Most Read Contributor in New Zealand, September 2016
The Financial Markets Authority (FMA) yesterday issued
consultation paper on how to prepare prospectuses and
This is a good initiative and worthy of the FMA's mandate to
educate the market regarding its expectations as a regulator
– something that the Securities Commission was not always
very good at.
Our initial assessment is that much of the guidance proposed is
sensible and reflects current best practice. However, in places, we
think that the FMA's approach is too heavy handed –
seeking to prescribe requirements which are not material or
currently required by New Zealand law.
Submissions are due by Friday, 9 March
The FMA plans to discontinue pre-registration prospectus vetting
by the end of March, and is aiming to have the final guidance note
published in the week beginning 26 March.
It intends that the new rules will apply to disclosure documents
issued after 1 May 2012. Existing documents will need to be brought
into compliance by 1 January 2013.
We think that this timeline may slip as more time may be
required to consider submissions. Similar consultation by the
Australian Securities and Investment Commission (ASIC)
last year took seven months to finalise.
The two "fundamental components" that the FMA will
expect in all offer documents are:
truthful and complete information about the offer and the
issuer, including the directors and senior management, and
"clear, concise and effective" wording and
presentation (with specific advice on how these values are to be
Clarity, for example, will require plain language. Conciseness
will require that company branding, celebrity photographs and other
images are used sparingly and in the body of the document rather
than in the first few pages.
Chapman Tripp comment
In some areas, FMA's guidance draws closely on the exercise
conducted by ASIC. ASIC scaled back its guidance after its original
proposals were criticised as overly prescriptive, and we think the
debate may follow a similar trajectory here.
In particular, we consider that some of the proposed information
requirements have been designed primarily for equity capital
raising and are not material, or are less appropriate, for debt
capital market or fund management offerings.
The finalised guidance will also need to take account of the
current dual offering document structure – the investment
statement designed for the prudent non-expert person to decide
whether or not to invest, that must be provided to all subscribers.
The more detailed prospectus is only required to be provided on
request. Unfortunately the current draft guidance does not always
make clear whether it is intended for the investment statement, the
prospectus, or both.
The FMA has also sought to adopt early the "clear, concise
and effective" requirement of the Australian Corporations Act
2001. While "clear, concise and effective" disclosure is
a worthy aspirational standard, it is not currently a requirement
of New Zealand law, and is not always able to be reconciled with
some of the detail prescribed by the Securities Regulations
"Clear, concise and effective" disclosure is proposed
for product disclosure statements (PDS) under the
Financial Markets Conduct Bill, but not for online register
entries. Breach of the requirement, by itself, would not entitle
the FMA to take civil proceedings (the disclosure would also need
to be misleading or deceptive), but would allow it to temporarily
stop distribution of a PDS.
We do not expect the Financial Markets Conduct Bill to become
operative until mid 2013, with transitional periods of at least one
year during which issuers may elect to continue to follow existing
Overall, the draft guidance is a useful initiative, and
financial market industry participants should take the opportunity
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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