Financial Markets Conduct Act
Transition for Managed Investment Schemes
October 2013
Topics for today
1. Transition timing
2. Key transitional workstreams tasks
3. Wholesale unit trusts/super schemes
4. Selected aspects of new governance regime
5. Categorisation of superannuation master trusts
2
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
3
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
4
What must be in place before Notification Date?
1 December 2014
Twenty working day notice period
1 December 2016
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
5
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?
6
Governing documents – scope of amendments
Key clauses
Potential amendments
Affected Schemes
Purpose
Amend for new statutory purpose
KS, SS
Manager functions and
duties
Check consistent with FMCA manager functions
and duties
KS, SS, UT
Trustee responsibilities
and duties
Check consistent with FMCA supervisor functions
and duties
KS, SS, UT
Custodianship
Check consistent with s156
KS, SS, UT
Related party
transaction
Amend to be consistent with s173 restrictions
KS, SS, UT
Indemnities
Check consistent with limitations in s136
KS, SS, UT
Appointment/removal
of Manager and
Supervisor
Check consistent with s185 and s193
KS, SS, UT
Meeting provisions
Consider whether to include or use default
provisions
KS, SS
Valuation/Pricing
Ensure contains adequate provisions
KS, SS
7
Governing documents - timing
• Supervisor involvement required for all deed
amendments
Allow 2 months no FMA
Allow 3+ months with FMA
8
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
9
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
10
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
11
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
12
MIS categorisation
Superannuation
scheme
KiwiSaver
KiwiSaver
Restricted
Superannuation
scheme
Restricted
Legacy
Restricted
Legacy
Workplace
savings
Restricted
Unit trust
C
U
R
R
E
N
T
Other MIS
N
E
W
SUB-CATEGORIES
13
Strawman timeline
6-7 months minimum
Notification Date
Effective Date
Allow 2 months no FMA
Allow 3+ months with FMA
Governing Document
PDS/register entries
Allow 3-4 months
SIPO
Manager licensing
Internal
procedures/
supervisor
protocols
Allow 4 weeks
Allow 4-5 months
[3 months]
Scheme categorisation
FMA
certainty
OIC
Investor notification
2 weeks
14
Wholesale schemes
• Reasons to register?
• Consequences of doing so
• Transition – align with related retail schemes
15
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
16
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”
17
Best interests of scheme participants ctd
• Conflicts of interest policy – APRA Prudential Standards
• Culture
• Training
• Leadership
18
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
19
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
20
New supervisory functions/duties – Selected aspects
Supervisor is responsible for :
“acting on behalf of scheme participants in relation to:
i. the manager; and
ii. any matter connected to the governing document or the terms of
any regulated offer; and
iii. any contravention or alleged contravention of the issuer
obligations; and
iv. any contravention or alleged contravention of this Act by any
other person in connection with the scheme” (s 152(1)(A))
21
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))
22
MIS categorisation
Superannuation
scheme
KiwiSaver
KiwiSaver
Restricted
Superannuation
scheme
Restricted
Legacy
Restricted
Legacy
Workplace
savings
Restricted
Unit trust
C
U
R
R
E
N
T
Other MIS
N
E
W
SUB-CATEGORIES
23
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
24
Master Trusts – FMCA Categorisation ctd
• Two main options for personal section (if open to nonemployees)
• Close – legacy scheme (remains super scheme and
retirement scheme)
• Leave open – general MIS (not super scheme or
retirement scheme)
• May be other iterations
25
Master Trusts – FMCA Categorisation ctd
• Engagement with FMA
• Order in Counsel may be required
26
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.
27
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.
28
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
29