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FMA Bill reappears more balanced

04 March 2011

This article was first published in the Otago Daily Times on 4 March 2011.

The Financial Markets (Regulators and KiwiSaver) Bill emerged from the select committee a more balanced and effective piece of legislation, Chapman Tripp partner Roger Wallis said yesterday.

"The committee has pulled some of the teeth the original Bill gave the Financial Markets Authority [FMA] but has sharpened the FMA's bite in other areas - particularly in relation to unsolicited low-ball offers."

The issue of low-ball offers came to light over the Christmas period when Bernard Whimp approached shareholders in seven major NZX-listed companies with offers well below market value.

Shareholders in Fletcher Building, Telecom, Nuplex Industries, Guinness Peat Group, Contact Energy, Fisher and Paykel Appliances and Vector were targeted by Mr Whimp, who offered as little as 50% of the shares' value.

While the offer was not illegal, commentators said it targeted vulnerable investors during a time of financial stress, when advisers were on holiday.

Mr Wallis said the select committee used the chance created by the Bill to deal with the issue of unsolicited low-ball offers.

The committee's solution included a regulation-making power in the Act to allow rules to be set for unsolicited offers, such as requiring the market price be quoted or a fair estimate of value for an unlisted security, and to require a "pause period" before acceptances could take effect.

The Act would also require a warning from the FMA to be published on the website of anyone making low-ball offers or, where there was no website, in the offer documents.

"The new obligations will be given teeth by the inclusion of civil remedies to allow restraining or corrective orders to be made by the FMA and civil penalties and compensation to be sought from the court for offerer breaches," he said.

Commerce Minister Simon Power said the Bill made changes to the functions, duties and powers of regulatory bodies in order to restore investor confidence in New Zealand's financial markets.

The Bill addressed key recommendations of the Capital Market Development Taskforce, issues raised during the financial crisis and the failures of some finance companies, and concerns around the KiwiSaver regulatory environment.

The Bill gave the FMA the power to exercise investors' rights of action in the public interest but ensured individuals could opt out if they wished.

It also allowed regulations to be made to prevent products being structured to avoid being supervised by the FMA, Mr Power said.

Kepler Group principal Peter Smith said the Bill tied up all of the actions financial advisers were being required to do under the Financial Advisers Act and the Financial Service Providers Act regarding registration and the code of conduct, which came into law on July 1.

"Basically, it gives the Securities Commission the right to play God," he said.

The Bill had been brought into closer alignment with the Search and Surveillance Bill and would allow the FMA to search a thing or a vehicle - including aircraft, trains, ships and bicycles - in addition to a place. ​

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