for custodianship of the scheme and supervising the managerRequiring fund managers to be authorised by the Financial Markets Authority and subject to a fit-&-proper-person testThe liability regime, focusing securities law on civil remedies and compensating investors, with serious wrongdoing resulting in criminal liability, making the most serious breaches of directors’ duties result in criminal liability, increasing the maximum period for the prohibition of a person from managing a company, from 5 years to 10 years, and allowing the High Court to impose orders for an indefinite periodAdditional powers, giving the Financial Markets Authority the power to issue ‘no action’ letters, and also a role in the promotion of financial literacy.Regulation of exchanges, Cabinet will consider the appropriate regulatory framework for the regulation of securities markets in May, following further work by officialsMiscellaneous, agreement in principle to the establishment of a licensing regime for regulating financial intermediaries, including derivatives dealers & peer-to-peer lenders, and that workplace saving schemes be required to appoint an independent trusteeReplacing prescriptive rules around the contents of advertisements with a prohibition based on the requirement that an advertisement must not contain any material that is likely to deceive, mislead or confuse.
Mr Power said the review would result in a rewrite of legislation, including the Securities Act, the Securities Markets Act, the Unit Trusts Act, the Superannuation Schemes Act and the non-tax parts of the KiwiSaver Act.
“New Zealand’s securities law has been amended many times since the Securities Act 1978 was enacted. The current review provides an opportunity to rewrite the legislation in an integrated & coherent manner. It takes into account the work of the Capital Market Development Taskforce, the effects of the global financial crisis and the failure of many New Zealand finance companies.
“Officials will engage with industry during the drafting process. The Government intends to issue the exposure draft in August for public consultation, and then to introduce the bill to Parliament by the end of the year.”
Link: Cabinet paper
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Attribution: Ministerial release, story written by Bob Dey for the Bob Dey Property Report.