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Financial Markets Conduct Act . Transition for Managed Investment Schemes October 2013. Topics for today. Transition timing Key transitional workstreams tasks Wholesale unit trusts/super schemes Selected aspects of new governance regime Categorisation of superannuation master trusts.

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financial markets conduct act

Financial Markets Conduct Act

Transition for Managed Investment Schemes

October 2013

topics for today
Topics for today

Transition timing

Key transitional workstreams tasks

Wholesale unit trusts/super schemes

Selected aspects of new governance regime

Categorisation of superannuation master trusts

effective date timing
Effective Date timing

1 December 2016

1 December 2014

Twenty working day notice period

Notification Date

Effective Date

  • Manager can pick any Effective Date between 1 December 2014 and 1 December 2016
  • Effective Date may align with prospectus rollovers or investor mail out
  • FMA / Registrar require 20 working days’ notice of Effective Date
what happens on the effective date
What happens on the Effective Date?

1 December 2016

1 December 2014

Twenty working day notice period

Notification Date

Effective Date

Scheme registered – regulated offer

PDS registered

Governing documents registered

SIPO registered

Other documents registered

Order in Council applies

Scheme subject to FMCA

what must be in place before notification date
What must be in place before Notification Date?

1 December 2016

Twenty working day notice period

1 December 2014

Notification Date

Effective Date

  • Manager licence
  • PDS/register entry prepared
  • Order in Council for superannuation scheme categorisation
  • Amendments to governing document (incl FMA approval if req)
  • SIPO review completed
  • Supervisor licence extended to superannuation scheme
  • Related party transaction compliance
  • Manager internal procedures/Supervisor protocols developed
  • Investor notification
  • Wholesale scheme registered
governing documents process
Governing documents - process

FMA approval not mandatory

Review of proposed amendments against existing amendment power

  • implied terms
  • conforming with FMCA

FMA approval process different from KS restructure?

FMA to provide guidance?

governing documents timing
Governing documents - timing

Supervisor involvement required for all deed amendments

Allow 2 months no FMA

Allow 3+ months with FMA

pds and register entries
PDS and register entries

New offer document - highly prescribed content

Could be issues at the margins for schemes that do not fit template

Go through internal due diligence processes

Update of due diligence planning processes

Requirement to register all other “material information”

Allow 3-4 months

slide10
SIPO

Public document

Ensure informal text/guidance removed

Some minimum content requirements

Must comply with frameworks/methodologies issued by FMA

Be aware of limit break requirements

Allow 4 weeks

manager licensing
Manager licensing

Light handed approach – means what?

Key content in FMC Regulations

If insurer/QFE, may have useful licensing materials

Can apply from 1 April 2014

Financial adequacy

Allow 4-5 months

order in council
Order in Council

Needed for superannuation scheme categorisation – flows into transition planning

Presumably OIC obtained late in process, but FMA certainty required earlier?

Need to understand timing/process from FMA

Allow [?] months

mis categorisation
MIS categorisation

CURRENT

Superannuation scheme

Unit trust

KiwiSaver

N EW

KiwiSaver

Superannuation scheme

Workplace savings

Other MIS

Restricted

Restricted

Legacy

Restricted Legacy

Restricted

SUB-CATEGORIES

strawman timeline
Strawman timeline

6-7 months minimum

NotificationDate

Effective Date

Allow 2 months no FMA

Allow 3+ months with FMA

Governing Document

PDS/register entries

Allow 3-4 months

Allow 4 weeks

SIPO

Allow 4-5 months

Manager licensing

Internal procedures/ supervisor protocols

[3 months]

FMA certainty

OIC

Scheme categorisation

2 weeks

Investor notification

wholesale schemes
Wholesale schemes

Reasons to register?

Consequences of doing so

Transition – align with related retail schemes

selected new governance functions duties overview
Selected new governance functions/duties – Overview

Act in best interests of scheme participants

Prudent, professional practice

S 152(1)(a) supervisory functions

Financial adequacy of manager

best interests of scheme participants
Best interests of scheme participants

“In exercising any powers or performing any duties a manager/supervisor must act in the best interests of the scheme participants” (ss143/153)

Core obligations, principally addressing conflicts of interest

Manager examples:

  • Related party transactions
  • Other decisions, such as scheme closure
  • IOSCO Case Studies (2000)

Supervisor example - manager as “client”

best interests of scheme participants ctd
Best interests of scheme participants ctd

Conflicts of interest policy – APRA Prudential Standards

Culture

Training

Leadership

prudent professional standard of care
Prudent, professional standard of care

Manager/supervisor must “in exercising any powers, or performing any duties, exercise the care, diligence, and skill that a prudent person engaged in [that profession] would exercise in the same circumstances”

About policies, processes and controls; not just actions, decisions?

For example:

  • Investment governance
  • Conflicts of interest controls
  • Valuation/unit pricing
prudent professional standard of care ctd
Prudent, professional standard of care ctd

Body of knowledge to be developed

  • Existing practices
  • FMA guidance
  • Industry bodies
  • Overseas examples – e.g. APRA prudential standards

Mutual understanding by Managers/Supervisors

new supervisory functions duties selected aspects
New supervisory functions/duties – Selected aspects

Supervisor is responsible for :

“acting on behalf of scheme participants in relation to:

the manager; and

any matter connected to the governing document or the terms of any regulated offer; and

any contravention or alleged contravention of the issuer obligations; and

any contravention or alleged contravention of this Act by any other person in connection with the scheme” (s 152(1)(A))

new supervisory functions duties selected aspects ctd
New supervisory functions/duties – Selected aspects ctd

Supervisor is responsible for:

“supervising the financial position of the manager and the scheme …to ascertain that it is adequate” (s 152(1)(b)(ii))

mis categorisation1
MIS categorisation

CURRENT

Superannuation scheme

Unit trust

KiwiSaver

N EW

KiwiSaver

Superannuation scheme

Workplace savings

Other MIS

Restricted

Restricted

Legacy

Restricted Legacy

Restricted

SUB-CATEGORIES

master trusts fmca categorisation
Master Trusts – FMCA Categorisation

Focus on master trusts – assumed objective to obtain “retirement scheme” status.

Employer section should qualify as a workplace savings scheme

Check criteria incl:

  • Purpose(not principal purpose) – retirement/leaving service benefits
  • Other benefits incidental or secondary
  • Requirements prescribed in regs

OK to have a “holding section” for leaving service benefits

master trusts fmca categorisation ctd
Master Trusts – FMCA Categorisation ctd

Two main options for personal section (if open to non-employees)

Close – legacy scheme (remains super scheme and retirement scheme)

Leave open – general MIS (not super scheme or retirement scheme)

May be other iterations

master trusts fmca categorisation ctd1
Master Trusts – FMCA Categorisation ctd

Engagement with FMA

Order in Counsel may be required

supervisor commentary
Supervisor commentary

Significant changes to the supervisory regime.  In particular:

  • New and potentially wide-ranging requirements
  • High FMA expectations
  • Very member-centric approach

Uncertainties as to how the new regime will operate in practice to be worked through.

supervisor commentary cont
Supervisor commentary (cont)

Key drivers of our approach include:

  • Embrace the changes - not in denial as to their implications
  • Adopt a leadership approach
  • Work collaboratively with stakeholders
  • Be pragmatic and sensible

Underlying objectives - promote financial markets confidence and facilitate efficient markets.

supervisor commentary cont1
Supervisor commentary (cont)

For the Managers we supervise, a Supervisor that:

  • Is pro-active and does its share of the heavy lifting in terms of understanding these reforms
  • Is tough but commercially sensible
  • Provides real and commercially valuable assurance around your business practices
  • Enhances your standing with the FMA and trusted and respected partner for your brand