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Brief Counsel

Not for the faint hearted: 400 page draft Financial Markets Conduct Bill

09 August 2011

The Securities Law Review is now in the final phases with the release today of the exposure draft of the Financial Markets Conduct Bill for public consultation. 

The review has always been of epic scale and has stayed true to that tradition.  The initial discussion document, released mid last year, ran to 200 pages.  The draft Bill is more than twice that length.  In between, there have been two hefty Cabinet papers in February and May.

The submission deadline is 6 September, with the Ministry of Economic Development (MED) encouraging earlier responses.  This is relatively tight, given the sheer volume of the documentation - but there will be an opportunity to submit on the Bill itself in early 2012, once referred to Select Committee.

Chapman Tripp has followed the review closely throughout and will be producing detailed commentaries on key aspects of the draft Bill over the next few days.  This Brief Counsel seeks to provide you with a wide angle overview of the Bill and to assist you to navigate the detail.  We also provide links to our previous Brief Counsels.  

Key changes

The Bill is the centre-piece in what Commerce Minister Simon Power has described as a “once in a generation” reform of capital markets regulation and introduces some fundamental changes in regulatory design. 

Key among these is:

  • a shift to regulating products according to their economic substance rather than – as now – their legal form, with capacity for the Financial Markets Authority (FMA) to allocate a product to a category
  • a shift from regulating only those securities offered to the public to a system in which all offerings are regulated unless they are specifically exempt
  • a single product disclosure statement (PDS) to replace the prospectus and investment statement
  • simplified securities advertising rules
  • creation of a collective investment scheme regime under which all schemes must comply with a common set of substantive requirements
  • a generic licensing framework for certain financial market participants, including derivative issuers, fund managers and financial product market operators
  • wider regulation of financial product exchanges with flexibility around the rules to accommodate different markets and to encourage the development of a ‘stepping stone’ exchange for smaller companies
  • civil liability and sanctions focused on compensation for loss, rather than strict liability offences
  • infringement notices for lesser breaches, and
  • criminal liability for egregious breaches of directors’ duties to act in good faith and in the best interests of the company and in relation to reckless trading.

Road map to Bill 

MED has published a commentary highlighting areas for submission and providing a road map to the Bill, identifying which sections deal with each area.

Much of the technical detail and substance on areas such as disclosure content requirements will be contained in regulations.  The Government is promising further “extensive consultation” on these over the coming year.  Also still to be drafted are the transitional and consequential amendments to fully implement the new regimes.

Where to from here?

This is an important opportunity to influence the shape of the Bill which the Government hopes to get into the House in early October, before Parliament is dissolved for the 26 November general election, for enactment early in the next term.

The use of exposure draft legislation is particularly appropriate for technical policy areas which require a practical knowledge of what will and will not work in the marketplace.  Since the unhappy experience of the financial adviser reforms, the Government has favoured this approach as it reduces the risk of legislative error.

To encourage participation, MED plans to hold public stakeholder meetings in tandem with the written submissions.  MED will release the meeting schedule shortly.

Our commentaries on the policy development process prior to today are at the following links:

Thunk! MED releases 200 page review of securities law. (June 2010 discussion paper)

Good first half for Securities Law Review. (February 2011 Cabinet paper)

Reforming collective investment schemes – principle and pragmatism. (February 2011 Cabinet paper - CIS)

Further decisions in Securities Law Review.  (May 2011 Cabinet paper).

For further information, or help with preparing a submission, please contact the lawyers featured.