Third phase consultation on FMCA regulations

​Now the big one for market participants – draft point of sale and on-going disclosure regulations under the Financial Markets Conduct Act (FMCA) to cover the core product types. 

The Ministry for Business, Innovation and Employment (MBIE) has just released an exposure draft and commentary for Part 3 FMCA disclosure of equity and debt products, managed funds and other managed investment schemes (for example, forestry partnerships) and derivatives.

Submissions close on 20 June 2014.

Focus of third exposure draft

The third exposure draft and accompanying commentary focus on the core disclosure content requirements for financial products and on the mutual recognition regime for securities offerings with Australia.

Much of the content was previously consulted on last October, when draft disclosure requirements were released along with the first exposure draft of regulations.

This third exposure draft reflects submissions on the disclosure requirements and further thinking by MBIE and FMA.

PDS page length caps

In December, MBIE floated possible page limits on document length as a “circuit breaker” to push market participants toward shorter documents. 
MBIE has decided to persist with this, in setting the following caps.  Issuers must comply with at least one of the limits – page, or word.
​Financial Product ​Page limit
​Equity 60 pages36,000 words
​Debt 30 pages18,000 words
​MIS (funds) 12 pages7,200 words
​MIS (other) 60 pages36,000 words
​Derivatives 30 pages18,000 words
In addition, the Key Information Summary (KIS), which must appear at the front of any PDS, must be no more than two to four pages depending on the product type.
PDS disclosure will also need to meet the clear, concise and effective standard in the FMCA.

Non-GAAP disclosure

MBIE has decided to require prominent disclosure of selected key financial measures, not all of which are GAAP disclosures.  The required disclosures include prospective financial performance measures of EBITDA and net profit after tax.
We welcome this development, and support some of the more technical detail and reconciliations being put simply on the online register rather than in the PDS disclosure for non-expert investors. 
It represents a sensible departure from some of the stricter requirements of recent FMA guidance on non-GAAP financial information.

Earlier consultation rounds

The earlier consultation phases, with links to Chapman Tripp’s commentary, were:
• changes effective from 1 April this year
• governance and market disclosure provisions, and
• preliminary consultation on disclosure requirements.

From here

MBIE plans a more targeted consultation for the narrower specialist product categories, such as financial products issued by registered banks.
We understand that FMA plans to consult on class exemptions, and frameworks and methodologies, to support the new disclosure regime in the next few weeks.
Additional disclosure matters are still being worked on, including variations for particular products and issuers, and the service disclosure statements for discretionary investment management services (DIMS). MBIE will consult further on these matters during the exposure period and after.
For further information or assistance in preparing a submission, please contact the lawyers featured.

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Related topics: Financial Markets Conduct legislation; Financial services regulation; Financial Markets Authority

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