Government moves to modernise securities law

  • Simon Power

Commerce Minister Simon Power today announced Cabinet’s decisions on the comprehensive review of securities law.

The next step in the process will be the release of an exposure draft of the new legislation later this year.

“This is a once-in-a-generation opportunity to modernise our securities law and I'm determined to get it right," Mr Power said.

“Ongoing input from investors and industry is vital to ensure the changes we make can last for the next 30 years.

“The new legislation will be better for mum and dad investors as well as for companies looking to raise capital. It will provide clearer, more consistent information for investors, and clarify for issuers the obligations they have to meet.”

Together with the establishment of the Financial Markets Authority, the new securities law regime will largely complete the major regulatory reform programme in the financial sector.

That reform includes the financial adviser regime, auditor regulation, the licensing of trustees and statutory supervisors, the prudential regulation of the non-bank deposit regime, finance company moratorium requirements, and the requirement for financial service providers to be registered and belong to a dispute resolution scheme.

The key policy decisions by Cabinet include:

Regulated Financial Products

  • Moving to more principle-based classifications of regulated financial products (debt securities, equity securities, collective investment schemes, derivatives).
  • Giving the FMA the ability to determine that a financial product comes within one of these categories and to move products between the categories.


  • 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.
  • Tailoring the content of the product disclosure statement to specific financial products and making it heavily prescribed for standardised products.

Exemptions from the substantive requirements

  • Making the exemption for sophisticated investors principles-based with some clear, bright-line tests.
  • Creating a new small-offers exemption, similar to that in Australia, to help small companies raise capital.
  • Other exemptions will be carried over with clarifications to improve workability and certainty. If an exemption applies, issuers will still have general obligations under securities law, including not engaging in misleading or deceptive conduct. 

Collective investment schemes

  • Creating a single collective investment regime in which schemes will have to comply with a common set of substantive requirements to ensure an adequate level of investor protection. Such schemes will have an external supervisor responsible for custodianship of the scheme and supervising the manager.
  • Requiring fund managers to be authorised by the FMA and subject to a fit-and-proper-person test.

The liability regime

  • Focusing securities law on civil remedies and compensating investors, with serious wrongdoing resulting in criminal liability.
  • Making the most serious breaches of directors’ duties result in criminal liability.
  • Increasing the maximum period for the prohibition of a person from managing a company, from five years to ten years, and allowing the High Court to impose orders for an indefinite period.

Additional Powers

  • Giving the FMA the power to issue 'no action' letters, and also a role in the promotion of financial literacy.

Regulation of exchanges

  • Cabinet will consider the appropriate regulatory framework for the regulation of securities markets in May this year, following further work by officials.


  • Agreement in principle to the establishment of a licensing regime for regulating financial intermediaries, including derivatives dealers and peer-to-peer lenders, and that workplace saving schemes be required to appoint an independent trustee.
  • Replacing prescriptive rules around the contents of advertisements with a prohibition based on the requirement that an advertisement must not contain any material that is likely to deceive, mislead, or confuse.

The review will result in a re-write of legislation, including the Securities Act, the Securities Markets Act, the Unit Trusts Act, the Superannuation Schemes Act, and the non-tax parts of the KiwiSaver Act.

New Zealand’s securities law has been amended many times since the Securities Act 1978 was enacted. The current review provides an opportunity to rewrite the legislation in an integrated and coherent manner. It takes into account the work of the Capital Market Development Taskforce, the effects of the global financial crisis, and the failure of many New Zealand finance companies.

Officials will engage with industry during the drafting process. The Government intends to issue the exposure draft in August for public consultation, and then to introduce the bill to Parliament by the end of the year.

The Cabinet paper can be accessed here.