This notice, which comes into force on 23 December 2022 and is revoked on the close of 22 December 2027, grants exemptions to small co-operative companies and industrial and provident societies.

This notice replaces, on substantially the same terms, the Financial Markets Conduct (Small Co-operatives) Exemption Notice 2021, which is revoked on the close of 22 December 2022. However, this notice—

• increases the investment and revenue caps that allow issuers to qualify for various exemptions under the Financial Markets Conduct Act 2013 (the Act) and the Financial Markets Conduct Regulations 2014. The investment cap increases from $5,000 to $10,000. The revenue cap increases from $2 million to $5 million:

• includes a new clause that sets out how to calculate amounts that investors have paid for co-operative shares (see clause 6 ).

This notice exempts issuers of co-operative shares (including shares in an industrial and provident society) from—

• disclosure requirements under Part 3 and some limited register and record-keeping requirements under Part 4 of the Act in respect of any co-operative shares where the aggregate per shareholder capital investment in the co-operative shares of that issuer is $10,000 or less:

• ongoing disclosure and some limited register and record-keeping requirements under Parts 3 and 4 of the Act in respect of any co-operative shares where the co-operative shares were offered under the Securities Act 1978 and the aggregate per shareholder capital investment in the co-operative shares of that issuer is $10,000 or less:

• financial reporting and auditing requirements under Part 7 of the Act in relation to an accounting period where the aggregate per shareholder capital investment in the co-operative shares of that issuer held at any one time during that period is $10,000 or less:

• financial reporting and auditing requirements under Part 7 of the Act in relation to an accounting period where the revenue of the issuer (plus the revenue of any subsidiaries) is $5 million or less for that accounting period.

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—

• the exemptions apply only to co-operative shares and issuers of co-operative shares. As holders of co-operative shares, members obtain goods, services, or rights from the company or industrial and provident society that has issued those shares. Those shareholders will generally have significant knowledge regarding the issuer because the issuer’s principal business is the provision of those goods, services, or rights to its members; and

• in cases where an issuer’s total investment per shareholder is $10,000 or less, the financial risk to shareholders is low. Like a membership, shareholders obtain transacting benefits during the lifetime of their investment that are not in the nature of usual equity returns and are irrespective of any profits made by the issuer. The exemptions enable the issuer to provide information to investors in a cost-effective way that is appropriate to the nature of its business and the type and level of investment made by its transacting shareholders, while still maintaining appropriate investor protections; and

• in cases where an issuer’s revenue (plus the revenue of any wholly owned subsidiaries) for a particular accounting period is $5 million or less, the financial risk to shareholders is more limited and the costs of complying with Part 7 of the Act are disproportionately high. There is a risk that those compliance costs might affect such an issuer’s delivery of key partner benefits to its transacting shareholders. The limited benefit those investors would receive if the issuer were required to comply with the financial reporting and auditing requirements in Part 7 of the Act for that accounting period is outweighed by those costs and that risk; and

• the increased investment and revenue caps for these exemptions recognise the effect (and expected future effect) of inflation and rising operational costs over the 5-year period of this exemption. The changes to the investment and revenue caps are intended to generally maintain a scope that is consistent with the entities and investors to whom these exemptions are targeted towards; and

• those co-operative companies and industrial and provident societies remain subject to the financial reporting and auditing requirements of the Companies Act 1993 and the Industrial and Provident Societies Act 1908, respectively, which may require them to prepare financial statements in accordance with generally accepted accounting practice and have those statements audited unless shareholders agree otherwise. In this way, those entities continue to be subject to financial reporting and auditing requirements that are more cost-effective to issuers and are appropriate to the nature of the business and the amount of revenue obtained during the relevant financial reporting period; and

• for these reasons, the FMA is satisfied that the exemptions are desirable in order to promote the purposes of the Act, specifically avoiding unnecessary compliance costs while continuing to ensure the provision of timely, accurate, and understandable financial information to assist decision making by members, and promoting the confident and informed participation of businesses, investors, and consumers in the financial markets; and

• the FMA is also satisfied that the exemptions are not broader than reasonably necessary to address the matters that gave rise to them, given that the exemptions are limited to issuers of co-operative shares that have—

  • an aggregate per shareholder capital investment of $10,000 or less; or

  • revenue for the relevant financial reporting period of $5 million or less.