New Zealand's market watchdog now has an "immensely powerful, proactive toolbox" to stamp out misleading behaviour before people are harmed, says major law firm Chapman Tripp.
A large number of rules under the Financial Markets Conduct Act - which is a massive overhaul of capital markets law - come into effect from today.
A centre-piece of the law is a section banning misleading and deceptive conduct, and is arguably its most powerful feature, says Chapman Tripp.
A partner at the firm, Roger Wallis, said this part of the new law was "immensely powerful".
"Particularly when it goes hand in hand with the new tools which the FMA [Financial Markets Authority] has," he said.
If the FMA believes something has been misrepresented, rather than prosecuting someone in the District Court five years after the fact, it can stop the relevant material from being distributed.
"So for example, if they don't like something they can basically put out a notice saying stop doing it...let's say there's a back-door listing out there, they [the FMA] don't think the disclosure's up to scratch, they could issue a notice requiring people to correct their disclosure or provide additional information. They could stop distribution of materials until the materials are brought up to scratch," he said.
"It's an immensely powerful, pro-active toolbox to stamp out sharp behaviour or misleading behaviour before people are harmed," Wallis said.
Wallis said there was a shift in focus with the new law away from the first time securities were offered to the "whole lifecycle of the investment product".
"[The] powers can be applied at any stage of an investment. So if you've got a misleading quarterly report you can stamp that out. And to date the Commerce Commission had that power but they haven't really been equipped to enforce it properly...but now you've got the regulator that has expertise in that sector with a comprehensive set of powers," he said.
The FMA today takes over from the commission as regulator of "misleading and deceptive conduct" for financial products and services, such as term deposits, shares and derivatives.
"Responsibility for matters relating to consumer credit remains with the Commission. This includes products and services such as personal credit cards, loans, and mortgages," the commission said today.
Other changes coming into effect today allow for crowd-funding and licensed providers to raise up to $2 million a year without having to issue a prospectus.
Chapman Tripp also said companies on the stock exchange will be able to issue new securities of the same class as those already listed with "minimal documentation".