A top-tier firm has advised on another FMCA transition.
Minter Ellison Rudd Watts earlier this month assisted Mercer (N.Z.) Limited in transitioning its flagship default KiwiSaver product, the Mercer KiwiSaver scheme, to the new FMCA regime.
The firm also advised CBL Corporation Ltd in preparation for it’s dual-listing on the NZX Main board and ASX – the first IPO under the FMCA regime.
Under the Act, all managed investment schemes must transition by 1 December next year – however issuers can elect to transition earlier.
“Mercer are keen to be early adopters of the new FMCA regime, because of the benefits they believe it brings to investors,” said Minter Ellison Rudd Watts financial services partner Lloyd Kavanagh, lead lawyer on the project.
“By moving first, they are showing their support for the new approach. Having made the call to move this year, the September transition was the natural time to do so as the old offer documents expired then,” he said.
Kavanagh said heand senior associate Darryl Hong worked closely and seamlessly with the Mercer team and its legal head Graeme Cosgrove.
“The transition was very smooth as all involved worked well together.”
The first step involved Mercer obtaining a licence by the Financial Markets Authority (FMA) as a ‘Managed Investment Scheme manager’.
Cosgrove said the amount of work involved in getting a licence application together should not be under-estimated.
“Then we needed to update the scheme’s trust deed to meet the new governance and other requirements.
“To do this Minter Ellison Rudd Watts led us through all the issues working with our supervisor Trustees Executors, and their lawyers DLA Piper. Again it was a collaborative approach by all involved to get the documents sorted in record time.”
The new FMCA requirements meant that the existing prospectus and investment statement needed to be replaced with a PDS (Product Disclosure Statement) and the scheme’s SIPO needed to be refreshed in line with FMA guidance.
Another significant component was preparation of scheme and fund information required to be entered on the publicly available Disclose Register.
Both the FMA team and the Ministry of Business, Innovation and Employment (MBIE) team at the Companies Office - who run the Disclose Register - were excellent to deal with, Kavanagh said.
“They were very helpful giving guidance as to their expectations. At the same time it has also been a learning journey for them as a number of practical implications of the way the Disclose Register has been set up only became apparent with a live example.”
The most challenging aspect for the Minter Ellison Rudd Watts team was around the development of the PDS and Disclose Register entries to replace the old investment statement and prospectus respectively, he said.
“It was a real challenge to get the PDS within the 12 page or 6,000 word limit, while still telling investors what they need to know to make a decision.
“Being first meant there were no real precedents.”
Mercer and Minters worked closely together, drawing on the lessons from the small number of PDSs for other products in the market - including the first ever NZ PDS of any type - registered in March for another of Minter Ellison Rudd Watts’ clients. The teams also drew on examples of Australian PDSs, even though the requirements have marked differences.
Kavanagh expected some other schemes to start following Mercer’s lead.
“A couple of smaller managed funds have registered schemes and we expect will be following up with PDSs soon.”
But most of the bigger schemes have chosen to rollover their old style documents this September, suggesting they will make the transition next year, he said.
“That’s understandable, because it has been an exceptionally busy period for those financial institutions, which also needed to be licensed for Discretionary Investment Services or derivatives.”
The FMCA regime
When asked about the state of the new FMCA regime, Kavanagh said that things had never been more transparent.
“These new requirements are good for investor confidence and enable their decision making.
“This is particularly important in relation to KiwiSaver, which is all about long-term decisions.”
He believed processes such as developing PDSs will become easier and easier as time goes on.
“In doing each of the different types of offers which we have now done: the non-bank deposit taker debt PDS; the derivatives PDSs; the equity initial public offering (IPO) PDS; and now, the MIS (KiwiSaver) PDS, we have learned from and built on our previous experience.
“We expect others will also see those as precedents which will make the process easier.”
But it’s not only the PDSs, the teams had also learned a lot about the Disclose Register, its functionality, and the regulators’ expectations.
“In some ways, it’s actually the Register entries which currently present the greatest opportunities for development,” he said.