Once-in-a-generation re-write of securities law introduced

  • Simon Power

A bill which overhauls securities law to improve financial market conduct and restore investor confidence in New Zealand’s financial markets was introduced to Parliament today by Commerce Minister Simon Power.

The 560-page Financial Markets Conduct Bill is the result of a comprehensive review of securities law and takes into account the work of the Capital Markets Development Taskforce, the effects of the global financial crisis, and the failure of finance companies.

“Re-building investor confidence in our financial markets has been one of my main priorities as Minister of Commerce over the past three years," Mr Power said.

"We have done a lot of work on reforming regulation of the financial sector, including implementing the financial adviser regime, introducing auditor regulation and the licensing of trustees and statutory supervisors, and establishing the Financial Markets Authority – and this bill largely completes that."

Key proposals include:

  • Replacing the requirement for issuers to prepare a prospectus and investment statement with a requirement to prepare a single product disclosure statement tailored to retail investors.
  • Introducing civil pecuniary penalties of up to $1 million for individuals and $5 million for companies if they make misleading statements in product disclosure statements and advertisements.
  • Modifying the liability framework for breaches of securities law. The bill proposes a system of escalating liability from infringement notices for minor breaches through to criminal penalties of up to 10 years’ imprisonment and fines of up to $1 million for individuals and $5 million for companies for the most egregious conduct.
  • Increasing the maximum period for prohibition by the Financial Markets Authority or the Registrar of Companies of a person from managing a company from 5 years to 10 years, and allowing the High Court to impose orders for an indefinite period.
  • Establishing licensing regimes for specific financial sector participants: fund managers, independent trustees of workplace superannuation schemes, derivatives dealers, and peer-to-peer lenders.
  • Introducing stricter requirements for managed investment schemes, including new duties on fund managers and supervisors and stronger governance requirements.
  • A new system to regulate securities exchanges.

“This bill seizes on a once-in-a generation opportunity to re-write our securities law – which has been subject to decades of ad hoc reform – in an integrated and coherent manner.

“It will play a crucial role in restoring investor confidence by providing better information and protections for mum and dad investors, as well as setting clearer rules for companies looking to raise capital.

“The reform of our securities law has been subject to extensive public consultation, including the release of a discussion document and a draft exposure bill, to ensure the legislation provides a robust and enduring framework for our capital markets.

“I’d like to thank the financial market industry for their constructive engagement during the design of this bill, and I expect that will continue as the bill makes its way through the parliamentary process.”

The bill replaces a number of pieces of legislation, including the Securities Act 1978, the Securities Markets Act, the Unit Trusts Act, the Superannuation Schemes Act, and the non-tax parts of the KiwiSaver Act.

Submissions on the exposure draft of the bill are available on the Ministry of Economic Development website at www.med.govt.nz/investment

The bill can be found at www.parliament.nz