Regulatory response – financial services and COVID-19

The COVID-19 outbreak has resulted in particularly turbulent circumstances for listed issuers and those regulated within the financial services industry. In response, regulators such as the Financial Markets Authority have stepped in to provide relief where appropriate, unveiling exemptions, policies and extensions to assist affected industry participants.

FMA – Class Exemptions for FMC Reporting Entities

The Financial Markets Authority (FMA) has granted the Financial Markets Conduct (Financial Reporting and Other Relief – COVID-19) Exemption Notice 2020 and the Financial Advisers (Custodian Assurance Engagement Relief – COVID-19) Exemption Notice 2020 (Class Exemptions). The Class Exemptions came into force on 29 April 2020, and relax some of the reporting and other requirements applicable to managers of registered schemes, custodians, and other market participants under the Financial Markets Conduct Act 2013 (FMCA).

Managers of registered schemes and FMC Reporting Entities (being regulated issuers of financial products, FMCA licensee, and other entities) may be eligible for a two-month extension in respect of certain obligations under the FMCA, including auditing and financial reporting requirements, Disclose Register obligations, and annual report filing requirements.

Eligible market participants must believe on reasonable grounds that it is not reasonably practicable for the market participant to comply with the current required FMCA timeframes due to COVID-19. For businesses, the Class Exemptions cover balance dates on and after 31 December 2019 and before 1 August 2020.  Exemptions for managers of restricted schemes cover balance dates from 31 January 2020 to 31 July 2020.

The two-month extension under the Class Exemptions builds upon the existing statutory timeframes allotted under the FMCA. This means for eligible FMC Reporting Entities and scheme managers, a total of six-months are available to comply with financial reporting and other obligations (up from the statutory four-months).

Additionally, eligible custodians are able to access a similar two-month extension in respect of their obligation to obtain an assurance engagement under the Financial Advisers (Custodians of FMCA Financial Products) Regulations 2014.

FMA – “no action” relief

The FMA has further recognised the unprecedented impact that COVID-19 is having, or may have, on market participants. Accordingly, the FMA has clarified that it intends on adopting a “no action” approach to breaches by market participants of FMCA regulatory requirements due to the effects of COVID-19.

Market participants who have breached, or are expected to breach, their regulatory obligations are encouraged to reach out to the FMA at an early stage to seek guidance and relief under this “no action” policy.

The stance taken by the FMA essentially translates to no action being generally taken by the FMA against market participants in breach of their usual obligations, provided that the affected market participants meets a number of conditions – including identifying how and when the breach will be remedied.

Notably however, the “no action” approach applies only to regulatory enforcement, and would not preclude third parties from taking legal action against market participants in response to a breach of the FMCA or other regulatory requirements.

You can read more about the ‘no action’ approach here

NZX – relief for listed issuers

The NZX took early steps in March 2020 to provide urgent relief to listed issuers affected by COVID-19. The class relief announced by the NZX relates to the relaxation of periodic reporting requirements, as well as expanding the ease at which listed issuers may undertake equity capital raising.

Relief for reporting requirements

The relief package announced by the NZX provides listed issuers an additional 30-days to prepare and release results announcements (including interim and full year financial statements), as well as an additional two-months to prepare and release annual reports. For listed issuers with balance dates between 1 January 2020 and 31 May 2020 (but see below), this relief extends the existing timeframes required under NZX Listing Rule 3.5.1 for results announcements to 90-days (up from 60-days), and the Listing Rule 3.6.1 requirements for annual reports to five-months (up from three-months).

Reliance on the reporting requirement relief is conditional upon listed issuers announcing via the NZX Markets Announcement Platform their intention to rely on the relief. This announcement must also describe the extent of the relief relied upon, and an estimate of when the listed issuers is expected to make available the financial statements or annual report (as applicable). This estimate must be assessed and an update provided to the market in the event of any changes.

In April 2020, the NZX extended the application of the relief applying to periodic reporting requirements to listed issuers with balance dates of 30 June or 31 July 2021. In addition, the relief now applies beyond issuers of equity – debt and fund issuers may now also seek the benefit of the NZX relief.

Relief for equity capital raising

In additional to the periodic reporting relief described above, the NZX has announced further class relief to assist listed issuers to raise equity capital in the wake of COVID-19. In recognition of the unprecedented circumstances faced by New Zealand business, these measures are intended to ensure listed issuers are able to seek equity capital urgently and with reduced requirements for shareholder approval, should this be required.

Until 31 October 2020:

  • The cap on equity securities listed issuers may issue within a 12-month rolling period via placements has been extended to 25% (up from 15% under Listing Rule 4.5.1);
  • the cap on new equity securities issued to existing shareholders under a Share Purchase Plan has been extended to $50,000 (up from $15,000) per registered holder, and to a total cap of 30% of equity securities in that class at the time of offer (up from 5% under Listing Rule 4.3.1)); and
  • The notice and timing requirements for pro rata Rights issues to existing shareholders under Listing Rule 4.17 have been shortened, to allow for these issues to be conducted more fluidly. Rights issues may now be announced on the Ex Date (as if the issue was an Accelerated Offer), and where the Rights issue is only available via electronic means, the closing date may be shorted to at least three Business Days (down from seven) after the last letter of entitlement is sent.

The NZX recommends however that listed issuers implement a considered approach to reliance on the equity capital raising relief, and be particularly mindful of the effects on existing shareholders when considering capital raising options. Where possible, listed issuers should seek to allow existing shareholders to participate in offers made in reliance on the NZX relief, so as to provide an opportunity to avoid share dilution.

Further information on the NZX relief package can be found here

Extension to financial advice exemption notices

With the previously announced delay to the commencement of the substantive provisions of the Financial Services Legislation Amendment Act 2019 (FSLAA) (and the corresponding delay to the beginning of New Zealand’s incoming financial services and financial advice regime), the FMA has expressed its intention to refresh a number of exemption notices in place under the current Financial Advisers Act 2008 (FAA)

These exemption notices are due to expire before the end of 2020, and certainly before the commencement of the FSLAA regime. To ensure continuity of the existing exemptions under the FAA, the FMA seeks to extend the following exemption notices until the new FSLAA regime takes effect:

  • Financial Advisors (Non-NZX Brokers – Client Money) Exemption Notice 2017
  • Financial Advisors (NZX Brokers – Client Money and Client Property) Exemption Notice 2015
  • Financial Markets Conduct (Offers of Financial Products Through Authorised Financial Advisers Supplying Personalised DIMS) Exemption Notice 2015.

The new FSLAA financial advice regime is expected to come into effect next year – no earlier than March 2021.

Further information on the extensions and delays to the rollout of consumer credit and financial services legislation is available in our April 2020 article COVID-19 – Changes to Consumer Credit and Financial Services Regulation Announced available here

The updates discussed above are a highlight of the many exemptions, extensions and waivers New Zealand financial services regulators are putting in place to assist the industry in combatting the effects of COVID-19. Should you require advice relating to the options available to you as a listed issuer, reporting entity or financial service provider, the team at Lane Neave would be happy to assist.

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