The FMC Act Part 4 provisions and obligations apply to Supervisors. See our governance pages for more information.
Supervisors must comply with the Securities Trustees and Statutory Supervisors Act 2011 (the Supervisors Act) and supporting regulations. Compliance involves the following activities:
- they have or may have breached their obligations (section 26(1)(a) of the FMS Act) or
- a material change of circumstances has or may have occurred, or may be likely to occur, for the licensee (section 26(1)(b) of the FMS Act) or
- the information provided for a licence application was, or may have been, wrong, misleading or incomplete (section 26(1)(c) of the FMS Act).
Supervisors must also tell us how they plan to respond if there is a contravention or insolvency. In such situations, we have the power to take action to protect the investors' interests.
Disclosing contraventions or potential contraventions by issuers is an important part of the licensing regime. It enables us to:
Under section 203 of the FMC Act, the supervisor of a debt security or registered scheme must report to us a material contravention, or a possible material contravention, of an issuer’s obligations. The supervisor must also tell how they plan to act, and the timeline for the action.
The obligation to report contains a materiality threshold, which requires a judgment to be made. We recommend a supervisor takes a precautionary approach and matters are reported where they have begun an internal discussion between supervisor staff as to whether the matter is material or not. This approach is consistent with:
In particular, if a potential contravention relates to a matter that may result in a statutory penalty for the issuer, the contravention should only go unreported if deemed immaterial, and the supervisor is comfortable that the relevant regulator will not take action.
If a supervisor thinks a contravention or likely contravention has occurred which may adversely impact the investors' interests, the contravention should be reported. It may be helpful to view the matter from an investor's perspective (i.e., if you were an investor in the licensed entity, would you consider the contravention to be material?).
Following a section 203 report to us, we might not necessarily direct the supervisor to take a course of action, unless we see a clear need to do so to protect investors.
There have been concerns that a supervisor could be liable to action (from a supervised entity) should a contravention reported be found to be immaterial. Both sections 203 and 204 of the FMC Act have provisions detailing that the protections of section 214 of the FMC Act c apply to reports made in good faith.
We expect each report under section 203 to fully comply with sections 203(1)(a) and 203(1)(b) to tell us:
A date range can be provided. You need to tell us if you do not plan further action.
Following the initial section 203 notification, we may ask the supervisor for reports on the progress and success of the action taken by the supervisor to ensure the supervised entity is taking remedial action. We should be told if the supervised entity does not respond to the supervisor's plan.
Under the FMS Act, the High Court may fine a supervisor up to $600,000, if the supervisor contravenes a licensee obligation. Licensee obligations mean an obligation imposed on a supervisor by one, any or all of the following:
Further, supervisors may also be liable to compensate investors as a result of the contravention.
Under the FMS Act, anyone acting as a supervisor without a licence or claim to hold a licence may be fined up to $600,000.