FMA releases guidance on substantial product holder disclosures

The Financial Markets Authority (FMA) have released their guidance note ‘Guidance on substantial product holder disclosures’ (Guidance Note), after consultation on their proposed guidance on substantial product holder’s (SPH) disclosure obligations (Consultation Paper) earlier this year.

A link to the Guidance Note is available here. Our earlier news alert on the FMA’s Consultation Paper is available here.

Who needs to read it?  Why?

Fund management firms and market participants such as brokers, as well as other investors in listed issuers. The Guidance Note clarifies the FMA’s expectations in relation to who should be making SPH disclosures, and provides guidance in areas of possible confusion about how the Financial Markets Conduct Act 2013 and Financial Markets Conduct Regulations 2014 are applied. The Guidance Note also informs market participants about the FMA’s findings from its review of disclosure notices and highlights areas of concern.

What does it cover?

A significant difference between the Guidance Note and the Consultation Paper is the FMA’s view as to whether individuals managing funds have a relevant interest in the financial products their fund management firms (or employers) hold.

The FMA acknowledges that there is a difference in opinion, which has resulted in inconsistencies in disclosure, and says that it will engage with the Ministry of Business, Innovation and Employment (MBIE) to consider clarifying this area of the law.

However, in the meantime, the FMA does not expect individuals who manage funds to make SPH disclosures for financial products they may control through the funds they manage solely because:

  • that particular fund has a 5% holding in a listed company, or
  • the 5% threshold is met when their personal holdings are combined with the holdings in the fund they manage.

This contrasts with the FMA’s proposed approach in the Consultation Paper, which was that individual fund managers generally do have a relevant interest in the financial products they manage, held by the firms they work for (unless there are controls preventing them from independently exercising discretion), and therefore would be required to make SPH disclosures accordingly.

In all other respects, the contents of the Guidance Note remains largely unchanged from the Consultation Paper and provides clarity around a number of practical areas for SPH disclosure in relation to:

  • details of relevant transactions in initial disclosures;
  • aggregating on-market trades;
  • describing a “relevant interest”;
  • joint disclosures;
  • timing of SPH disclosures;
  • details of transactions for 1% movements; and
  • registered holders.

Our view

We welcome the FMA’s guidance on disclosures by individuals who manage funds and believe it will aid consistent market practice.

However, the FMA has indicated that it will engage with MBIE to consider clarifying this area of the law. Therefore, there may be a risk that the legal position and the FMA’s approach changes. As we have said in our news alert on the Consultation Paper (available here) we do not support requiring individuals who manage funds to make SPH disclosures. It is the identity of the fund management firm, not the individual employed, which is relevant to the market. When the FMA asked for targeted feedback from fund managers on this proposal in November 2016, submissions were largely adverse. Submissions focused on the associated compliance costs, and the difficulty in determining which individuals had the necessary level of power or control in relation to the listed financial products.

Notwithstanding this potential uncertainty, the general guidance provided will be of use to all other market participants to clarify their disclosure obligations and promote consistent market practice.

What next

If you have any questions in relation to the Guidance Note or SPH disclosure obligations, please contact one of our experts.