Finance law reform now puts focus on investors

Financial Markets Authority chief executive Rob Everett.

Simplified offer documents part of overhaul aimed at boosting literacy and confidence.

A once-in-a-generation overhaul of securities law will put the focus firmly back on investors.

The finance industry had reached a point where investment offer documents were being "written by lawyers for lawyers", said Financial Markets Authority chief executive Rob Everett.

A key aspect of the second phase of the Financial Markets Conduct Act, which comes into force today, is the introduction of a simplified product disclosure statement (PDS) regime for investment offers.

With initial public offerings (IPOs), for example, the documents will be limited to a maximum of 60 pages in length, with a key information summary no longer than four pages, while derivative and debt offer documents will be limited to 30 pages. In the past, IPO prospectuses have run to well over 200 pages.

"The focus of the legislation is to get something much shorter, which prioritises what you as a board and your advisers consider is the key information," Everett said. The legislative changes aim to boost investor literacy and confidence and make it easier for companies to raise capital.

Everett said adjusting to the new requirements around disclosure statements would be challenging for company directors, but also worthwhile because many investors were simply not reading the documents.

"The industry on the whole had got to the point where the documents were written by lawyers for lawyers," he said. "New Zealand has been very brave. I think New Zealand is leading the way in this respect."

Head of private wealth research at Craigs Investment Partners, Mark Lister, said anything that made disclosure documents clearer and easier to understand was positive.

"In that sense I'm absolutely in favour of getting things a bit more straightforward, simple and clear," Lister said.

Another aspect of the act's second phase is the licensing of financial service providers including fund managers and derivatives issuers.

Several hundred companies and individuals are expected to apply for licences over the next two years, bringing more than 11,000 firms, professionals, registered schemes and funds under the regulator's mandate, the FMA said.

Peter Lynn, managing director of Auckland-based fund manager Nikko Asset Management New Zealand, said his firm was supportive of the new licensing regime.

"Often when I'm talking to my global colleagues they find it incredible that we're not currently licensed," Lynn said. "I think in the eyes of the global investment population, having licensing of fund managers will be a positive development."

Commerce Minister Paul Goldsmith said he had spent the bulk of his first six weeks in the job talking to market participants about the changes. "The sense I get is most people are pretty happy with where we've landed, but conscious of the fact that it's a huge change," Goldsmith said. "It's the culmination of at least seven years of effort ..."

The first phase of the new act, which came into force in April, included a liability regime with a focus on civil rather than criminal action.

Additionally, the act has introduced "same class offers" that allow listed issuers to raise additional capital with minimal documentation.

New regulations

• Aim to make offer documents simpler and shorter.

• Will license financial service providers such as fund managers and derivatives issuers.

• Introduced a more proportional liability regime for directors.

• Allow new forms of capital raising such as equity crowdfunding, peer-to-peer lending and the NZX's soon-to-launch NXT market for high-growth firms.