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FMCA's likely impact on company agents and external advisors - an in-depth analysis

15 August 2014

​Chapman Tripp partner Ross Pennington has produced the first detailed analysis of the new disclosure, due diligence, liability and enforcement regimes created by the Financial Markets Conduct Act.

In a paper prepared for the Banking & Financial Services Law Association 2014 conference, held from 9 to 11 August, Ross provides the most comprehensive independent assessment to date of the Act’s likely impact on directors and non-director participants in New Zealand’s capital markets.

What’s in the paper

Parts One to Five document the key changes introduced by the FMCA: where and how they depart from previous practice and the policy intent behind them.

Part Six explores the three bases of civil liability contained within the FMCA: direct liability, which applies to issuers (normally companies); deemed liability, which applies to directors in cases of defective disclosure; and accessory liability, which can capture wider participants in circumstances where, first, the underlying contravention is established, and second, the non-director participant knew of this contravention (for example that there is a material misstatement in an issuer’s PDS).  This section concludes these accessory liability provisions, while relatively unfamiliar in a securities offering context, have settled meanings that should not cause undue alarm for employees, advisers and others participating in retail offering processes. 

Of most interest for those contemplating an FMCA regulated offer or embarking on a review of their disclosure and verification procedures is Part Seven, which examines in detail the defences the FMCA provides to directors and the due diligence requirements which activate these defences.  It traverses some of the grey areas around the legal interpretation of what constitutes “reasonable” investigation, the scope of legitimate delegation, and some ambiguities in the formulation of the defences in sections 409 to 503 of the FMCA.  At the heart of this inquiry are familiar governance principles.   In applying those principles, a key question will be the degree to which due diligence may be treated under the FMCA as a collective and proportionate undertaking, as opposed to a “non-delegable” line-by-line investigation by individual directors.

See also: 

Diagram: FMCA – Civil liability for disclosure defects of participants in an offer of financial products

For related governance notes, see:

The Australasian governance challenge - our old Hilux vs their new Volvo

Directors' backsides exposed if "noses in, fingers out" becomes "hands off, eyes shut'