Financial Markets Conduct (FMC Reporting Entities with Higher Level of Public Accountability) Notice 2014

2014/343

Coat of Arms of New Zealand

Financial Markets Conduct (FMC Reporting Entities with Higher Level of Public Accountability) Notice 2014

Pursuant to section 461L(1)(a) of the Financial Markets Conduct Act 2013, the Financial Markets Authority, being satisfied of the matters set out in section 461L(2) of that Act, issues the following notice.

Notice

1 Title
  • This notice is the Financial Markets Conduct (FMC Reporting Entities with Higher Level of Public Accountability) Notice 2014.

2 Commencement
  • This notice comes into force on 1 December 2014.

3 FMC reporting entities considered to have higher level of public accountability
  • The following classes of FMC reporting entities are specified for the purposes of section 461K(1)(h) of the Financial Markets Conduct Act 2013:

    • (a) an FMC reporting entity that holds, or is an authorised body under, a licence under Part 6 of that Act that authorises the entity to act as a derivatives issuer:

    • (b) an FMC reporting entity that is a recipient of money from a conduit issuer (as defined in section 453 of that Act).

Dated at Wellington this 7th day of November 2014.

Elaine Campbell,
Director of Compliance, Financial Markets Authority.


Statement of reasons

This notice comes into force on 1 December 2014.

Section 461K(1) of the Financial Markets Conduct Act 2013 (the FMCA 2013) lists the FMC reporting entities that are considered to have a higher level of public accountability than other FMC reporting entities. FMC reporting entity is defined in section 451 of the FMCA 2013.

Section 461J of the FMCA 2013 requires the External Reporting Board to have regard to which FMC reporting entities are considered to have a higher level of public accountability when the Board is preparing a proposal to vary or replace the strategy under sections 30 to 33 of the Financial Reporting Act 2013. The purpose of those sections is to provide for a system of tiers of financial reporting that impose different financial reporting requirements in respect of different classes of reporting entities in order to ensure that the requirements that apply in respect of those entities are appropriate (see section 29 of the Financial Reporting Act 2013).

Section 461L(1)(a) of the FMCA 2013 gives the Financial Markets Authority the power to issue a notice specifying classes of FMC reporting entities that are to be added to the list in section 461K(1) of the FMCA 2013 (see section 461K(1)(h)). This notice specifies 2 classes of FMC reporting entities for that purpose as follows:

  • an FMC reporting entity that holds, or is an authorised body under, a licence under Part 6 of the FMCA 2013 that authorises the entity to act as a derivatives issuer. A derivatives issuer is a person that is in the business of entering into derivatives:

  • an FMC reporting entity that is a recipient of money from a conduit issuer (as defined in section 453 of the FMCA 2013).

The Financial Markets Authority, after satisfying itself as to the matters set out in section 461L(2) of the FMCA 2013, considers it appropriate to issue this notice because,—

  • in relation to licensed derivatives issuers, those entities should be specified as having higher public accountability as they usually have significant exposures to financial instruments and need to manage their capital carefully. To assist their clients in deciding whether the issuers are creditworthy, full disclosure about the issuers’ exposure to and policies for managing risk around financial instruments and capital management is required. The highest tier of financial reporting provides the best information on financial instruments and capital management in line with international best practice. This key information can be omitted under lower tiers of financial reporting:

  • in relation to recipients of money from a conduit issuer, those entities should have the same level of accountability as they would have if they themselves issued the product from which the money is raised. This is because,—

    • when conduit issuers raise money, the main risk for investors often comes from the financial performance of the recipient of the money, rather than from the conduit issuer; and

    • the conduit issuers’ ability to pay returns or make repayments often depends on them receiving repayments from the recipients of the investment money:

  • the notice is necessary or desirable for promoting the following purposes of the FMCA 2013:

    • to promote the confident and informed participation of businesses, investors, and consumers in the financial markets:

    • to provide for timely, accurate, and understandable information to be provided to persons to assist those persons to make decisions relating to financial products or the provision of financial services.


Issued under the authority of the Legislation Act 2012.

Date of notification in Gazette: 13 November 2014.

This notice is administered by the Financial Markets Authority.