Financial Markets Conduct Act Update

17 Apr 14

Further to our earlier article, parts of the new Financial Markets Conduct Act 2013 (FMC Act) came into force on 1 April 2014 after the FMC (Phase 1) Regulations were implemented. These Regulations clarified a number of areas regarding transitional arrangements between 1 April and 1 December 2014.

The key points in the new Regulations are:

  • The exclusions introduced from 1 April 2014 under the Regulations (which are now additional exemptions to the Securities Act until 1 December 2014) are:
    • Offers of shares or debt securities through licensed intermediaries (such as crowd funding or peer-to-peer lending providers).
    • Offers under an employee share purchase scheme (including persons under control).
    • Small offers.
    • A controlling interest.
    • Dividend reinvestment plans.
    • Offers of quoted financial products (e.g. listed shares).
    • Certain offers by registered banks.
  • The Regulations did not prescribe a date for the ‘Wealthy Person’ exception to cease to operate as was expected and as a result the Regulations did not introduce the Wholesale Investor exclusions (including the “large” category). This means that issuers can still utilise that exception. The FMA have indicated that these changes are expected to come into force as part of Phase Two on 1 December 2014.
  • The limited disclosure requirements when proceeding under one of the new exclusions have been outlined.

From 1 April 2014 issuers can make these types of offers without having to prepare a prospectus or an investment statement before raising capital from the public. The new general fair dealing provisions in the FMC Act will also apply.

We recommend you take legal advice before relying on any of the new exemptions. Please feel free to contact one of the Anderson Lloyd team in this regard.


The FMC Act provides for the licensing of intermediaries. Where an offer of financial products is made through a licensed intermediary and fits into one of the following categories a prospectus and an investment statement are not required:

  • Crowd Funding
    A crowd funding service is where an intermediary acts between companies issuing shares and investors by matching companies that wish to raise funds with many investors who are seeking to invest relatively small amounts (e.g. angel networks). The facility can be provided via a website.
  • Peer to peer lending
    A peer-to-peer lending service is one where an intermediary acts between borrowers and lenders, matching lenders with borrowers who are seeking loans (debt securities) for personal, charitable, or small business purposes.

Limits on these exclusions

An issuer proposing to use a crowd funding or peer-to-peer lending service must ensure it does not raise more than $2 million in any rolling 12-month period (including any amounts raised under the licensed intermediaries or small offers exemptions). The licensed provider also needs to have processes in place to ensure that these limits are not exceeded.

A warning statement and investor acknowledgement are to be provided by the intermediary. They must be on the intermediary’s website, and on the application forms.


An employee share purchase scheme is excluded from the requirement to prepare a prospectus and investment statement where the offer is only made to eligible persons (essentially employees and directors of the issuer and entitles that it controls e.g. companies and trusts) and:

  • The offer is made as part of the remuneration arrangements for those people or in connection with the employment or engagement of them;
  • Raising funds for the issuer is not the primary purpose of the offer; and
  • The total number of securities issued under all of the issuer’s employee share schemes in a 12 month period does not exceed 10% of the securities of the issuer at the start of the period.


The purpose of the small offer exemption is to facilitate SME growth by permitting offers to certain persons with limited disclosure.

The requirements for a small offer are:

  • The offer only relates to equity securities and debt securities and is not advertised.
  • The securities under the offer are issued to no more than 20 investors with a value of no more than $2 million in any 12 month period. Any issue to a person under any other exclusion is disregarded. Any on-sale of these securities within the 12 months will be counted though.
  • There must be a ‘personal offer’ by the issuer to a person who:
    • is likely to be interested in the offer having regard to:
    • Previous contact between the person and the issuer or some professional or other connection between the person and the issuer; or
    • Statements or actions by that person that indicate that that person is interested in offers of that kind; or
    • has (or is controlled by a person who has) an annual gross income of at least $200,000 for the last two income years.

Disclosure is limited to a warning statement at the front (in a prominent position) of every document that contains the key terms of the offer. The warning is in a prescribed form and applications cannot be accepted by an issuer unless this has been delivered or sent to the investor’s address before the application was made.

Within one month of the end of the issuer’s accounting period it is required to give a written notice to FMA disclosing the details of any small offer(s).


There is a further new exclusion for the issue of equity securities that comprise more than 50% of the votes in the entity where:

  • Five or fewer persons acquire equity securities under the offer;
  • If more than one person acquires equity securities under the offer, those persons are acting jointly or in concert; and
  • In the circumstances, the persons who acquire equity securities are in a position to assess the merits of the offer or obtain information from the issuer or any other person involved in the offer that will enable them to assess the merits of the offer.


A dividend reinvestment plan must require that:

  • investors already hold securities which entitle them to receive further securities in place of dividends;
  • at the time of the setting of the price, the issuer has no non-public price sensitive information;
  • the offer is made to all investors of the same class (other than those who are resident outside New Zealand) where each investor is given a reasonable opportunity to accept the offer; and
  • the securities issued are on the terms disclosed and have the same rights as the existing securities held.

An issuer will need to provide each investor with a document that contains a description of the scheme, and its terms and conditions and access to the issuer’s most recent annual report and financial statements.


Listed issuers can now make offers where:

  • NZSX listed financial products are being offered; and
  • it is a term of the offer that the financial products are quoted immediately after being issued.

This is a significant change for listed issuers. To rely on this exemption the listed issuer will also have to publish a notice (containing prescribed information) on the NZX’s website confirming compliance with their continuous disclosure and financial reporting obligations. FMA have indicated that they will monitor reliance on this exemption to ensure that securities offered all fall within the same class.

Further information
If you require further information please contact one of our partners with expert knowledge in this area – Anne McLeod, David Goodman or Ben Johnston.