Forestry schemes - Compliance exemptions and guidance on licensing

Finance Update


The Financial Markets Authority (FMA) has announced a new class exemption for managers of forestry schemes. The exemption announced on 19 March 2016 relieves the managers and their custodians from some of the licensing and governance requirements that would usually apply under the Financial Markets Conduct Act (FMCA), and that may cause unnecessary costs for forestry schemes because of the special nature of their assets and operations.


An exemption from licensing and the updating of governing documents is being given to managers of closed forestry schemes whose total forestry assets under management are less than $40 million, and where there is a low level of manager activity either because there are very few schemes under management or there is a relatively short period before all the schemes are wound up. Such schemes will continue to have a licensed supervisor. Managers who think they might qualify for this exemption should contact FMA as soon as possible. 

FMA has also issued guidance on the licensing process for those forestry scheme managers who will not be able to benefit from this exemption. The guidance clarifies some of the considerations unique to a manager of a forestry scheme, and provides context for responding to the questions in the licensing application guide. It also provides some helpful guidance for those schemes who may fall outside the definition of a managed investment scheme (MIS). 

Custody of forestry assets 

The second exemption removes the need for real property assets of existing closed forestry schemes to be held by the scheme's supervisor or an independent custodian. This will be conditional on the supervisor holding a first ranking security that is registered against the real property. If a manager holds real property under this exemption then it will also be exempt from the need to obtain an annual assurance engagement - this would otherwise require the manager to engage an auditor to provide an annual assurance report on the custodial processes, procedures and controls. 

All other assets will need to be held by the supervisor or custodian and will be subject to an annual assurance engagement. 

Quarterly SIPO limit break reports 

An exemption is being granted from quarterly reporting on statement of Investment policy and objectives limit breaks during 'low activity' periods for both existing and new schemes when no limit breaks have occurred. 

The basis for this exemption is that, because there is generally minimal activity for some years of a forest's life, many of these quarterly reports are likely to be nil reports. This exemption will apply to managers of both existing and new forestry schemes on the condition that, if a limit break occurs in a quarter, the manager will submit a quarterly report. 

Cash reconciliations 

Custodians of all new and existing schemes will be exempt from the requirement to undertake daily cash reconciliations. This will be conditional on reconciliations taking place at a frequency that is appropriate for the volume and frequency of transactions. 

Obligations of corporate general partners 

The final exemption is for existing and new schemes structured as limited partnerships where investors hold shares in a corporate general partner and the general partner's only role is to provide voting rights for investors. Any disclosure by the general partner in this structure would not give investors any useful information. The limited partnership MIS will provide all information relevant to investors. 

An exemption notice to give effect to the exemptions from the custody and cash reconciliation obligations is expected to be finalised by the end of August 2016.