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Securities law overhaul threatens to make offer documents too simple, INFINZ says

Friday 19th April 2013

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The government's planned overhaul of decades-old securities law threatens to make the short-form offer documents that many investors rely on too simple by limiting directors from judging what needs to be included, according to the lobby group for finance sector professionals.

The Ministry of Business, Innovation and Employment sought feedback on a number of proposed regulations in the Financial Markets Conduct Bill, to provide the details of the legislation. Among those regulations, is the level of prescription the product disclosure statements needed.

The Institute of Finance Professionals New Zealand submitted the introduction of a heavily prescribed disclosure statement would be a "retrograde step" in limiting directors' judgement as to what is material information that should be included in offering documents distributed to investors.

INFINZ would prefer guidance as to what information is material enough to be included in the shorter product disclosure statement, leaving more in-depth detail in the on-line register where the full prospectus would be lodged, executive director Jim McElwain told BusinessDesk.

"We want to avoid any move toward a heavily prescribed approach to ensure that directors and issuers remain responsible for documents in determining what is material," McElwain said. That kind of framework would essentially be "a tick the box approach where important information could be left out, simply because you ran out of room."

Improving offer document disclosure and improving retail investors' understanding of risks relative to rewards was a major plank in the law change, which seeks to restore confidence in financial markets after the collapse of the finance sector through the latter half of last decade.

INFINZ supports the Financial Markets Authority's guidance that disclosure be "clear, concise and effective" and that it would be a "retrograde step to regress back towards 'black letter' regulation," it said in its submission.

That sentiment was echoed by a number of the 64 submissions published on the MoBIE website with director exposure to markets and making offers, including law firms, banks, brokers and issuers.

Bank of New Zealand said "prescription should always be subservient to the key principle of disclosing to investors the material matters in relation to a financial product or its issuer, so at least as much attention needs to be paid to relevance and usefulness as to format."

A shared theme was one where flexibility was available for issuers to determine what needed to be in the offer document, depending on what type of asset was on offer.

The mammoth bill is expected to pass into law next month, with the draft regulations released later this year. The act is slated to come into effect next year with a two-year transition period to bed in the changes.

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