Dated at Wellington this 22nd day of April 2013.
Head of Primary Regulatory Operations.
Statement of reasons
This notice, which comes into force on 1 May 2013 and is revoked on 30 September 2017, replaces the Securities Act (Externally Managed Group Investment Funds) Exemption Notice 2003 (the 2003 notice) which expires on 30 April 2013. The exemptions in the 2003 notice for externally managed group investment funds established by statutory trustee companies or Public Trust are carried forward, but with an additional exemption and some modification of conditions. In summary, this notice exempts, subject to conditions, the trustees of the funds, and the external managers, from the requirements in—
sections 33(3) (the statutory supervisor and deed of participation requirements) and 37(3) (the requirement for subscriber authorisations) of the Securities Act 1978 (the Act). These exemptions are subject to a new condition that the trustee company or Public Trust have a licence under the Securities Trustees and Statutory Supervisors Act 2011 that covers participatory securities and units in unit trusts. The trust deed continues to be required to specify the same matters and contain the same implied terms as those required for participatory securities but with some adjustment to reflect the nature of the fund; and
section 37A(1A)(d) of the Act (the requirement to register interim financial statements with refresher certificates). This is a new exemption to align this notice with the Securities Act (Group Investment Funds) Exemption Notice 2011; and
section 52(1) and (3) of the Act (register requirements), subject to conditions that the register is open for inspection and that copies can be obtained on request by the relevant holder of the securities; and
section 54 of the Act (the security certificate requirements), subject to modified conditions that require issuers to send confirmation information to holders of the securities but also allow for that notice to be made available by electronic means; and
regulation 5(1)(c) of the Securities Regulations 2009 (the content requirements for a prospectus for participatory securities) subject to the condition that the registered prospectus instead comply with the content requirements for a unit trust prospectus; and
regulation 28 of the Securities Regulations 2009 (restricting prospective financial information being distributed) in respect of the projected rate of return for the interests in the fund, subject to the condition that the principal assumptions and relevant methods of calculation for the rate of return are stated in the prospectus and referred to in the advertisement.
The Financial Markets Authority (FMA), after satisfying itself as to the matters set out in section 70B(2) of the Act, considers it appropriate to grant the exemptions because—
the effect of the exemptions is to enable externally managed group investment funds to be offered without a statutory supervisor and under the disclosure requirements applying to unit trusts, rather than those applying to participatory securities generally. The structure of an externally managed group investment fund where the trustee is not an issuer, and the manager is under the supervision of a statutory trustee company, provides for a level of independent supervision of the issuer equivalent to that required for other participatory securities, debt securities, and unit trusts. The appointment of a statutory supervisor as well as a trustee to perform the supervision function adds unnecessary compliance costs that would ultimately be borne by investors. The exemptions providing relief from this have been in place for a number of years and the policy reasons remain valid and relevant. Consultation with market participants demonstrates continued reliance on the exemption:
the Securities Trustees and Statutory Supervisors Act 2011 now requires securities trustees and statutory supervisors to be licensed, and the licences specify whether the supervisor is licensed to supervise debt securities, participatory securities, or units in unit trusts. The exemption has therefore been amended to reflect this requirement, so that the trustee of the externally managed fund must have a licence in respect of units in unit trusts and participatory securities:
the exemptions also align certain other obligations of these group investment funds with those applying to unit trusts. Group investment funds are similar in nature to unit trusts as investment vehicles. Allowing group investment funds to provide disclosure similar to that of unit trusts accordingly provides investors with better information concerning these investments. It also assists investors to make comparisons between the 2 types of investments. It is also appropriate to align some of the conduct obligations with those of unit trust issuers:
a further exemption has been added from the requirement to register financial statements with a director's refresher certificate extending the life of the prospectus. This is consistent with the requirements applying to group investment funds and unit trusts, and reduces the cost of requiring preparation and registration of interim financial statements. It does not cause any significant detriment to investors because no relief is granted from the certification requirement. Accordingly, if an issuer is not able to certify that the scheme's financial position has not materially and adversely changed, the issuer will not be able to rely on the exemption and will need to prepare and register interim financial statements and refer to them in a new registered prospectus:
the change to enable delivery of securities confirmation information by notice to the investors of where this information can be accessed on the Internet recognises the increased use by issuers and investors of Internet-based communications:
given the continuing validity and relevance of the exemptions, and the amendments that recognise legislative change and current market practices, FMA considers that the exemptions will not cause significant detriment to subscribers and are not broader than is reasonably necessary to address the matters that give rise to the exemptions.
Date of notification in Gazette: 26 April 2013.
This notice is administered by the Financial Markets Authority.