The Financial Markets Authority (FMA) has announced a new class exemption for managers of property schemes. The exemption announced yesterday 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 property schemes because of the special nature of their assets and operations.
Custody of real property
The first exemption removes the need for real property assets of existing closed property investment 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 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.
Custodians of all schemes (new and existing) will be exempt from the requirement to undertake daily cash reconciliation. This will be conditional on reconciliations taking place at a frequency that is appropriate for the volume and frequency of transactions.
Qualifying property investment schemes in active wind-up
The FMA has recognised that, for a scheme that is in active wind-up, the cost of compliance with the new licensing and governance requirements will outweigh the benefit for investors. Accordingly, exemptions from these requirements will be available, on application, to schemes that are closed to new investors and are being actively wound-up. If approved, an exemption may provide relief from the requirement to have a licensed manager, an independent licensed supervisor, a statement of investment policy and objectives, or the need to have a governing document that is FMCA compliant. The FMA will apply conditions around reporting and disclosure requirements to any exemptions that it grants.
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 June 2016. The FMA has noted that applications for licensing and governance exemptions for schemes in active wind-up can be expected to take up to six weeks from the date that the FMA receives the information it needs.
For advice on any of these exemptions, or the transition of your property scheme to the FMCA, please contact us.