New Zealand: Issues for managed funds in third draft Financial Markets Conduct Act regulations

Brief Counsel

Download: 2014 PUB BC Issues for managed funds in third draft FMCA - 26 May.pdf

The third exposure draft regulations for Phase 2 of the Financial Markets Conduct Act (FMCA), released last week, cover the content of the PDS, the offer register and ongoing disclosure requirements, such as quarterly fund updates.

We give you a practical overview of some of the more significant issues affecting managed funds (including, among others, all KiwiSaver schemes, unit trusts and superannuation schemes).

Submissions close on 20 June 2014.

Much of the content of the proposed regulations was consulted on last October.

This third exposure draft and commentary reflects the submissions from that consultation round and further thinking by the Ministry of Business, Innovation and Employment (MBIE) and FMA.

Highly prescribed and standardised PDS for managed funds

The PDSs for managed funds will be short, highly prescribed and standardised, more so than PDSs for other financial products. This is to support comparability between various funds and to promote investor familiarity over time.

The PDS must contain the information prescribed by regulations.

MBIE has decided not to prescribe an expiry date for PDSs, but fund managers must ensure that the PDS remains accurate and provide regular confirmations to the Registrar. Matters that are subject to frequent change (e.g. fund performance) will be in the quarterly fund updates and the online register.

PDS page length restrictions

The draft regulations propose a hard page limit of 12 pages (or 7,200 words) for managed funds.

Although the earlier consultation included a full mock-up of the PDS for managed funds, the regulations do not propose to set a template. The PDS is, however, required to follow certain headings and content is required to be put in the order of those headings. The PDS must also use certain prescribed tables, diagrams, and charts (e.g. fees tables) and contain various prescribed statements, for example those used to explain the nature and effect of financial information.

Minor changes are allowed to the prescribed statements when the statement does not apply to a particular offer or where changes are needed to ensure that the statement is not false, misleading or confusing.

MBIE recognises that some providers of KiwiSaver schemes may wish to add further "investor education" matters in the PDS, such as describing the benefits of joining KiwiSaver generally and emphasising the importance of selecting the right investment option to cater for the long term nature of KiwiSaver.

MBIE is therefore asking for feedback on the benefits of having a KiwiSaver specific version of the PDS with standardised KiwiSaver disclosures.

PDS can cover more than one fund

The previous draft regulations allowed a PDS to cover only one scheme with a number of different funds. This raised various issues with fund managers who submitted that there needed to be more flexibility about the content of the PDS.

The third exposure draft now allows fund managers to include a number of different managed investment schemes in a single PDS. This may, however, be challenging considering the strict page/word limit. Fund managers may also include information about only some of the funds from a scheme in a PDS.

In addition, MBIE is seeking feedback on two further options:

  • permitting PDSs for the scheme only, or for the scheme and a core set of funds, and a separate fund update for each fund under the scheme, or
  • combining the front end of the PDS with the content from fund updates for specific funds. This would allow the inclusion of more extensive fund information (such as historic performance and specific assets held by the fund) in the PDS.

Key Information Summary (KIS)

Each PDS will start with a prescribed KIS, which must be no more than two pages (or 1,200 words) for managed funds.

The purpose of the KIS is to provide the issuer's assessment of the most significant aspects of the offer that are relevant to a retail investor, and there are defined categories which must be covered.

Information can be incorporated by reference

Information that is required to be in the PDS or the register entry can be incorporated by a reference in some circumstances. This will be particularly helpful in respect of continuous offers when the information needs to be kept up-to-date.

Where a fund manager incorporates material by reference, the PDS must contain a brief description of the information and a link or other identification of the relevant document. Generally these documents must also be placed on the offer register.

Risk indicator

The risk indicator introduced in the previous draft regulations has been retained. It adopts the UCITS model (rather than the Australian approach). The risk indicator is essentially a number between 1 and 7 which measures the volatility of a fund's unit price over the past five years. We have previously commented that this is a fairly crude measure of the risks involved, but its attractiveness is its standardisation across funds from different providers.

The draft regulations include guidance on how to calculate the risk indicator. It is envisaged that this guidance will be supplemented with FMA frameworks and methodologies.

Fund managers will be required to recalculate risk indicators on an ongoing basis and update them if necessary. MBIE has noted that a change in the risk indicator for a fund by one risk class would not generally require an update to the PDS.

The latest risk indicator must also be provided in each quarterly fund update. It is expected that FMA will issue guidance on updates relating to changes in the risk indicator.

Standardised fee disclosure

The draft regulations require various fees to be disclosed using standardised categories and tables. Examples must also be provided.

Lifecycle and other investment options treated as funds

The draft Regulations treat lifestyle and other investment options as separate funds for disclosure purposes (and require separate disclosures in the PDS, but not quarterly updates, for them). Feedback is sought on this proposal.

Additional information can be included

The PDS can include additional information in the main part of the PDS only if it does not detract from the prominence of the information that is required to be included by the FMCA or the Regulations.

Additional information can always be added after the main parts of the PDS, provided the PDS meets the length restrictions.

PDS for other managed investment schemes

The draft regulations provide for different disclosure requirements for managed funds and other managed investment schemes.

Other managed investment schemes tend to be less liquid, investing in a smaller number of unlisted assets (or just one asset), such as property syndicates, forestry partnerships, limited partnerships and other closed-ended funds.

The proposed PDS for other managed investment schemes is therefore less prescribed and more similar to the PDS for equity securities with the same length restriction (60 pages or 36,000 words). Instead of focusing on the scheme's investment philosophy and objectives (as is the case with the PDS for managed funds), the emphasis will be on the assets underlying the scheme and how the assets will be managed.

Register entry

The requirements for the register entry are set out in the Schedules to the draft regulations. Some information will need to be inputted in certain standardised fields, which will allow investors to search and compare offers, such as minimum investments and offer dates.

Fund updates and other ongoing disclosure

The draft regulations contain ongoing disclosure obligations, with content requirements for fund updates and annual reports for managed investment schemes.

The purpose of the fund updates is to provide a summary of key information about the fund at the end of each quarter. The fund update must follow a template to be set by the FMA and include up-to-date information on the fund such as performance figures, fees, top 10 investments and key personnel.

The quarterly fund update is intended to replace the current KiwiSaver periodic disclosure statements (which the fund update mirrors, with changes noted in the commentary on page 31). It will be required, however, for all managed funds (not just KiwiSaver schemes).

Trans-Tasman mutual recognition scheme

The regulations for the trans-Tasman mutual recognition scheme have been carried over from the Securities (Mutual Recognition of Securities Offerings — Australia) Regulations 2008 (which will be repealed). The draft regulations allow an offeror to offer interests in managed investment schemes in Australia and New Zealand upon notification to FMA and ASIC, and by using the disclosure document prepared under the requirements of its home country, with certain warning statements.

The draft regulations are still subject to negotiations with the Australian Treasury and the Australian Securities and Investments Commission.

From here

The full set of regulations for the FMCA will be made in mid-2014 and come into force on 1 December 2014.

Chapman Tripp will be holding HotHouse seminars on the new disclosure requirements in Auckland on 11 June and in Wellington on 12 June. Please click here to register, if you have not done so already.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Penny Sheerin
Bradley Kidd
Mike Woodbury
Emma Harding
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions