Bell Gully submits on FMA's Guidance Note on Effective Disclosure

Glenn Joblin, Partner and Haydn Wong, Partner | Tuesday 13 March 2012

Bell Gully has made submissions to the Financial Markets Authority on the "Consultation Paper: Request for Feedback – Guidance Note: Effective Disclosure".

Bell Gully supports the Financial Markets Authority's initiative to provide guidance on the presentation of prospectuses and investment statements. The Guidance Note has the potential to be a very useful tool for issuers and advisers and should, once finalised, assist in improving the standard of New Zealand offer documents.

To view Bell Gully's detailed submissions, please click here. The key points that we raised with the FMA are summarised below.

• We agreed that clear, concise and effective is an appropriate objective to pursue for offer documents.

• In a number of instances the Guidance Note is relatively prescriptive, either expressly or in its tone. In our view, there is a risk that an overly prescriptive approach will impose a "one size fits all" regime, which will result in unnecessary length and irrelevant or immaterial information to be included. It may also result in the Guidance Note being used as a 'box checking' reference rather than issuers focusing on the information that is material in the context of that issuer and the offer. Issuers should have the discretion to deviate from the Guidance Note in appropriate circumstances provided they comply with disclosure rules. We therefore recommended that the FMA take a less prescriptive approach, including through revising the tone of some of the language in the Guidance Note.

• The Guidance Note appears to be most applicable to equity offerings. In our view, the Guidance Note could better recognise that different investment products justify different disclosure regimes. For example, the matters that are material to an equity offering will not necessarily be as material for a debt offering. This issue with the Guidance Note is most acute when the Guidance Note is considered in respect of an offer document for a collective investment scheme. Properly recognising the difference with collective investment schemes could require (a) excluding them from the scope of the Guidance Note; (b) creating separate guidance for collective investment schemes; or (c) greater recognition within the Guidance Note that collective investment schemes may take a different approach to that set out in the Guidance Note whilst still meeting the fundamental objective.

• We also made the point that the FMA should not underestimate the amount of work that will be required, and attendant cost imposed, to make disclosure documents for collective investment schemes comply with the Guidance Note. In order to properly implement the principles articulated in the Guidance Note, issuers of collective investment schemes will need to substantially re-write the content of their existing offer documents. This compliance cost will not be borne by issuers under IPOs or one-off offers, where the offer documents will be created from scratch with the benefit of the Guidance Note.

• We believe the transitional period should be extended to be twelve months from the date that the Guidance Note is issued. That will allow continuous issuers to address compliance with the Guidance Note at their next scheduled annual roll-over.

• In our view, the Guidance Note does not sufficiently recognise the current regulatory regime, with the investment statement (which is intended to be an easier to access guide provided to investors) and the prospectus (with more detailed information available on request). In our view the Guidance Note should apply to an investment statement and a combined prospectus and investment statement, but not to a stand-alone prospectus.

• We welcome and support the FMA's suggestion that a Key Information Section should appear at the front of offer documents. We believe that such a section should provide a brief but balanced overview of the relevant offer. We do not consider that the regulated content of an investment statement is an appropriate substitute for a Key Information Section.

During the initial period of the Guidance Note being in place, it will be very important that issuers are able to engage with the FMA to discuss the application of the Guidance Note to a particular offer. Giving issuers an opportunity to interact with the FMA during the offer document preparation process will be both helpful for issuers and important for the FMA to ensure that market practice develops in a way that it considers appropriate. We have encouraged the FMA to adopt that approach as the market becomes more familiar with the practical implications of the Guidance Note.

The proposed timeline in the Guidance Note envisages:

• the final Guidance Note being issued on 26 March 2012;

• all newly issued disclosure documents being required to comply with the Guidance Note from 1 May 2012; and

• all current disclosure documents being required to comply with the Guidance Note by 1 May 2012.