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As this is the first significant consultation process
that the new regulator has run, it was always going to be something
of a test case. A failure to listen may have undermined market
confidence in the FMA - but it has now successfully dodged that
bullet.
The changes the FMA has made are welcome and address
many of the concerns submitters,
including Chapman Tripp, raised.
The FMA seeks high level feedback on its overall
approach and drafting comments by
Thursday 10 May 2012.
It then plans to finalise the guidance by 31
May.
Principal changes
The FMA is now explicit that the guidance note does not, and
cannot, change the legal requirements for disclosure documents but
is intended to assist people to comply with those requirements. The
guidance usefully contains cross-references to many of the
requirements currently prescribed by law and recent judicial
observations on the legal tests.
It has sought to avoid leading people into applying a
"tick the boxes" approach by emphasising that disclosure
documents should be considered "holistically" and
outlining the steps directors should take to bring their knowledge
and experience to ensuring the adequacy and accuracy of each
individual disclosure in the document.
It has put a greater emphasis on the materiality of information
which is disclosed, stating: "We discourage you from including
immaterial factors, including the ones referred to in this guidance
note, unless the Act or the Regulations expressly require them or
they are required to avoid a statement in a disclosure document
being misleading. It is for you to judge whether a factor is
material in the context of your particular offer".
It plans to publish the finalised guidance by 31 May, and is
asking continuous issuers to review their disclosure documents in
light of the note as they issue a new investment statement or
register a new prospectus rather than having to update documents
outside their regular review timetable.
It has softened its earlier hard line stance which would have
banned the use of brand information, photographs and other images
in the first few pages of an offer document to guidance that such
material should not be allowed to dominate disclosure documents.
This is a much more sensible approach. Chapman Tripp and others
submitted that the proposed ban might be counterproductive as, if
the documents were not attractively presented, investors would be
less inclined to read them.
Chapman Tripp comments
We are pleased that the FMA has clearly carefully considered the
62 submissions received, and has been willing to make significant
changes to its initial views. The response document is a useful
summary of the industry feedback, and explanation of the changes
the FMA has made.
The FMA has addressed our most significant concerns. It has:
clarified the legal status of the guidance, and dropped the
prescriptive tone of the first draft
reframed much of its guidance as good practice, where FMA's
comments exceed existing legal requirements, and
is more flexible, to take account of the nature of the
financial products, issuer and circumstances.
While a few drafting issues remain, the finalised guidance
should play a valuable role in making offer documents more
effective and providing a measure of comfort and security to both
issuers and investors, without adding overly burdensome additional
compliance costs.
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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