11 Apr 2012
FMA Issues Revised Guidance on Securities Offering Documents
The Financial Markets Authority (FMA) has released its revised guidance note on effective disclosure for prospectuses and investment statements (available here). During consultation on the initial draft market participants raised a number of concerns. The FMA has amended the guidance note to address many of these concerns.
The draft echoes judicial commentary in recent cases on directors' duties. A key message from those cases is that directors must "own" the process of preparing offer documents.
Simpson Grierson welcomes the revised guidance note, which addresses many of our concerns. Additional feedback is being sought on the revised draft by 10 May 2012, with a final guidance note expected to be published by the FMA by 31 May 2012.
The FMA's re-cast of the guidance note includes some notable changes in approach from the initial draft:
- The guidance note clarifies that the "clear, concise and effective" standard is intended to represent good practice for issuers when preparing offer documents and is not an end in itself. Applying this standard will help issuers to determine whether their offer documents meet the current statutory tests not to mislead, deceive or confuse.
- The FMA expressly acknowledges that the guidance note does not change the legal requirements for disclosure documents under the Securities Act 1978 and Securities Regulations 2009 (a key concern arising out of the wording of the previous guidance note).
- The FMA has moved away from prescribing mandatory disclosure for topics such as related party transactions, directors and senior management, plus issuer and investment risks. Instead, the guidance note sets out a range of factors the FMA believes could be material to such topics in the context of an offer of securities. The onus is on an issuer and its directors to determine whether those factors are material for the particular issue and warrant disclosure.
- A more relaxed stance is taken on the use of pictures and branding in offer documents than in the initial draft guidance note. The FMA confirms that images and branding may be used if they do not dominate, distract or detract from underlying disclosure.
- The "key information section" is no longer a formatting requirement in the guidance note. Including such a section is recommended as a useful tool to highlight an investment's main terms, benefits and risks.
- The guidance note acknowledges that any financial information disclosed is subject always to mandatory financial reporting requirements. If prospective financial information is included that exceeds specific requirements, the FMA has recommended that this information is supported by an accountant's or expert's report to reduce the likelihood of that information being misleading. The FMA recommends that the report be included in the offering documents since it is likely to be material to an investor.
- The FMA has extended the transition period before the guidance note will be applied. Newly-issued disclosure documents will be subject to the guidance note from
1 June 2012. Continuous issuers should apply the guidance no later than the next time their disclosure documents are revised, for issues on or after 1 January 2013.
We applaud the FMA for the level of engagement it has shown during the consultation process and for taking on board many of the key concerns raised. We expect the guidance note will become a valuable tool for the FMA and the market to develop best practice disclosure - a matter of particular importance as the industry prepares for upcoming changes under the Financial Markets Conduct Bill.