Financial market reforms – locked and loaded

Business now has a firm basis to prepare for the regime to be established by the Financial Markets Conduct Bill and regulations following the release last week of cabinet papers which set out clear directions for the core remaining elements of the programme - disclosure, exclusions, governance and licensing.

The message - particularly for the funds industry - is that the time to begin preparing in earnest for the reforms is fast approaching.

The four papers contain:

an overview of the remainder of the reform process, including a proposed timeframe disclosure directions and some refinements to the new exemption framework governance requirements - particularly for the various managed investment schemes, and principles applying to the new licensing system which will be of particular interest to fund managers, derivatives issuers and other financial service providers. This Brief Counsel covers the first two papers. Governance and licensing will be addressed separately. We will also produce a commentary on the reforms as they affect KiwiSaver schemes.

Timing and deliverables

An exposure draft of the regulations is scheduled for release in October this year. The regime is then planned to come into force in April 2014, subject to a transitional period of up to two years.

Along with the regulations, the other key - and perhaps even more challenging - deliverable on this timetable is the new securities register. This online platform is as ambitious as it is core to the financial reform package. In addition to providing a one-stop shop for issuer information, it will house the new periodic and event-based disclosures, requiring functionality similar to securities exchanges.

Whether it will be possible to have this tested and in place before the proposed April 2014 commencement date remains to be seen.

Disclosure directions

The disclosure framework, although fundamental to the reforms, has taken something of a back seat until now, but is centre stage in the cabinet papers.

None of the policies in the papers is a complete surprise as they reflect the content of the admirably transparent consultation undertaken by officials. What the Cabinet has done is bring finality by laying down concrete policy decisions that will be fleshed out in the upcoming exposure draft of the regulations.

While the cabinet papers note that it is premature to consider the detailed content of the disclosure requirements, there are some clear pointers on direction and approach.

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