Financial Markets Conduct Amendment Regulations 2016

Reprint as at 15 September 2018

Coat of Arms of New Zealand

Financial Markets Conduct Amendment Regulations 2016

(LI 2016/118)

Jerry Mateparae, Governor-General

Order in Council

At Wellington this 30th day of May 2016

Present:
His Excellency the Governor-General in Council

Note

Changes authorised by subpart 2 of Part 2 of the Legislation Act 2012 have been made in this official reprint.

Note 4 at the end of this reprint provides a list of the amendments incorporated.

These regulations are administered by the Ministry of Business, Innovation, and Employment.

These regulations are made under subpart 1 of Part 9 of the Financial Markets Conduct Act 2013 on the advice and with the consent of the Executive Council and on the recommendation of the Minister of Commerce and Consumer Affairs made in accordance with sections 547(2), 549, and 550 of that Act.

Regulations

1 Title

These regulations are the Financial Markets Conduct Amendment Regulations 2016.

2 Commencement

(1)

Regulation 9(1), (5), and (6) comes into force on 1 December 2016.

(2)

Regulations 6 and 7 come into force on 1 December 2017.

(3)

The rest of these regulations come into force on 30 June 2016.

3 Principal regulations

These regulations amend the Financial Markets Conduct Regulations 2014 (the principal regulations).

4 Regulation 106 amended (Circumstance in which restrictions on acquisitions by restricted schemes of in-house assets do not apply)

Replace the heading to regulation 106 with Restriction on acquisitions of in-house assets does not apply to public securities.

5 New regulation 106A inserted (Restriction on acquisitions of in-house assets does not apply to restricted schemes that invest in certain unregistered schemes)

After regulation 106, insert:

106A Restriction on acquisitions of in-house assets does not apply to restricted schemes that invest in certain unregistered schemes

(1)

Section 176 of the Act does not apply to an investment in an unregistered scheme that is made by a restricted scheme if—

(a)

the requirements of section 173(4) of the Act are met in relation to the transaction or series of transactions by which the investment is made; and

(b)

the unregistered scheme is a trust that is used for the purpose of facilitating investment and reporting for registered schemes; and

(c)

the manager of the unregistered scheme is an investment business (as defined in clause 37 of Schedule 1 of the Act); and

(d)

the manager of the unregistered scheme has in place ongoing arrangements that can reasonably be expected to ensure that, in exercising any powers or performing any duties as a manager, it exercises the care, diligence, and skill that a prudent person engaged in the business of managing a registered scheme would exercise in the same circumstances; and

(e)

the manager of the unregistered scheme has in place ongoing arrangements that can reasonably be expected to ensure that section 174 of the Act applies to the relevant transactions or all related party benefits to be given under those transactions.

(2)

For the purposes of subclause (1)(e),—

related party benefit, in relation to the unregistered scheme,—

(a)

is a benefit—

(i)

that either is given out of scheme property of the unregistered scheme or creates an exposure to loss for scheme property of the unregistered scheme; and

(ii)

that is given to, or received by, a related party of the unregistered scheme; but

(b)

does not include fees or expenses that are paid or reimbursed to the manager in accordance with the governing document of the unregistered scheme

relevant transactions means transactions entered into for or on behalf of the unregistered scheme that provide for 1 or more related party benefits to be given (as defined in this subclause).

(3)

Any term or expression that is defined in section 172 or 176(3) of the Act and used, but not defined, in this regulation has the same meaning as in those provisions.

6 Regulation 106A amended (Restriction on acquisitions of in-house assets does not apply to restricted schemes that invest in certain unregistered schemes)

(1)

Replace regulation 106A(1)(e) (as inserted by regulation 5) with:

(e)

the manager of the unregistered scheme has in place ongoing arrangements that can reasonably be expected to ensure that section 174 of the Act applies to the relevant transactions or all related party benefits to be given under those transactions; and

(f)

in the case of a scheme that is identified on the scheme register as an employer-related scheme, the requirement specified in regulation 106B is satisfied.

(2)

In regulation 106A(3) (as inserted by regulation 5), after “this regulation”, insert “or regulation 106B”.

7 New regulation 106B inserted (Additional requirement for employer-related scheme)

After regulation 106A (as amended by regulation 6), insert:

106B Additional requirement for employer-related scheme

(1)

The requirement for the purposes of regulation 106A(1)(f) is that, immediately after the investment referred to in regulation 106A is made, the restricted scheme must not have an in-house assets ratio of 5% or more (where the ratio is calculated in accordance with section 176(2) and (4) of the Act (applied with all necessary modifications)).

(2)

Subclause (3) applies if the unregistered scheme has or acquires an asset that—

(a)

is a loan to, or an investment in,—

(i)

a contributor to the restricted scheme who is not a scheme participant (other than the Crown); or

(ii)

an associated person of a contributor referred to in subparagraph (i); or

(b)

is subject to a lease or lease arrangement with a person referred to in paragraph (a)(i) or (ii).

(3)

For the purposes of subclause (1), the restricted scheme must be treated as having or acquiring that asset in proportion to the restricted scheme’s interest in the unregistered scheme.

(4)

For the purposes of subclause (1), the restricted scheme’s investment in the unregistered scheme must not be treated as an in-house asset (but this subclause does not limit subclause (3)).

Example

ABC scheme (ABC) makes regular investments into an unregistered scheme called XYZ scheme (XYZ).

ABC currently has in-house assets that are valued at $200,000.

ABC is preparing to make another investment in XYZ and intends to rely on regulation 106A. To rely on that regulation, the requirement in this regulation must be satisfied.

After the investment is made, ABC will own 20% of XYZ’s units.

Employer Limited is a contributor to ABC on behalf of its employees. It is a related party of ABC.

XYZ currently holds shares in Employer Limited that have a value of $10 million. Under subclause (3), 20% of this asset is attributed to ABC as if ABC holds the shares (that is, $2 million worth of shares). This asset is treated as an in-house asset because it is an investment in ABC’s related party.

The sum of the in-house assets directly held by ABC and the assets it is treated as holding is $2,200,000 ($200,000 plus $2 million).

The net asset value of ABC’s scheme property is $20 million.

Applying section 176(2) of the Act, the in-house assets ratio of ABC would be 11% (the ratio of $2.2 million to $20 million).

ABC does not satisfy the requirement in this regulation and cannot make a further investment in XYZ in reliance on regulation 106A. (Investments may resume once XYZ divests itself of enough shares in Employer Limited to reduce ABC’s in-house assets ratio below 5%.)

8 Schedule 1 amended
[Revoked]

Regulation 8: revoked, on the close of 14 September 2018, pursuant to section 547(4) of the Financial Markets Conduct Act 2013 (2012 No 69).

9 Schedule 8 amended

(1)

In Schedule 8, clause 4(3), replace “The law” with “New Zealand law”.

(2)

In Schedule 8, replace clause 27(1) with:

(1)

Clause 28 applies to a person (A) who offers managed investment products to another person (B) in reliance upon clause 21(a) or (c) of Schedule 1 of the Act.

(3)

In Schedule 8, heading of clause 28, replace PIE call fund units, PIE term fund units, and bank notice products that are specified units with certain managed investment products.

(4)

In Schedule 8, clause 28(1) and (2), replace “financial products” with “managed investment products”.

(5)

In Schedule 8, clause 47(2), replace “The law” with “New Zealand law”.

(6)

In Schedule 8, clause 48(2), replace “The law” with “New Zealand law”.

Michael Webster,
Clerk of the Executive Council.

Issued under the authority of the Legislation Act 2012.

Date of notification in Gazette: 2 June 2016.

Reprints notes
1 General

This is a reprint of the Financial Markets Conduct Amendment Regulations 2016 that incorporates all the amendments to those regulations as at the date of the last amendment to them.

2 Legal status

Reprints are presumed to correctly state, as at the date of the reprint, the law enacted by the principal enactment and by any amendments to that enactment. Section 18 of the Legislation Act 2012 provides that this reprint, published in electronic form, has the status of an official version under section 17 of that Act. A printed version of the reprint produced directly from this official electronic version also has official status.

3 Editorial and format changes

Editorial and format changes to reprints are made using the powers under sections 24 to 26 of the Legislation Act 2012. See also http://www.pco.parliament.govt.nz/editorial-conventions/.

4 Amendments incorporated in this reprint

Financial Markets Conduct Act 2013 (2013 No 69): section 547(4)