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New Zealand: Implementation of Financial Markets Conduct Act 2013 Commences

(May 2, 2014) On April 1, 2014, the first implementation phase of the Financial Markets Conduct Act 2013 (FMC Act) commenced in New Zealand. (Financial Markets Conduct Act, Ministry of Business, Innovation and Employment website (last updated Apr. 2, 2014); Financial Markets Conduct (Phase 1) Order 2014, New Zealand Legislation website.) The legislation, which was passed by the Parliament in September 2013, replaces or amends several older laws relating to securities and investments and “governs how financial products are created, promoted and sold, and the ongoing responsibilities of those who offer, deal and trade them.” (Financial Markets Conduct Act; Financial Markets Conduct Act 2013, New Zealand legislation website; Financial Markets Conduct (Phase 1) Regulations 2014, New Zealand legislation website.)

The core goal of the FMC Act is to “promote and facilitate the development of fair, efficient and transparent financial markets, and to promote the confident and informed participation of business, investors and consumers in financial markets.” (The History of Changes, Financial Markets Authority (FMA) website (last visited May 1, 2014); see also Financial Markets Authority (FMA), A Guide to the Financial Markets Conduct Act 2013 (Nov. 2013).) It was developed following a government review of securities law and “builds on the recommendations of the Capital Markets Taskforce.” (The History of Changes, supra; see also Press Release, Hon. Craig Foss, Financial Markets Conduct Bill Passes Third Reading (Aug. 28, 2013), BEEHIVE.GOVT.NZ.) Commerce Minister Craig Foss stated that the new legislation represents “once-in-a-generation reforms.” (Press Release, Hon. Craig Foss, NZ Financial Markets Enter New Era (Apr. 1, 2014), BEEHIVE.GOVT.NZ.)

Changes introduced by the FMC Act include:

• Six new types of license covering the following financial market services: crowd funding services; peer-to-peer lending services; managed investment scheme managers; independent trustees; discretionary investment management services; and derivatives issuers. (New Licences for Financial Market Services, FMA (last visited May 1, 2014).)

• New financial reporting obligations for “FMC reporting entities,” a term that covers a broader range of entities than the previous financial reporting legislation. (New Financial Reporting Requirements, FMA, (last visited May 1, 2014).)

• Minimum standards of behavior with which entities that offer various financial products and services must comply. The fair dealing provisions in the FMC Act are based on the consumer protection provisions in the Fair Trading Act 1986 and prohibit:

o misleading or deceptive conduct in relation to financial products and services
o false or misleading representations in relation to financial products and services
o unsubstantiated representations in relation to financial products and services
o offers of financial products in the course of unsolicited meetings. (Fair Dealing, FMA (last visited May 1, 2014).)

• A new online public register for financial products and management investment schemes that will allow investors to access and compare information about different products and schemes. (New Public Registers, FMA (last visited May 1, 2014).)

• A new accountability framework for financial products. One aim of the framework is to build investor trust by “[e]nsuring that Managers and Supervisors have a clear understanding of their respective roles, and holding them to account.” (New Accountability Framework for Financial Products, FMA (last visited May 1, 2014).)

• New disclosure requirements in relation to offers of financial products. (What’s Changing, FMA (last visited May 1, 2014).)

The first implementation phase, which began April 1, 2014, has a number of the new provisions in the FMC Act coming into effect, including the general fair dealing provisions; provisions allowing the Financial Market Authority to accept license applications; financial reporting requirements; and certain disclosure exclusions. The second implementation phase will commence on December 1, 2014, at which time the new disclosure provisions and the governance/accountability regime will come into force. (Timeline for Change, FMA (last updated Mar. 31, 2014). The new public register for financial products is also expected to open for registrations from December 1, 2014. (New Public Registers, supra.)

The New Zealand government has introduced several other reforms relating to the financial sector in recent years, including the establishment of the Financial Markets Authority in 2011 and the passage of new rules for financial advisers in 2008. (Financial Markets Authority Act 2011; Financial Advisers Act 2008, both on the New Zealand legislation website.)