Your obligations

FMC Act provisions 

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:

  • being licensed 
  • deliver reports to the FMA at least once every 6 months. The reports ensure we are aware of any changes which may affect supervisors' ability to perform their role to the required standard. It also satisfies us that supervisors are meeting their obligations (See section 25 of the Act). The regulations provide further detail on the matters that are covered in a supervisor's report.
  • immediately report to the FMA any situations where supervisors believe:

- they have or may have breached their obligations (section 26(1)(a) of the Supervisors Act)

- a material change of circumstances has or may have occurred or may be likely to occur in relation to their licence (section 26(1)(b) of the Supervisors Act)

- the information provided in relation to an application for a licence was, or may have been, wrong, misleading or incomplete (section 26(1)(c) of the Supervisors Act).

Prepare a report for or disclose certain information to us in circumstances where the relevant issuer under supervision is, or is likely to become, insolvent (section 47)or is in material breach of its obligations (section 46 of the Supervisors Act).

Supervisors must also tell us what steps they intend to take in response. In such circumstances, we have the power to take action in order to protect investors' interests. See more about reports under section 46.

Supervisor disclosures to the FMA of breaches or potential breaches by issuers are an important part of the licensing regime and enable us to:

  • monitor the extent and nature of non-compliance by supervised issuers
  • assess the adequacy of action the supervisor plans to take in response to a breach
  • monitor the effectiveness of that action, if necessary
  • where appropriate, work collaboratively with supervisors to ensure that steps are taken to address any breach.

When to report

Section 46(a) states; 'If a trustee or statutory supervisor has reasonable grounds to believe that a supervised issuer has breached, may have breached, or is likely to breach an issuer obligation in a material respect, the trustee or supervisor must, as soon as practicable report the breach or possible breach to the FMA.'

The obligation to report contains a materiality threshold, which requires the exercise of judgment. We recommend that a precautionary approach is adopted, and matters are reported if there is an internal discussion between supervisor staff to determine whether a matter is material.  This approach is consistent with:

  • the purpose and function of section 46 reports
  • a focus on investor protection;
  • the development of a mutually supportive relationship between the FMA and supervisors.

In particular, if a potential breach relates to a matter that may result in a statutory penalty for the issuer, the supervisor should only decide not to report to FMA on the basis of immateriality, if it has some degree of comfort that the relevant regulator will not take action.

What is material should be assessed in light of the principle of investor protection.  Any breach or likely breach which may, in a supervisor's reasonable opinion, impact adversely on investors' interests, should be reported. It may be helpful to view the matter from an investor's perspective; if you were an investor in the licensed entity, would you consider the breach to be material?

A section 46 report will not necessarily result in FMA directing the supervisor's intended course of action, unless there is a clear need to do so to protect investors.

Some concerns have been raised about whether a supervisor could be liable to action from a supervised entity in the circumstances where a report is made to us, but the matter reported is ultimately not material.  We consider these concerns to be unfounded, given that:

  • no reporting obligation arises if an issuer is not in breach or a circumstance of likely breach;
  • the matter is reportable only if that breach is material;
  • the supervisor, in making that assessment, will be acting reasonably. Reporting is a matter for the supervisor to determine, not the issuer. The supervisor should document its decision making process as part of its internal procedures
  • reporting to the FMA is a confidential matter.

What to report

We expect each report under section 46 to comply fully with section 46(a) and the obligations in section 46(b) to:

  • advise the FMA of the steps (if any) that the supervisor intends to take in light of the breach or possible breach
  • the date by which the steps are to be taken.

A date range can be provided. If no further steps are to be taken, this should be stated.

Following the initial section 46 notification, we may ask the supervisor for reports on the progress and success of the steps, to ensure that supervised entity is taking remedial action.  Where a supervised entity does not respond to the supervisor's plan, the supervisor should discuss this with us.

Breaches and Offences

Under the Securities Trustees and Statutory Supervisors Act 2011 (the Supervisors Act), supervisors may be liable for penalties of up to $200,000 for breaches of their obligations under:

  • any relevant trust deed, deed of participation, or deed of supervision
  • the Supervisors Act
  • a court order relating to a supervised security or retirement village
  • Part 5D of the Reserve Bank of New Zealand Act 1989 (which regulates non-bank deposit takers)
  • the Securities Act 1978
  • the Unit Trusts Act 1960
  • the Retirement Villages Act 2003
  • the KiwiSaver Act 2006.
  • the terms of offer of a relevant security.

In addition, supervisors may also be liable to pay compensation to investors arising out of any such breaches.

Any person acting as a supervisor without a licence (when a licence is required under the Supervisors Act) commits an offence and may be liable on summary conviction for a fine of up to $300,000.

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