18 Jun 2012
FMA Issues Final Guidance Note on Securities Offering Documents
The Financial Markets Authority (FMA) has now released its final guidance note on effective disclosure. To view a copy of the note, click here. The guidance is relevant to all issuers of securities to the public in New Zealand and their directors and advisers. It explains the FMA's approach to reviewing prospectuses and investment statements.
The guidance does not change the legal requirements for disclosure documents, but will impact upon the practices and processes for preparing disclosure documents.
The final guidance follows an extensive consultation process undertaken by the FMA, during which the FMA considered more than 100 formal submissions on two separate drafts of the guidance note and met with more than 35 stakeholder groups. We acknowledge the significant efforts made by the FMA to engage with, listen to and take on board many of the key concerns raised by stakeholders during the consultation process.
What does the final guidance note cover?
The guidance note is divided into the following six key topics:
Section A (Disclosure requirements) highlights some of the key legal requirements for disclosure documents set out in the Securities Act 1978 (Act) and the Securities Regulations 2009 (Regulations).
Section B (Clear, concise and effective) provides guidance on good practice, information style and presentation, and encourages issuers to adopt techniques to help them prepare disclosure documents that are "clear, concise and effective".
Section C (Key information) provides guidance on good practice relating to presenting key information, and encourages issuers to include a key information section at the start of disclosure documents, highlighting factors which are likely to be material to an investor.
Section D (Material information) provides guidance on matters the FMA considers likely to be material to an investor considering whether or not to invest and which will require disclosure under the Regulations.
Section E (Financial information) provides guidance on the use of past and prospective financial information in disclosure documents.
Section F (Sector specific issues) provides guidance on factors the FMA believes are likely to be material for particular sectors (such as managed funds and property related offers).
How has the guidance changed since the second draft?
The core principles of the guidance note are unchanged since the second consultation draft released in April - the key concerns that most stakeholders had with the first consultation draft were addressed by the FMA in the second draft. However, some notable changes to the guidance since the second draft include:
- Clearer acknowledgement that the guidance does not change the law, but is instead a tool the FMA will use to assess compliance with the law - including acknowledgement that a key information section is not mandatory;
- A subtle change in the test of materiality to information that is likely to affect the judgement of a prudent but non-expert investor;
- Clarification around which aspects of the guidance apply to prospectuses, investment statements or both;
- Clarification that the guidance note is not specifically directed at advertisements;
- Some guidance around the requirement for consistency between the prospectus and the investment statement, including the ability to include in the investment statement cross-references to additional information in the prospectus; and
- Some additional examples of risks suggested by stakeholders during the consultation process.
When will the guidance note apply?
The FMA will start using the guidance note as part of its risk-based assessment of newly-issued disclosure documents from 9 July 2012 (other than for continuous issuers, where the guidance note will kick in from 1 January 2013).
What impact will the new guidance note have on issuers?
While the guidance note does not change the legal requirements for prospectuses and investment statements, it describes the approach the FMA will take when reviewing such disclosure documents for compliance with law. Issuers, with assistance from their advisers, will need to take advantage of this improved transparency by incorporating the guidance into the verification of disclosure documents - failure to do so will undoubtedly draw the attention of the FMA.