Cabinet makes further decisions on securities law

Commerce Minister Simon Power today announced further Cabinet decisions on the review of securities law.

They include:

• A system to regulate securities exchanges.
• Licensing regimes for specific financial sector participants: fund managers, independent trustees of workplace superannuation schemes, derivatives dealers, and peer-to-peer lenders.
• More details about penalties under the liability framework in the event of a breach of financial markets laws.

Penalties range from an infringement notice of up to $20,000 for failure to keep registers of security holders, to up to 10 years' imprisonment and/or a fine of up to $1 million for individuals and $5 million for companies for known or reckless inclusion of a false statement in a disclosure document.

Mr Power said that under the liability regime, anyone who makes misleading statements in a product disclosure statement or advertisement will be liable for a civil pecuniary penalty of up to $1 million, and $5 million for companies, plus compensation orders.

"This means celebrities who make false or misleading statements on behalf of providers of regulated financial products or services will be subject to significant liability.

“They will not, however, be prohibited from endorsing a financial product or face liability if the product fails and they have not made a misleading statement about it.

"Cabinet considered whether or not to introduce specific regulation for celebrity endorsements, but decided that the proposed liability regime will sufficiently penalise celebrities for any misrepresentations they make.

“This is an extremely difficult area to address, and I would welcome submitters' comments on the proposals once the bill is released for public consultation, and look forward to seeing what the select committee makes of it.

Earlier Cabinet decisions on securities law include: regulating financial products, disclosure requirements, exemptions, collective investment schemes, and providing the Financial Markets Authority with additional powers.

“This ongoing review is a once-in-a-generation opportunity to modernise our securities laws,” Mr Power said.

“The new legislation will be better for mum and dad investors as well as for New Zealand companies looking to raise capital. It will provide clearer, more consistent information for investors, and clarify obligations that issuers have to meet.

“The modernisation of securities legislation will provide New Zealand with the robust legislative framework that our financial markets need. The Financial Markets Authority, which began work on 1 May, will be able to enforce a modern securities regime that provides clear rules for all participants."

A working draft of the new securities legislation will be released in August for public consultation and a bill will be introduced to the House before the election.

The Cabinet paper is available here.

Background:

Regulation of securities exchanges:

All securities exchanges above a certain size or volume threshold will either be licensed, or explicitly exempted, and subject to regulatory requirements that are proportionate to the risks posed by that market and its participants.
This is intended to enable more exchanges to develop, allowing small growth companies to use lightly regulated markets as stepping stones to larger, more tightly regulated markets.

Penalties for breaching securities law:

There will be six tiers of liability, ranging from infringement notices for minor contraventions, through to terms of imprisonment of up to 10 years for reckless and intentional breaches of the law. Most contraventions will be subject to civil pecuniary penalties.