Dated at Wellington this 21st day of June 2013.
Head of Primary Regulatory Operations.
Statement of reasons
This notice, which comes into force on 1 July 2013 and is revoked on 30 September 2016, revokes and replaces the Securities Act (Contributory Mortgage) Regulations (Solicitors) Exemption Notice 1996 (the 1996 notice).
The effect of this notice is that solicitors and incorporated law firms are exempted from the Securities Act (Contributory Mortgage) Regulations 1988, which prescribe the general requirements relating to the offer and management of contributory mortgages by market participants. The exemptions are on the basis that these persons and entities comply with alternative relevant requirements applying to them.
The Financial Markets Authority, after satisfying itself as to the matters set out in section 70B(2) of the Securities Act 1978, considers it appropriate to grant the exemptions because—
the notice continues long-standing exemptions granted to solicitors under the 1996 notice and its predecessors in relation to contributory mortgage investments offered and managed by solicitors. These exemptions were granted in the circumstances that solicitors offering and managing contributory mortgages were subject to alternative relevant regulations governing the operation of trust accounts by solicitors and practice rules made by the New Zealand Law Society:
the Financial Markets Authority does not consider that there is an enduring good basis for the offer and management of contributory mortgage investments by solicitors and incorporated law firms to be subject to significantly different requirements than for securities of this nature offered and managed by other market participants. The Financial Markets Authority, however, recognises that solicitors and incorporated law firms would need to undertake a significant procedural and compliance review of their contributory mortgage investment practice in order to implement any changes necessary to comply with the general requirements relating to the offer and management of contributory mortgages by other market participants. The Financial Markets Authority also recognises that financial markets legislation is currently undergoing a comprehensive review. This includes a review of disclosure and governance requirements applying to contributory mortgage investments. The Financial Markets Authority expects the regime developed for these financial products should apply to all market participants seeking to offer contributory mortgage-type financial products. Requiring a review of solicitors’ practices in advance of the conclusion of the development of this regime would require 2 practice change reviews in a short time period, resulting in significant practice review work and cost:
in this interim period, the Financial Markets Authority considers that, subject to some increased compliance requirements, the exemption from the standard contributory mortgage investment regime remains appropriate in light of the alternative relevant requirements applying to these persons. The conditions of the exemptions have changed to require compliance with the alternative relevant requirements (rather than just requiring that there are alternative relevant requirements in force). This means the Financial Markets Authority will have the ability to intervene in the continuing offer and management of contributory mortgages by persons relying on the exemptions in the event of material non-compliance with those requirements where it considers this is in investors’ interests. Additionally, as from 1 July 2014, any person relying on the exemptions must be registered as a financial service provider under the Financial Service Providers (Registration and Dispute Resolution) Act 2008. This will require that if they offer services to retail clients, they also join a dispute resolution scheme under that Act:
additionally, as solicitors may now practise in incorporated law firms, the Financial Markets Authority considers that it is appropriate that the exemptions also apply to incorporated law firms undertaking contributory mortgage lending on the same basis as an exemption is granted to solicitors practising in sole practice or in partnership:
in summary, the Financial Markets Authority considers that, with these changes, the exemptions will not cause significant detriment to subscribers who are members of the public in New Zealand who invest in contributory mortgages offered by solicitors or incorporated law firms. Further, the exemptions provide an adequate opportunity for solicitors and incorporated law firms to assess whether they wish to continue to offer and manage contributory mortgages, taking into account their obligations under the Financial Advisers Act 2008, the Financial Service Providers (Registration and Dispute Resolution) Act 2008, and the Financial Markets Conduct Bill, when enacted. Having regard to the time required for a contributory mortgage broker to transition out of managing an existing mortgage book, the grant of the exemptions until 30 September 2016 gives time for a proper assessment to be made and, if considered desirable, the necessary transition to occur. The Financial Markets Authority considers this extension is not longer than is reasonably necessary to enable this assessment to be made and the necessary transition to occur, and that in these circumstances the exemptions are not broader than is reasonably necessary to address the matters that gave rise to the exemptions.
Date of notification in Gazette: 27 June 2013.
This notice is administered by the Financial Markets Authority.