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30 September 2011

Securities Trustees and Statutory Supervisors Act comes into force

Media Release
30 September 2011

From 1 October, 2011 securities trustees and statutory supervisors will be regulated under new rules overseen by the Financial Markets Authority.

"Trustees and supervisors play an important role in looking after investors' interests, and it is important that they uphold the highest standards of professionalism and integrity in supervising market participants," said Elaine Campbell, FMA Head of Compliance Monitoring.

The Securities Trustee and Statutory Supervisors Act 2011 was developed as part of the Government's regulatory reform agenda for the financial markets, and to address concerns regarding the quality of supervision provided by some trustees and supervisors in the past.

"1 October marks the beginning of the road to higher standards of conduct," Ms Campbell said. "Over the next 12 months, FMA will carefully review applications for licences. This is an important opportunity to assess entrants to the new regime.

"We will be looking for evidence of competence and capability, independence and accountability. In particular, we will be looking for a proactive approach to supervision, not just a 'ticking the boxes' mentality."

The licensing process will assess applicants':

  • Experience, skills and qualifications
  • Financial and other resources
  • Internal compliance and monitoring procedures
  • Independence from clients
  • Governance structure
  • Professional indemnity insurance
  • Directors' and senior managers' good character
  • Registration under the Financial Services Providers Act


FMA is in direct contact with the 26 entities it estimates will apply for licences and has issued guidance on how to obtain a licence.

Existing trustees and supervisors will be granted a temporary licence to enable them to continue operating. They will then need to make a full licence application. FMA will begin compliance monitoring next year and full licences will be granted by September 2012.

"This new regime is part of the wider regulatory reforms aimed at increasing investor confidence in financial markets," Ms Campbell said.

"FMA will focus initially on working with the industry to help participants understand and comply with their new responsibilities under the Act, as was done with the financial advisers' regulatory regime which came into force on 1 July.

"Once licensed, trustees will be required to report to FMA any serious actual or potential breaches of trust deeds or governing documents. This will give FMA the ability to intervene early to address a developing problem," Ms Campbell said.

Under the legislation FMA has the ability to grant, vary or cancel licences, or to remove a supervisor from a specific appointment. Licensees will be subject to pecuniary penalties of up to $200,000, plus compensation.

Ends

Definitions

Trustee

A person appointed to look after investors' interests for certain securities. Trustees covered by the Securities Trustees and Statutory Supervisors Acts are:

  • Debt security trustees
  • Unit trustees
  • KiwiSaver trustees

(Restricted KiwiSaver schemes are not currently covered by the Act)

Statutory Supervisor

A person appointed to look after investors' interests for participatory securities (a catch-all term for securities other than equity securities, debt securities, life insurance policies, superannuation schemes, or investments in a managed fund). Statutory supervisors of Retirement Villages are also covered by the Act.

Securities

Security means -

A debt security
A participatory security
A unit in a unit trust
A life insurance policy
An interest in a KiwiSaver scheme
An interest in a superannuation scheme