About designations

 

What designations can the FMA make?

What happens when a designation is applied to a financial product?

What we consider before we make a designation

How will a designation apply?

When a designation will not be given

What are interim orders?

How a designation can change the statutory obligations for a product

How designations can remove a statutory exemption

  

What designations can the FMA make?

Designations can change how a product is categorised, and remove an existing statutory exemption or exclusion. A designation can be applied to:

  • a particular person or transaction (an individual designation)
  • a class of persons or transactions (a class designation).

What happens when a designation is applied to a financial product?

A designation can change how a financial product is categorised under the FMC Act, affecting the compliance obligations for that product under the Act.

There are four kinds of financial products under the FMC Act: equity, debt, managed investment products and derivatives. How a financial product is regulated depends on the product’s category.

There are also some products that are classed as ‘securities’ under the FMC Act, but are not financial products. Generally disclosure and governance rules do not apply to products that are ‘securities’ but not ‘financial products’. See ‘How a designation can change a product or service’ for details.

What we consider before we make a designation

Before we exercise our designation power, we must consider:

  • whether the designation is necessary or desirable to promote either or both of the FMC Act’s main purposes in section 3 or any of the additional purposes in section 4
  • the economic substance of the relevant security and (where the designation will call in an offer for sale to the Part 3 disclosure regime) whether the offer was made for circumvention purposes. 

We must also consult with substantially affected parties. 

How will a designation apply?

Designations can be made on terms and conditions that relate to the circumstances in which the designation applies. We must publish our reasons at the time the declaration is made.

Designations remain in force indefinitely, until they are revoked or varied.

When a designation will not be given

Designations cannot be made for financial products that have already been issued or transferred.

What are interim orders?

We can give an interim order that stops securities being acquired or disposed of, or services being supplied while considering whether to make a designation. We must, however, be satisfied the public’s interest is served.

The interim order gives us time to consider whether a designation is required. The order prevents activities that would counteract the effect of the proposed designation (as designations cannot have retrospective effect).

An interim order will apply for 15 working days after the order date. However, we can specify a longer period, of up to 30 working days, if we consider it is not reasonably practicable to reach a decision on the designation within the 15-working day period.

How a designation can change the statutory obligations for a product

A designation can change how a financial product is categorised under the FMC Act.  This will change the statutory obligations that apply. There are four classes of financial products under the FMC Act. They are: equity, debt, managed investment products and derivatives. The way a financial product is regulated depends on the product’s category.

The table below provides an idea of what can change with a designation.

Designation that changes how a product is categorised

Designations may declare that: Comments
a security is a financial product of a particular kind We can call in securities that are not financial products into the FMC regime.  
a security that would otherwise be a financial product of one kind is a financial product of a different kind  We can recategorise a financial product (eg from equity to debt) 
a security that would otherwise be a financial product is not a financial product We can exclude financial products from the FMC Act regime 

Related powers:

  • If a designation results in a product being categorised as a particular type of financial product, we can also declare that someone is the issuer or offeror of those products.
  • If a designation results in a product becoming a managed investment product then we can also declare that there is a related scheme that is a managed investment scheme.
  • We may use our exemption power to modify the standard requirements being applied to a product upon the designation. This will ensure the requirements are fit for purpose for the particular product.

 

How designations can remove a statutory exemption

Designations can remove an existing statutory exemption available to an offer or person. This can be used to prevent abuse of the statutory exemptions, or to avoid the use of the exemptions in unintended circumstances.

The table below shows how a designation can remove an existing exemption for a product or a service.

Designation that removes the application of a statutory exemption 

Designations may declare that: Comments
an offer of issued financial products that is exempt from  disclosure under Part 3 due to an exclusion under Part 1 of Schedule 1, be required to provide disclosure  We can stop a Schedule 1 exclusion applying to an offer and bring the offer back within the Part 3 disclosure regime.  
an offer of financial products for sale that would not otherwise require disclosure under Part 3, does require disclosure  We can call-in offers of products for sale to be regulated under the Part 3 disclosure regime.  
a person, service, or conduct not be subject to certain exemptions from DIMS licensing in s 389(2)    We can call-in certain DIMS providers (who would otherwise not be required to be licensed) to be licensed under the FMC Act.  
a person, service, or conduct to not have exemptions or exclusions that would otherwise apply under section 238 (1)(a) to (h) section 285, section 287, or section 309

We can:

  • dis-apply an exemption from having to make market disclosure of interests, as a substantial security holder or director or senior manager
  • declare that a facility (that is excluded from the definition of financial product market) is a financial product market.