Brierley Penn sat down with three legal practitioners to get their take on the new Financial Markets Conduct Act and the remaining tasks for the Financial Markets Authority under recently appointed chief executive Rob Everett.

Lloyd Kavanagh: Minter Ellison

Kavanagh describes the new regime as a "once in a generation change, not only for [the FMA], but for capital markets as a whole".

He believes Rob Everett impressed at a recent industry presentation, striking the right tone when talking about the objectives of promoting confidence and informed participation in the market, and the balance he was seeking to strike between incentivising people to fully comply and at the same time, avoiding a "box checking" or "nitpicking" culture.

Ensuring the effective implementation of the FMCA will be the biggest challenge for the new CEO over the coming months.


The biggest technical issue for Kavanagh is how the register entry system, one of the two key elements of the new disclosure regime, is likely to work. "We've had a pretty bold vision painted by the ministry as to what that is expected to achieve," Kavanagh said. "But we are still waiting to see what key elements look like - in particular, the entry register which will replace the prospectus as the repository of 'all other material information'.

"If it's done well it will be a fantastic resource, which will put New Zealand disclosure and capital markets at the forefront of world practice. But if they implement something that looks like the rather dense website they currently have with the old companies register then it will be very difficult for investors and commentators to actually find information. "There're some really big opportunities in there for new products and services which is great, things like equity crowd funding and peer-to-peer lending, the new regime for managed investment products, the licensing arrangements and a general focus on growth markets, which I think is very encouraging." Kavanagh said a number of directors and issuers are now seeking guidance around their new responsibilities.

"I'm optimistic that the regime as a whole should help build appropriate and well placed confidence on behalf of investors. The regime as a whole is a significant change for New Zealand, but it is a change that is moving us towards the centre of the OECD practice. The benefit for issuers will be that if investors have more confidence, the issuer's cost of capital should come down, as more investors participate in the market. I think the big challenge for the FMA is to make sure that vision is delivered on."

John-Paul Rice: Russell McVeagh

John-Paul Rice considers an important focus for the FMA will be how well it works with other agencies to promote effective regulation of the market. "The market will be looking, for example, to see whether the principles of co-operation in the memorandum of understanding with the Commerce Commission in practice eliminate any risk of parallel, or at least closely sequential, investigations and non-court enforcement action by the two agencies," he says.

Continuing to negotiate the introduction of the FMCA and the inevitable bumps along the way in an open, consultative way, to ensure fairness for all participants will be a crucial aspect of Everett's new CEO role. Industry participants are keenly awaiting announcements regarding the more detailed regulations to be released later this year.

"We see a lot of positive changes made in the FMCA in terms of disclosure to investors and remedies available where disclosure standards have not been met," says Rice. "Where the rubber hits the road is largely set out in the regulations and we're looking forward to seeing the phase two regulations when they are available.

"The workability of the regime from an industry perspective often comes down to the detailed provisions, and we're hoping the devils have now largely been banished."


Roger Wallis: Chapman Tripp

"Our Australian colleagues are envious of some of the things the FMCA facilitates," says Chapman Tripp's Roger Wallis. He believes the implementation of the new Act will facilitate development of new financial products, or at least simplify some process, while still providing for adequate investor protection.

Crowd-funding, and low cost, efficient further issues of shares or debt by listed companies, are examples of initiatives which will set New Zealand apart from our Australian counterparts.

Overall, Wallis is optimistic about the impact regulatory changes are likely to have on the market.

"An apparent pipeline of good quality financial products (whether equity, debt, or funds), some of which are enabled by modernised regulation, and clearer, more useful disclosure, should also help restore investor confidence and diversify away from real property investment."

However, issues do remain for the FMA to tackle under the leadership of its new CEO. Wallis suggests a fresh look at the law on financial advisers would be worthwhile.

"Although reformed in 2008, some of the 'red tape' that has ensued has caused good people to leave the industry." he says. "And some gaps and exclusions that are too wide mean unqualified people can still advise on some asset classes."

More importantly, he considers that some tax policy needs resetting to make markets more efficient, and remove tax biases that exist towards certain asset classes.

Finally, he suggests the FMA should begin to play a role in helping improve financial literacy.

"A number of agencies need to work together to ensure a step change on this, and it needs to be treated more seriously by Government.

"For example, why is basic financial literacy not a core part of the school curriculum?"