For the 6 new Financial Market
Service Licenses Under the
Financial Markets Conduct Act 2013
Who are the new licenses for?
The Financial Markets Conduct Act 2013 introduces six new types of financial market service licenses. These are for….
Crowd funding service providers
Peer-to-peer lending service providers
Managed investment scheme (MIS) Managers
Discretionary investment management service (DIMS) providers
1. Crowd funding services
A license to provide crowd funding services is for businesses who want to act as an intermediary between companies making share offers and investors – by providing the facility through which offers can be made to investors. When your service is licensed, companies can offer shares through your service without having to supply product disclosure statements (PDS).
2. Peer-to-peer lending services
A license for peer-to-peer lending services is for businesses who want to provide an intermediary facility to connect borrowers and lenders. This is generally intended for situations where the loan is sought for personal, charitable or small business purposes. When your service is licensed, borrowers can issue debt securities through your service without having to supply product disclosure statements.
3. MIS managers
An MIS is a managed investment scheme. You’ll need a license if you’re the appointed or designated manager of a non-restricted and registered MIS. Specifically, you’ll need a license to (a) make a regulated offer of managed investment products to retail investors; (b) register a non-restricted MIS you have been appointed the manager of. When FMA grants a MIS license, it will specify the class of MIS product(s) you offer and may also specify the product(s) if you only offer a very limited range of products.
What is an MIS?
The definition of an MIS under the FMC Act is very broad ; it includes collective investment schemes, and most schemes involving participatory securities under the Securities Act 1978; it does not include discretionary investment management services (DIMS), insurance contracts, or schemes that only involve managing separate and direct interests in underlying property. MIS schemes may be open-ended or closed-ended. Open-ended schemes are offered continuously, for example KiwiSaver, superannuation, workplace savings schemes, open-ended unit trusts, and other schemes that invest in relatively liquid assets. Closed-ended schemes are more equity-like, such as forestry partnerships and property syndicates that invest in a single asset class.
4. DIMS providers
A DIMS is a discretionary investment management service – an investment arrangement where you make buy–sell decisions about your client’s portfolio, rather than your client making those decisions. It includes arrangements where the client has the right to be consulted or can change a decision you have previously made. DIMS cover a wide range of services and can vary considerably. From 1 December 2015, anyone providing class DIMs to retail clients must have an FMC Act DIMS license.
5. Derivatives issuers
If you’re in the business of entering into derivatives, you are a derivatives issuer. You must be licensed to make a regulated offer of derivatives from 1 December 2014. A regulated offer includes any offer of derivatives when disclosure must be made to investors, for example, because they are a retail investor. The FMC Act has a broad definition of a derivative. It includes futures and forwards, options (except options to acquire an equity security, a debt security, or a managed investment product by way of issue), swaps and contracts for difference, margin contracts, rolling spot contracts, caps, collars, floors and spreads. The definition is also wide enough to catch new derivative products as they are developed.
6. Independent trustees
This license is for someone who is, or will be, the independent trustee for a restricted managed investment scheme. For the definition of ‘independent’ please see section 131(3) of the FMC Act. A restricted scheme is identified as ‘restricted’ on the Register of Managed Investment Schemes. It includes KiwiSaver schemes, and workplace superannuation or legacy schemes.