FMA issues guidance on substantial product holder disclosures

FMA substantial product holder disclosures

Financial Services Update

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In our May 2017 update, we discussed FMA's proposed guidance on substantial product holder (SPH) disclosures on which it was seeking feedback from the market - in particular, in relation to its proposed treatment of disclosures by individuals who manage funds.

FMA had identified inconsistencies in market practice as to:

  • Whether individuals within firms who are responsible for managing funds that hold listed financial products are SPHs or only the firms themselves
  • Approaches to compliance with, and interpretation of, prescribed SPH disclosure requirements

FMA has now published its finalised guidance on SPH disclosure and has taken a sensible and pragmatic approach which is helpful to fund managers.

Disclosures by individuals who manage funds

Whether individuals who manage funds on behalf of a fund management firm (ie their employer) are required to make SPH disclosures, centres on whether those individuals have a "relevant interest" in the financial products their firms hold. 

In its proposed guidance, FMA stated that individuals who manage funds generally have a "relevant interest" in the financial products they manage and that such an interest needs to be disclosed.

Accordingly, FMA was of the view that, even if fund managers had controls or restrictions in place, individuals within the firm would generally have a relevant interest, which they would be required to disclose. In some situations, this would have extended to each individual member of an investment committee.

As we noted in our earlier update, we were concerned that this approach was largely against market practice in the area at the time and was contrary to market practice in Australia.

In this latest guidance, FMA has addressed these concerns by acknowledging that there is currently a difference of opinion on whether individuals managing funds have a relevant interest in the financial products their fund management firms (or employers) hold, which has resulted in inconsistencies in what is being disclosed.

As market opinion indicates, it is unclear whether individuals who manage funds have a relevant interest in the financial products they manage. FMA is intending to engage with MBIE to consider clarifying the law in this area.

In the meantime, FMA does not expect individuals who manage funds to make SPH disclosures for financial products they may control through the funds they manage solely because:

  • That particular fund has a 5% holding in a listed company.
  • The 5% threshold is met when their personal holdings are combined with the holdings in the fund they manage.           

SPH disclosure notices

The guidance also clarifies FMA's expectations as to the content of SPH disclosure notices in relation to:

  • The level of detail to include of relevant transactions in initial disclosures
  • How to aggregate on-market trades
  • How to describe a "relevant interest", including what needs to be included in relation to a "relevant agreement"
  • The making of joint disclosures
  • Timeliness of disclosures. In this regard, FMA states that where an SPH notice contains information that could materially affect the price of an issuer's quoted financial products (for example, transactions by SPHs that relate to takeover offers) which is not already known to the market the notice should, where possible, be released to NZX outside of market hours to take account of the process of administrative trading halts by NZX
  • The level of detail to include about transactions for 1% movements
  • Correct disclosure of registered holders

If you have any questions in relation to the guidance, please get in touch with one of our experts.