Dated at Wellington this 2nd day of June 2015.
Statement of reasons
This notice comes into force on 5 June 2015 and is revoked on 4 June 2020.
This notice applies to certain providers of discretionary investment management services (DIMS) who are licensed to provide DIMS under Part 6 of the Financial Markets Conduct Act 2013 (the Act).
The exemptions in the notice apply according to whether a DIMS licensee falls into one of 2 levels. The levels are based on the amount of retail funds under management.
The exemptions do not apply if—
a DIMS licensee is an FMC reporting entity for any reason other than because it holds a DIMS licence; or
there is no independent custodian.
The notice exempts level 1 licensees from certain financial reporting requirements under the Act relating to accounting records, the preparation of financial statements that comply with generally accepted accounting practice (GAAP), and the audit and lodgement of those financial statements. These DIMS licensees are still required to keep accounting records and meet company or tax financial reporting obligations that would apply to the DIMS licensee if it were not an FMC reporting entity.
The notice exempts level 2 licensees from the requirement under the Act to have financial statements audited by a qualified auditor. These DIMS licensee are still required to comply with any company or other audit requirements that would apply to the DIMS licensee if it were not an FMC reporting entity.
The Financial Markets Authority (the FMA), after satisfying itself as to the matters set out in section 557 of the Act, considers it appropriate to grant the exemptions because—
requiring DIMS licensees to have audited financial statements creates little benefit for monitoring investor money or property when investor money or property is held directly by the investor or by an independent custodian with separate reporting obligations under the Act:
where investor money and property are held by the investor or by an independent custodian, investors are less likely to place reliance on the level of financial resources that a DIMS licensee has when assessing whether it is able to provide the service, and financial statements and audit requirements for the DIMS licensee’s business are consequently likely to be of limited benefit for investors:
the level of financial resources required to provide a DIMS depends on the nature and scale of the business. Greater resources are likely to be required for large DIMS licensees to ensure that appropriate systems, controls, and oversight are in place. Financial reporting and audit requirements are therefore less relevant for investors where a DIMS licensee’s business is not large:
DIMS providers that are not large are unlikely to carry on other activities that would otherwise require them to produce audited GAAP-compliant financial statements and the costs of complying with financial reporting and audit requirements are therefore likely to be relatively high for this group. This may act as a barrier to becoming licensed and ultimately may lead to increased market concentration and higher costs for investors:
as such, the FMA is satisfied that the granting of the exemptions is desirable in order to promote the purposes of the Act, specifically to avoid unnecessary compliance costs and promote the confident and informed participation of businesses, investors, and consumers in the financial markets:
the FMA is further satisfied that the extent of the exemptions is not broader than is reasonably necessary to address the matters that give rise to the exemptions, given that—
the exemptions will apply only where investor money and property are held by an independent custodian or by the investor; and
the exemptions will not apply if the DIMS licensee is an FMC reporting entity for any reason other than being a DIMS licensee; and
the DIMS licensee’s financial reporting obligations under other enactments will not be affected by the exemptions.
Date of notification in Gazette: 4 June 2015.
This notice is administered by the Financial Markets Authority.