Edmonds Judd

FMA

Eligible investor exemption

In light of the Du Val insolvency

The recent interim receivership and subsequent statutory management of the Du Val Group has brought the use of, and reliance on, ‘eligible investor’ certifications under the Financial Markets Conduct Act 2013 (FMCA) back into the public spotlight. In this article we discuss this exemption and provide insights to market participants on best practice.

 

The FMCA

The FMCA is the legislative mechanism for the regulation of New Zealand’s financial markets. It prescribes a comprehensive disclosure regime in relation to offers of financial products. Financial products include, but are not limited to, debt and equity securities, and managed investment products.

 

Wholesale investors

An investor may be classified as a retail investor or a wholesale investor. While there is an extensive list within the wholesale investor exemptions, relevant examples include:

  • Participants who invest a minimum of $750,000 into a single investment
  • Those who are considered ‘large’, as in they hold net assets or have consolidated turnover of at least $5 million
  • Government agencies, and
  • Investors who meet certain investment activity criteria, for example, they own a financial products portfolio of at least $1 million in value.

 

Wholesale investors have access to a broader range of investment opportunities than those available to the general public. Public offers are subject to significant disclosure requirements, statutory oversight and compliance costs. To counter this, fewer consumer protections exist for wholesale investors.

 

The ‘eligible investor’ exemption

Under the umbrella of wholesale investors is the ‘eligible investor’ subset; this allows experienced investors who possess the skill and judgement necessary to assess the merits of a transaction, without full statutory disclosure, to be deemed a wholesale investor.

 

This rationale is reflected in the criteria used to determine who qualifies as an eligible investor. An investor may be eligible where their prior experience allows them to assess a transaction’s merits, their own information needs and the adequacy of any information provided.

 

If an investor has the expertise to assess the criteria, they may self-certify that they are an eligible investor. As part of this process, an appropriately qualified financial adviser, accountant or lawyer must confirm the investor has been adequately advised of the consequences of certification. The relevant professional must confirm they have no cause to doubt the certification.

 

The Du Val Group situation

In October 2022, the Financial Markets Authority (FMA) warned two entities within the Du Val Group that certain investor certificates it was relying upon were incomplete. The FMA cautioned that, within the certificates, the relevant grounds investors were giving ‘did not refer to any previous experience in acquiring or disposing of financial products and so are not capable of supporting the certification and should be disregarded.’

 

In addition to those 2022 findings, recent media reports have suggested that the Du Val Group continued to market their financial products to retail investors and encouraged them to use the eligible investor category. The report suggested they were not sufficiently experienced or high-net worth individuals for whom the exemption is intended. At the time of writing, it appears these investors are unlikely to receive their investments back in full.

 

Who should exercise caution?

The Du Val insolvency process is a reminder of the risks involved with financial markets and financial products. Market participants should be fully aware of the risks associated with using the eligible investor exemption:

  • Investors must understand fewer regulatory protections are afforded to them within this class. It is, therefore, particularly important that eligible investors are appropriately experienced to allow them to properly assess investment opportunities and associated risks
  • Financial advisers, accountants and lawyers must exercise caution when giving certifications, particularly for investors with whom they have had no previous dealings. The assessment as to whether an investor is sufficiently equipped to transact without the default protections of the FMCA is not an exercise that should be taken lightly, and
  • Issuers and offerors relying on eligible investors to raise capital must be careful to correctly classify investors. Encouraging inexperienced investors to proceed as eligible investors does not support an informed or balanced decision and may result in significant penalties.

 

For more advice on eligible investor status, please don’t hesitate to contact us.

 

 

 

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650


Business briefs

Hiring migrant workers: What the new AEWV means for you

Immigration New Zealand (INZ) has introduced the Accredited Employer Work Visa (AEWV) that replaces and consolidates six temporary work visas.

 

Employers must now apply for accreditation to hire migrants under the AEWV pathways by showing they are a good employer who will:

 

  • Run a viable, genuine business which meets certain financial criteria
  • Comply with New Zealand employment and immigration law
  • Commit to pay all recruitment fees, and
  • Assist the migrant with settling in New Zealand.

 

Once accredited, you (as the employer) can apply to INZ for ‘job checks’ and, in doing so, must provide evidence that:

  • You have recently advertised the role on a national job listing website for at least two weeks to determine whether any suitable New Zealand candidates exist
  • The job meets INZ’s requirements, and
  • You have provided an acceptable offer and an employment agreement to the applicant.

 

If INZ grants the job check, the relevant role must be filled within six months, or you will have to reapply. INZ will then add the relevant migrant’s details into Immigration Online and send the AEWV applicant a unique link to apply for their visa.

 

If you have any questions about the AEWV or the accreditation process, please don’t hesitate to contact us or an immigration advisor.

 

Changes to the Holidays Act on the horizon

For many employers, the Holidays Act 2003 is a constant source of frustration, especially when it comes to calculating pay for annual leave or days in lieu. Getting these calculations wrong, or failing to meet the requirements of the Act, can result in tens of thousands of dollars’ worth of penalties for serious breaches.

 

The government has signalled upcoming changes to streamline and simplify compliance, hopefully coming in 2023, including:

 

  • Annual leave payments will be calculated based on the hours in the employment agreement, or averaged over the previous 13 weeks
  • Employees will be entitled to take annual leave in advance, including during their first 12 months of employment
  • Eligibility for alternative holidays will be based on whether an employee worked more than half of the corresponding days over the previous four or 13 weeks (e.g.: if the public holiday is a Monday, the employee must work more than half of the previous four or 13 Mondays to qualify for an alternative holiday)
  • ‘Casual employee’ will be defined for the first time
  • Only casual employees will be eligible to be paid 8% ‘pay-as-you-go’ holiday pay, and
  • Employers will be required to provide pay slips to their employees each pay period.

 

These proposed changes look very promising, but the current laws will still apply to the upcoming Christmas and summer holidays. Until the changes take effect, all employers must ensure they are compliant with current law.

 

FMA review of ethical investing highlights need for improvement

The Financial Markets Authority (FMA) is urging fund managers to improve disclosures relating to ethical investing after a recent review found that, despite growing demand, New Zealand investors struggle to select managed funds based on ethical and socially responsible credentials.

 

Based on the review, New Zealand investors will be keen to monitor fund managers’ responses to the FMA’s recommendations. The FMA recommends that fund managers should consider the following:

 

  • Consolidating disclosures relating to ethical investment practices into an easy-to-read format that investors can easily understand
  • Clearly explaining the criteria used to exclude investing in certain companies or sectors
  • Providing better information to investors about risk and return trade-offs, and the benefits of the fund. One suggested example is to avoid using vague terms such as ‘the fund’s returns will be financial and a reduced climate impact’
  • Ensuring the non-financial outcomes are meaningful, and clearly state the consequences of failing to achieve them, and
  • Ensuring investors better understand the purpose and value of organisations providing assurance, measurement standards or endorsement, such as the Responsible Investment Association of Australasia.

 

The FMA’s review highlights the need for fund managers to provide a greater level of detail and clarity in disclosures to support their ethical investing claims. If you would like to read the review in full, please click here.

 

DISCLAIMER: All the information published in Commercial eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Commercial eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650